Baltic States – CIS, Estonia, Latvia, Legislation, Markets and Companies, Ukraine

On Dec. 27 last year the Ukrainian government adopted a decision whereby 22 more countries, including Estonia and Latvia, were added to the list of jurisdictions considered by Ukraine to be tax havens.

The downside to being on that list is that income tax and VAT of 30% is slapped immediately on the goods, services and work bought from such jurisdictions. Also supervision over businesses and banks becomes tougher.

The Estonian ambassador to Ukraine, Gert Antsu, said that the reason for listing Estonia as a tax haven is that Ukraine views the tax exemption granted by Estonia to reinvested profit as 0% corporate income tax.

In Estonia profits are taxed when dividends are taken out, and the system does not allow to evade taxes, the newspaper pointed out.

"Therefore we find that we have ended up on that list by mistake," the ambassador told the newspaper.

He said that the decision affects all Estonian businesses which export to Ukraine. In 2016, such companies numbered 402.

Estonian entrepreneurs Andres Lumi and Toomas Hirve told the newspaper that probably the real reason behind the move is the Estonian e-residency program. According to latest data, 1,642 e-residents from Ukraine have been registered under the e-residency program, who make up 5.83% of all e-residents.

"It may be connected with this. To the Ukrainian government it seems that Ukrainians are increasingly keeping their money in Estonia and they are failing to receive taxes as a result," Lumi said. 

As Estonian business executives learned during their meeting with the ambassador on Tuesday, several institutions of Estonia are making active efforts now to solve the situation. Since also Latvia is on that list, the two countries are working closely together.

"Estonia is a good country in this sense, that in situations like this one starts to act promptly," Lumi said.