Business, Estonia, Financial Services, Taxation

When Estonia was a young and fast-developing economy, it decided to tax profit after it has been distributed, not when it was being earned to promote the reinvesting of profit, it is written in the plan that Finance Minister Sven Sester is to introduce at Thursday's Cabinet meeting.

"In the meantime many companies have moved on from the development phase to the maturity phase, but in their dividend policy they still act as entrepreneurs in a developmental stage," it is written in the plan. As a result the state fails to collect potential tax receipts each year.

Therefore a lower income tax rate should be established for the maturer companies. It should be small enough that it would motivate companies to change their dividend policy and would be able to compete in the context of the Baltic countries.

"A suitable lower tax rate could be 14%, which is around a third smaller than the present 20% tax rate and would be able to compete with the 15% tax rate of Latvia and Lithuania for attracting foreign investments to Estonia," the Ministry of Finance states in its plan.

Dividing profit should be stable since it would help to better plan state income, the ministry said.

Sester is to propose at Thursday's Cabinet meeting for the changes to take effect as of Jan. 1, 2018.

Imposing a 14% income tax rate on companies that distribute profit regularly would result in tax receipts increasing by 107 mln in 2018, by 76 mln in 2019 and by 46 mln euros in 2020, the government coalition has previously said.