Baltic States – CIS, Estonia, Financial Services, Legislation, Markets and Companies, Taxation, Ukraine

"We are working to eliminate this unpleasant situations and towards minimizing the damage caused by this incident to Estonian entrepreneurs so that bilateral economic relations could continue operating, as undoubtedly this kind of development will damage the relations," Mikser said at the government's press conference yesterday.

"They should have notified us, but they did not. From the moment that the Estonian officials knew of this, we have worked towards ensuring the Estonia is eliminated from this list," the minister said.

Mikser said that Estonia was put on Ukraine's list of tax havens by mistake as the Ukrainian government has misinterpreted the Income Tax Act. One basis was when business income is taxed 5% less in the country in question than in Ukraine, but Estonia's 20% tax liability for dividend distribution is even higher than in Ukraine.

This kind of taxation does not enable to disguise taxes or avoid taxes, we have raised the issue through the Ukrainian embassy to the Ukrainian president, finance minister and the prime minister's economic adviser, Mikser said.

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

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