Published date: July 7, 2021. 21:42
The short answer is that your company should be able to cover most business-related expenses without incurring tax.
Paying business-related expenses is similar to the concept of making tax deductions in a classical income tax system. In most countries, a company can deduct business-related expenses from its annual tax base to reduce its tax burden. Since the Estonian system operates in the opposite way, payments made by a company should be assessed on a monthly basis to determine if they trigger taxation. Of course, there will be no need for an in-depth analysis of routine recurring overheads such as office rent, accounting fees, supplies, office utilities and other routine business expenses. However, if a payment made by a company is not related to its business, then it should be declared and taxed with CIT, i.e. it would be considered “not deductible”.
As there is an unimaginable range of different business activities, which all require different goods and services for operating, a business-related expense for one company might not be sufficiently linked to business activities for another.
In case of doubt, always ask yourself about the purpose of the expense: “Is this expense necessary or appropriate for maintaining or developing my business activities?”
Secondly, check that the expense does not fall within the scope of the special-purpose taxable payments discussed further below.