Law and regulation of industrial and logistics investment in Estonia

There are some regional investment aid schemes available to companies operating in the manufacturing sector, for example, an investment aid scheme for manufacturing industries to support industrial investments in the Ida-Viru region of Estonia. The aim of this support scheme is to increase economic activity in the Ida-Viru region with the help of new investments and to contribute to the creation of new jobs in the manufacturing sector. The maximum amount of support is EUR 990,000 and the maximum grant percentage from the entire cost is 25% for large enterprises, 35% for medium-sized enterprises, and 45% for small enterprises.

A more general investment aid scheme is provided by Enterprise Estonia for large investors. The large investor support scheme is targeted at companies registered in the Estonian commercial register operating in the manufacturing sector. The aim of the support scheme is the active involvement of large investors in the Estonian economy through technology investments. The maximum amount of support is EUR 1 million and the maximum grant percentage from the entire cost is 10%.

There are three free trade zones in different parts of Estonia that are in strategic locations near to highways, railways and ports. They are situated in the Paldiski Northern Port, the Port of Muuga and the Port of Sillamäe. Goods in the free trade zone are considered as being outside the customs territory. Goods brought into a free zone for later re-export are not subject to VAT, excise or customs duties. There are several industrial and logistics parks with pre-developed infrastructure for manufacturing and logistics companies.

There are currently no tax exemptions or preferences for investors specifically in the Industrial and Logistics sector in Estonia. This is because Estonia has a unique taxation system for corporate earnings. In Estonia, profits are not subject to tax when they are earned, but the moment of taxation is deferred until the distribution of profits. There is no corporate income tax on retained and reinvested profits. Companies are subject to 14% or 20% income tax only on all distributed profits. The corporate income tax rate is 20% of gross distribution; the reduced tax rate applies to part of dividends paid by local companies regularly.

Due to the tax being deferred until the distribution of profits, most ordinary income-tax relief, development tax incentives and tax deductions would have no effect as there is no tax to deduct from. Effectively, the relief applies to all companies as reinvested profits, i.e. profits that are not distributed, are not taxed.

The general rule, which applies to all companies, including the I&L sector, is that reinvested profits are not taxed and the tax is deferred until distribution. There currently are no sector-specific tax exemptions.