InfoCourier – tax news

Countries that have not started a constructive dialogue with the EU on tax administration or that have not fulfilled their obligations in implementing the necessary reforms are included in the list of non-cooperating countries for tax purposes. 

Russia has been added to the list since 21 February, after the EU Council working group updating the list reviewed new legislation adopted by Russia in 2022 and found that Russia had failed to meet its obligations to address harmful aspects of the special regime for international holding companies. To boot, dialogue with Russia on taxation matters has stalled due to Russia's aggression against Ukraine.Adding Russia to the list of non-cooperative countries for tax purposes means that: 

– Income tax must be withheld from the payment made to the Russian undertaking for the provision of services. Income tax does not have to be withheld if the undertaking has a permanent place of business in Estonia;
– Dividends received from a Russian company cannot be forwarded without paying taxes;
– if securities issued by a Russian undertaking are acquired; if a share in the undertaking there is acquired; if late payment or liquidated damages are paid, damage is compensated out of court or arbitration, a loan is granted or an advance payment is made to a Russian undertaking, it is considered an expense not related to business;
– The income of a legal person located in Russia, but under the control of Estonian residents, is subject to income tax at the level in the role of a natural person, in defiance of whether the Russian undertaking has distributed the profit to the taxpayer or not.

On 1 January 2023, amendments in the Income Tax Act concerning the taxation of income received in a pension investment account came into force. The purpose of the amendments is to align income taxation with investment account regulation and reduce the risk of double taxation. 

The most important amendments that took effect concern the fact that the following are not subject to income tax:
– interest received by means of a financial asset acquired with money in a pension investment account or the income of which is based on an investment fund that is taxed or exempt from income tax;
– dividends received from foreign undertakings, received from financial assets acquired by means of money in the pension investment account;
– insurance benefits received in the pension investment account.

What is more, income received in a pension investment account is not considered as income upon the calculation of the minimum personal income tax allowance.
All of these amendments will be applied on a retroactive basis as of 1 January 2022.

Estonia must adopt the EU directive 2021/2167 (the so-called regulation of debt collection) by 29 December of this year at the latest. It establishes a common framework and requirements for credit servicers and credit purchasers, including the obligation of authorisation of credit servicers. 

Who needs to be authorised?
As the draft is currently being prepared in Estonia and there is no published version yet, the article points out the mandatory part, i.e. the minimum requirements, for adoption. The directive regulates the requirements applicable to credit servicers (in Estonia, debt collection service providers) and credit purchasers and stipulates some consumer protection measures (e.g. credit institutions must take restructuring measures before initiating enforcement proceedings). In line with the directive, the authorisation obligation must be applied at least to such credit servicers that purchase non-performing credit contracts from credit institutions or banks. If Estonia adopts only the minimum requirements set out in the directive, it means that a debt collection service provider's authorisation will not be required from those debt collectors that only purchase non-performing credit contracts issued by a financial institution authorised by the Estonian Financial Intelligence Unit (e.g  business loans) or a credit provider authorised by the Estonian Financial Supervision Authority.

Which credit products are covered?
The directive does not only concern consumer credits, but also business loan agreements. As already mentioned, the directive applies as a minimum requirement to the resale of such loans, including business loans, which have been issued by credit institutions, i.e. banks, and which are non-performing. The directive does not have an impact on such non-performing credit agreements that are not past due, are less than 90 days past due or that have not been terminated agreement pursuant to the national civil law of a Member State. If Estonia decides to expand the scope of application of the directive, then the obligation of authorisation may also concern those creditors that, in addition to the management and purchase of non-performing loans issued by credit institutions, also (or only) resell and manage the following loans:  

– non-performing loans issued by other creditors who are considered as creditors within the meaning of the Creditors and Credit Intermediaries Act
– business loans (financial institutions authorised by Estonian Financial Intelligence Unit, which are not currently covered by Creditors and Credit Intermediaries Act) 
– loans issued by credit institutions and other creditors that are performing. 

The issue of whether credit servicers and credit purchasers should be added to the list of obligated parties in the meaning of the Money Laundering and Terrorist Financing Prevention Act also needs to be discussed in Estonia, also it is necessary to discuss the exact list of requirements applicable to the authorisation, but it is clear from the minimum requirements set forth in the directive that these requirements will be similar to those that already are applicable to other financial market participants (good business reputation of the management board, requirements regarding the internal control system and internal procedures, etc.).