As the definitions are similar in content, they are not applied in parallel, but as of 1 July 2021, a term low-tax territory has been replaced by a non-cooperative jurisdiction for tax purposes for legal persons. From 1 January 2022, the new definition will also apply to natural persons (for natural persons, the tax period is a calendar year, therefore the change applies to them from the beginning of the new year).
Natural person is obliged to pay income tax and report the profits of a legal person located in a low-tax territory under his control on Form MM on annual basis. Legal persons are obliged to withhold income tax from the service fees paid to a company located in a non-cooperating jurisdiction and pay corporate income tax on certain payouts related to such jurisdictions. It is also not possible to benefit from the participation exemption on dividends received from a company located in a non-cooperating jurisdiction.
For taxpayers, the change will make it much easier to implement tax rules. In case of a low-tax territory, the taxpayer had to determine whether it is a territory which does not tax the profits of a legal person or where the amount of such tax is less than 1/3 of Estonian income tax, but also check whether the territory is not in the “whitelist”, despite the low tax rate. In case of non-cooperative jurisdictions, the EU has compiled a list of territories considered as non-cooperative jurisdictions for tax purposes on which the taxpayer can simply rely on.
The list is updated twice a year: in February and in October. As of October, the list of non-cooperating jurisdictions includes American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, the US Virgin Islands and Vanuatu.
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