The Estonian CIT is a form of taxation available to Polish companies, where a limited liability company (spółka z ograniczoną odpowiedzialnością) does not pay corporate income tax until dividends are distributed. You can retain dividends within the company for one, two, or more years without paying any tax.
When dividends are paid out, the CIT tax must be paid. The rate of the Estonian CIT is higher than the traditional one—20% versus 19%, and 10% versus 9% for small taxpayers. However, the tax on dividend distribution is also reduced compared to traditional CIT according to a special formula, where 70% of previously paid CIT is deducted from 19% of dividends (90% for small taxpayers).
Let’s examine an example where the company has a net profit of 1,000,000 zł at the end of the tax year:
| Classic CIT | Estonian CIT | |
| Corporate Income Tax | 1,000,000 zł × 9% = 90,000 zł | 1,000,000 zł × 10% = 100,000 zł |
| Dividends | 1,000,000 zł – 90,000 zł = 910,000 zł | 1,000,000 zł – 100,000 zł = 900,000 zł |
| Dividend Tax | 910,000 zł × 19% = 172,900 zł | 1,000,000 zł × 19% = 190,000 zł (before reduction) |
| Tax Reduction | – | 100,000 zł × 90% = 90,000 zł |
| Dividend Tax After Reduction | – | 190,000 zł – 90,000 zł = 100,000 zł |
| Total Tax Amount | 90,000 zł (corporate income tax) + 172,900 zł (dividend tax) = 262,900 zł | 100,000 zł (corporate income tax) + 100,000 zł (dividend tax) = 200,000 zł |
As seen from the example, when profits are distributed as dividends, the tax is calculated on the total amount of profits (1,000,000 zł).
The deduction (for example, 90% of the paid CIT) allows this tax to be reduced so that shareholders do not pay taxes twice.
Thus, although the tax is initially calculated on the full profit amount, the deduction mechanisms allow for a lower final tax burden, making the system more flexible and beneficial for companies that reinvest their profits. For more information about taxes, read the article.
