Taxation of gifts and donations in Estonia

Estonian legislation provides for a clear regulation of issues related to the taxation of gifts, donations and expenses for receptions for legal entities. These aspects are regulated by the Income Tax Act. In the article, we will consider what tax obligations a legal entity has when performing such actions.

Tax rate on gifts and donations

Gifts, donations and expenses for receptions made by a legal entity (resident or non-resident with permanent place of business in Estonia) are subject to income tax at the rate of 22/78.

Regulation of taxation of gifts and donations

Estonian legislation carefully regulates the taxation of gifts and donations. An important role is played by who exactly makes the donation or donation — an individual or a legal entity.

Article 49 of the ZoPN

This article of the law regulates the taxation of expenses for gifts or donations when they are carried out by a legal entity. Thus, legal entities are required to take these expenses into account when calculating their tax obligations.

Exclusion from the taxable income of individuals

According to part 2 of Article 12 of the ZoPN, gifts and donations taxed on the basis of Article 49 of the ZoPN are not included in the taxable income of an individual. This means that an individual who receives a gift or donation from a legal entity is exempt from paying tax on this income.

Declaration of gifts, donations, and admission expenses

All gifts, donations and expenses for the reception must be declared in Appendix 5 of the TSD tax return form, which is established by the Decree of the Minister of Finance dated November 29, 2010 No. 60.

This declaration includes the following items:

• the amount of funds or property donated;
• date of the transaction;
• information about the recipient (individual or organization);
• the purpose of the donation or admission.

Expenses for receptions organized by a legal entity are also subject to taxation. These may include the costs of organizing events, banquets, conferences, and other corporate events. Such expenses are accounted for separately from the company’s usual business expenses and are subject to the same tax as gifts and donations.

Exemption from taxation of gifts

There are certain cases when gifts and donations may be exempt from taxation. For example, if a gift is made as part of a charitable activity and is aimed at supporting socially significant projects, it may be exempt from taxation. However, such exceptions require careful documentation and coordination with the tax authorities.

Liability for non-compliance with tax legislation

Failure to comply with the requirements of tax legislation can lead to serious consequences for a legal entity. Violations of the rules for declaring gifts, donations, and expenses for receptions may result in fines, penalties, and even criminal liability in some cases.

Summarizing

Taxation of gifts, donations, and reception expenses in Estonia is a complex system that requires careful attention from legal entities. Proper filing of declarations and timely payment of taxes will help to avoid problems with tax authorities and ensure the legality of all financial transactions.