Estonia: Tax relief procedure for equities
Clearstream Banking1 informs customers that following Announcement A19002 and effective
the tax relief procedures described below will apply on Estonian equities with a record date as of 1 January 2019.
As of 1 January 2019, the following tax rates apply on Estonian dividend distributions.
- 7%, if the dividend is distributed by an Estonian company subject to the lower corporate income tax rate of 14%; or
- 0% if the dividend is paid from irregular profit distribution that is subject to 20% income tax.
Beneficial owners eligible for reduced tax rates
After submission of the required information within the prescribed deadlines, the following beneficial owners are eligible to apply for reduced tax rates through Clearstream Banking:
- 0% at source: if the final beneficial owner is a legal entity and is not resident of Estonia;
- 0% at source: if the beneficial owner is a legal entity resident of Estonia and until the recipient makes a distribution of profits.
The maximum tax rate of 7% is applied at source for holdings of individual beneficiaries as well as for undeclared holdings.
Note: Final beneficial owners that are individuals and residents of a country that has signed a Double Taxation Treaty (“DTT”) with Estonia granting a treaty rate lower than 7%, may reclaim the tax amounts over withheld at source directly with the Estonian Tax Authorities.
Impact on customers
Relief from withholding tax is available to eligible beneficial owners through Clearstream Banking by means of relief at source or quick refund as described in the following sections.
Relief at source
In order to benefit from relief at source on taxable dividends, customers need to ensure that the following instructions and tax certification are submitted by the deadline included in the tax notification distributed by Clearstream Banking before each taxable dividend event:
One-Time Certificate for Estonian Equities
The One-Time Certificate (see version attached below) must be submitted by all customers, regardless of the residency and status of the beneficial owners at the latest before the first impacted dividend payment date and must state that the customer holds the securities, either:
BOX 1 – Standing instruction: Exclusively for one single beneficial owner (which may be the customer or his underlying client) being a legal entity and eligible for tax exemption. By ticking the first box, reduced tax rate is applied by default at source on all further taxable dividend payments based on the total holding visible in the customer account at the end of Record Date of each impacted dividend event.
BOX 2 – Standing instruction: On behalf of several beneficial owners (excluding the customer), being exclusively legal entities. By ticking the first box, reduced tax rate is applied by default at source on all further taxable dividend payments based on the total holding visible in the customer account at the end of Record Date of each impacted dividend event.
BOX 3 – Instruction per payment: On behalf of several beneficial owners that are legal entities eligible for tax exemption but also on behalf of beneficial owners that are individuals or are not willing to declare their holdings. In addition to the One-Time Certificate, the customer is required to submit, before each income payment, a Breakdown of Holdings as explained below.
One-Time Certificates that have more than one box ticked are not valid and will be rejected.
Breakdown of Holdings
If Box 3 was ticked in the One-Time Certificate, a Breakdown of Holdings must be provided, before each impacted income event via SWIFT, Xact Web Portal or CreationOnline message, and must indicate:
• Corporate Action ID;
• CBL customer account number;
• Total number of shares or nominal value of securities held on the account;
• Number of shares or nominal value of securities held by legal persons and for which exemption of Estonian withholding tax is required;
• Number of shares or nominal value of securities held by natural persons and for which the maximum rate of Estonian withholding tax must apply.
These declared positions must be accurate on the relevant record date indicated in Clearstream Banking’s tax notification at 19:00 CET, meaning that no further transactions are allowed after the submission of the Breakdown of Holdings. If there is a discrepancy between the declared positions and the customer’s total holding visible in Clearstream Banking’s books, the application for tax exemption will be rejected and, consequently, the maximum tax rate of 7% will be applied.
Furthermore, if Box 3 of the One-Time Certificate is ticked and Clearstream Banking receives no Breakdown of Holdings by the prescribed deadline, the customer’s total holding will be considered as being undisclosed and, as a consequence, the maximum standard tax rate of 7% will be applied.
Important Note: To apply and obtain tax exemption at source, the identity of final beneficial owners being legal entities is not required. However, Clearstream Banking may be requested by the Estonian Authorities to disclose the identity of the beneficial owners and their respective holdings. In this case, customers must provide Clearstream Banking, promptly upon request at any time, with such information and any other tax documentation that may be requested from time to time.
Deadline for relief at source
In order to benefit from relief at source from Estonian taxable dividends, customers must ensure that Clearstream Banking receives the above-described instructions and documents at the latest two business days before Payment Date (PD) at 10:00 CET or, if the Record Date (RD) is on PD-1, on RD at 10:00 CET.
A quick refund is available if relief at source has not been obtained by the eligible beneficial owner and if the issuer or paying agent has not remitted withheld tax to the respective tax office.
Note: Clearstream Banking can give no guarantee with regard to the quick refund procedure as it is based on market practice and all applications depend on the goodwill of the paying agent. Although Clearstream Banking will assist customers with quick refund applications, it can only remit to customer accounts the amounts that it receives.
To apply for a quick refund from withholding tax on dividends from Estonian taxable equities, the same instructions and documents as for relief at source must be submitted to Clearstream Banking. The instruction must indicate that it is related to a quick refund and must reflect the total number of shares held by legal entities for which a quick refund of tax is required.
Deadline for quick refund
In order to reclaim tax over withheld at source, customers must ensure that Clearstream Banking receives the above-described instructions and documents at the latest by 10:00 CET on the eighth calendar day of the month following the month in which the income was paid (or, if the eighth is not a business day, the last business day before that). This deadline may be subject to change at the decision of the issuer and, in such cases, customers will be informed accordingly.
Although the standard refund procedure is covered by Estonian Tax Law, the procedure to be followed is not yet fully defined by the Estonian Tax Authorities. Therefore, no assistance in connection with tax reclaims is provided by Clearstream Banking’s local depository and consequently, standard refund is currently not available through Clearstream Banking. We continue to monitor the market and will inform customers as soon as a standard refund service will become available.
Beneficial owners that are eligible for treaty rates lower than 7%, or legal entities that did not obtain tax exemption at source or via the quick refund, may apply for standard refund directly with the Estonian Tax Authorities. The statutory deadline for reclaiming withholding tax using the standard refund procedure is three years following the dividend payment date.
For further information, please contact the Clearstream Banking Tax Help Desk, Clearstream Banking Client Services or your Relationship Officer.
1. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG (for Clearstream Banking AG customers using Creation Accounts), registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.