For groups with an Estonian subsidiary
The Estonian subsidiary of a German parent
An Estonian subsidiary changes when and where profit is taxed in Estonia, and it creates Estonian obligations. It does not remove the German side. In fact, the Estonian tax deferral is what raises the German questions.
The Estonian half, aligned with your German half
We replace neither your Steuerberater (German tax adviser) nor your auditor. We keep the subsidiary's books and deliver the figures in a form your German accounts can consolidate. Chart of accounts and reporting format are agreed with your Steuerberater.
We will also tell you when an Estonian subsidiary does nothing for you, especially if it would in practice be run from Germany. We do not provide German tax advice.
Everything we deliver is in English, including the trial balance and annual report your auditor receives. There is a German version of this page if your team prefers it.
What an Estonian subsidiary changes
An OÜ (an Estonian private limited company) is a separate legal entity under Estonian law. It keeps its own books, files its own VAT returns in Estonia, runs payroll for Estonian staff under Estonian rules and files its own annual report. For your group, it means one more location with its own calendar and its own ledger, feeding into the group accounts.
Estonian tax: 0% and 22/78
Retained and reinvested profit bears 0% corporate income tax in Estonia. Tax falls due only when the company distributes, at 22%, levied as 22/78 of the net distribution. If the OÜ distributes 78 EUR net, the tax is 22 EUR and the total distribution is 100 EUR.
Where it gets sensitive: Estonia's deferral of tax on retained profit is itself what trips the German low-tax test. The feature that makes Estonia attractive is the feature that creates the German review.
Why the deferral touches the German side
The German rules on controlled foreign companies (CFC rules) sit in sections 7 to 14 of the AStG, the German Foreign Tax Act. In plain terms, they can tax a German parent on certain profits of a low-taxed foreign subsidiary. They were recast by the ATAD-Umsetzungsgesetz, which brought the EU Anti-Tax Avoidance Directive (ATAD) into German law.
The low-tax threshold in section 8(5) was cut from 25% to 15% by the Mindestbesteuerungsrichtlinie-Umsetzungsgesetz, the law implementing the EU minimum tax directive. With 0% on retained profit, an Estonian subsidiary sits below that threshold for as long as it does not distribute.
Section 8(1) lists nine categories of active income, the Aktivkatalog. Income outside it is Zwischeneinkünfte (intermediate income) and can be added back. Whether your subsidiary's income is within the Aktivkatalog is for your Steuerberater. More detail is in our article on the German tax position of an Estonian subsidiary.
What does not change
The group remains responsible for consolidation, and your Steuerberater remains responsible for the German side. An Estonian subsidiary does not take away the reconciliation of intra-group balances, nor the question of how its figures enter the group accounts. Whether the company makes sense at all is a question about the business, more than about the tax rate.
In our experience the sensible cases are those where the subsidiary was set up for an operational reason: staff, customers, a warehouse or a project on the ground. The tax question arises anyway, but it does not drive the decision.
Place of management
A company whose place of management (Geschäftsleitung) is in Germany is German tax resident regardless of where it is registered. An Estonian registration alone therefore proves nothing. What matters is where decisions are actually taken.
For your group that means decisions should be taken, and documented, where the company is based. That is a question of fact we can support with paperwork, but the assessment belongs to your Steuerberater.
Open questions for your Steuerberater
Everything below is a question, not a statement of German law. We do not provide German tax advice.
- Is the subsidiary's income within the Aktivkatalog, or is it Zwischeneinkünfte?
- Where is the Geschäftsleitung, and how is it evidenced?
- How is a distribution from the Estonian subsidiary treated at the German parent?
- Can German staff or directors working in Estonia, or the subsidiary working in Germany, create a Betriebsstätte (permanent establishment)?
- How should services between parent and subsidiary be priced and documented?
| Topic | Estonian side | Question for your Steuerberater |
|---|---|---|
| Retained profit | 0% corporate income tax | Does the 15% threshold in section 8(5) AStG apply? |
| Distribution | 22%, as 22/78 of the net distribution | How does it land at the parent? |
| Subsidiary income | Books kept under Estonian law | Aktivkatalog or Zwischeneinkünfte? |
| Place of management | Registration in Estonia | Where are decisions actually taken? |
| VAT | 24% since 1 July 2025 | How does it feed your group reporting? |
The Estonian compliance calendar
The Estonian duties are few, but each has a fixed date. We track them for you:
| When | What | Note |
|---|---|---|
| Monthly | Close the books, reconcile documents and bank | Basis for every other filing |
| By the 20th of the following month | VAT return (KMD) | If VAT registered, threshold 40,000 EUR |
| Monthly | Payroll | Social tax 33%, unemployment insurance 1.6% and 0.8% |
| By 30 June | Annual report to the commercial register | For the closed financial year |
| On resolution | Distribution | 22/78 of the net distribution |
The practical routine is set out on the accounting page. The filing itself is described on our annual report filing page.
How it works
Establish the structure
We check that the subsidiary, its staff and its management are really located in Estonia.
Hand over the questions
We give your Steuerberater the open German questions together with the Estonian facts.
Agree the format
Chart of accounts, reporting format and dates are set with your accounts team.
Start running
Monthly close, VAT, payroll and annual report follow the calendar.
For German companies
SPATIAL EYE OÜ keeps the books, VAT and annual report of your Estonian company. We also tell you when an Estonian company will not help. For…
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What Estonian bookkeeping, VAT and the annual report involve in practice: deadlines, monthly inputs, and how the figures reach your Steuerbe…
Read moreFrequently asked questions
Is an Estonian subsidiary tax-efficient for a German group?
There is no blanket answer. Estonia's deferral (0% on retained profit) is itself what trips the low-tax test. Whether and how that bites is for your Steuerberater to settle.
What is the place of management?
The place where the company's decisions are in fact taken. If it is in Germany, the company is German tax resident regardless of registration.
What is the Estonian tax on distributions?
22%, levied as 22/78 of the net distribution. Retained and reinvested profit stays at 0%.
What happened to the German low-tax threshold?
The threshold in section 8(5) AStG was cut from 25% to 15% by the Mindestbesteuerungsrichtlinie-Umsetzungsgesetz. Your Steuerberater applies it to your case.
Can you deliver Estonian figures for our group accounts?
Yes. We agree the chart of accounts and format with your Steuerberater so the Estonian figures can be consolidated in your accounts.
Do you advise on German CFC taxation?
No. German tax advice is not something we provide. We raise the questions and supply the Estonian facts; your Steuerberater answers.
This page is for general information. For a better answer, get in touch and receive a personal recommendation.
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