An Estonian subsidiary under a Swedish parent

What a subsidiary changes and what it does not

An Estonian OÜ is a separate legal entity. It books its own transactions, files its own returns and pays its own tax under Estonian rules. The parent owns the shares, but not the company's assets. So the group gains one more company, with its own books, Estonian tax rules and its own calendar. The parent's own obligations do not change.

Estonian corporate tax: 0% and 22%

Profit that is retained and reinvested is taxed at 0% in Estonia. Tax is due only when the company distributes profit. It is then 22%, calculated as 22/78 of the net distribution. If the company distributes 78 EUR net, the tax is 22 EUR and the total distribution is 100 EUR.

The Swedish CFC rules

The Swedish rules on controlled foreign companies (CFC) are in 39 a kap. of the Income Tax Act (inkomstskattelagen). Swedish corporate tax is 20.6%. Under the main rule, foreign income counts as low-taxed if the tax on it is below 55% of the Swedish rate. For 2026 the threshold is 11.33%. Estonia's 0% on retained profit is clearly below it. In plain terms, these rules can tax a Swedish parent on the profits of a low-taxed foreign subsidiary.

Bilaga 39 a: the point in Estonia's favour

A complementary rule in 39 a kap. 7 § refers to a list in bilaga 39 a, and Estonia is on it, in the European section. The annex was amended by SFS 2018:1752, an act in the Swedish Code of Statutes (Svensk författningssamling). For an ordinary trading or services company, that is a better starting point than a German parent has. But two things mean the list does not settle the question.

The carve-out in the Estonian entry

The listing of Estonia does not cover income from banking and financing business, other financial activity, insurance, royalties and other income from intellectual property. Latvia is in the same entry on the same terms. So a subsidiary that earns licence income, royalties or financial income is not protected by the listing.

Does the list help a company that has not distributed profit?

That is an open question. The complementary rule requires the company to be resident and liable to tax in the listed country. Estonia defers tax on retained profit until the profit is distributed. So it is unclear whether the listing helps a company that has not distributed anything. That is the question to put to a Swedish adviser. We do not answer it, and we do not suggest the answer is yes or no.

Effective management

Sweden treats a company as resident if it is registered or incorporated in Sweden. Can a foreign company become fully liable to Swedish tax if its effective management or board sits in Sweden? That is a question for your Swedish adviser, and we do not give a view on it. We can show where decisions are actually taken and who sits on the board. You can read more in where an Estonian company is actually taxed.

Intra-group items

Between the parent and the subsidiary, the books of two countries meet. The usual items are:

• loans between the parent and the subsidiary, and the interest on them,
• intra-group services and invoicing,
• distributions, where payment date, amount and Estonian tax are booked on both sides,
• changes in shareholdings and capital contributions.

Each item should be backed by an agreement, and we reconcile it every month. Your Swedish accountant can then remove these items from the group totals (the group eliminations) without looking into them afterwards. Questions on pricing between the companies are advice, and are not part of routine bookkeeping.

Auditor and group accounts

The subsidiary keeps its books in euro, and your Swedish accounts team translates the figures into kronor. Your auditor tells us what it needs from Estonia, for example the ledger, supporting documents, bank confirmations or reconciliations. We put the file together to match. The subsidiary's Estonian annual report and the group's annual report are two separate documents under two countries' rules.

The Estonian calendar for the subsidiary

The board approves and signs the report itself. We prepare everything and file the report through our annual report filing service.