Deductible Business Expenses in Estonia
| Nature of Expense |
Conditions/Requirements |
Legal References |
| Operational Costs |
Expenses incurred in the ordinary course of business operations. |
Income Tax Act (ITA) § 17 |
| Employee Salaries |
Salaries and wages paid to employees for services rendered. |
ITA § 17 |
| Marketing Expenses |
Costs associated with advertising, promotion, and marketing activities. |
ITA § 17 |
| Rent and Utilities |
Payments for office space, utilities, and other facilities. |
ITA § 17 |
| Travel Expenses |
Costs related to business-related travel, including transportation and lodging. |
ITA § 17 |
| Depreciation |
Amortization of the cost of tangible assets used in the business. |
ITA § 17 |
| Interest Expenses |
Interest payments on business loans or financing arrangements. |
ITA § 17 |
| Professional Services Fees |
Payments to consultants, lawyers, accountants, and other professional services providers. |
ITA § 17 |
Non-Deductible Business Expenses
| Nature of Expense |
Rationale for Exclusion |
Legal References |
| Fines and Penalties |
Penalties imposed for violations of law or regulations. |
ITA § 17 |
| Personal Expenses |
Costs incurred for personal benefit rather than business purposes. |
ITA § 17 |
| Political Contributions |
Donations made to political parties or candidates. |
ITA § 17 |
| Gifts and Entertainment |
Expenditures for gifts, meals, and entertainment not directly related to business activities. |
ITA § 17 |
Expenses with Limitations
| Nature of Expense |
Limitations |
Legal References |
| Meal and Entertainment Costs |
Deductible up to 50% of the actual expense. |
ITA § 17 |
| Vehicle Expenses |
Limitations on deductible vehicle expenses based on actual usage for business purposes. |
ITA § 17 |
| Home Office Expenses |
Deductible portion based on the percentage of home space used for business. |
ITA § 17 |
The treatment of deductible and non-deductible expenses, as well as limitations on deductions, is governed by the Estonian Income Tax Act (ITA). Specifically, Section 17 of the ITA outlines the types of expenses that are deductible for business purposes and any limitations or exclusions that apply.
The objective of allowing deductions for certain business expenses is to ensure that taxable income accurately reflects the costs incurred in generating revenue, thereby promoting fairness and efficiency in the tax system. Conversely, non-deductible expenses are typically excluded due to their personal nature or because they do not directly contribute to business activities. Limitations on deductions are imposed to prevent abuse or excessive claims for certain types of expenses.
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