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Income Tax Act

Passed 15 December 1999

(RT I 1999, 101, 903; consolidated text RT I 2004, 59, 414),

entered into force 1 January 2000,

lastly amended by the following Act:

31.05.06 entered into force 01.01.07 - RT I 2006, 28, 208;

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Chapter 2

Definitions Used in Act

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§ 11. List of non-profit associations and foundations benefiting from income tax incentives

(1) The list of non-profit associations and foundations benefiting from income tax incentives (hereinafter list) shall be approved by the Government of the Republic after obtaining a recommendation from a committee of experts.

(2) A non-profit association or foundation (hereinafter association) which meets the following requirements shall be entered in the list:

1) the association operates in the public interest;

2) it is a charitable association, that is, an association offering goods or services primarily free of charge or in another non-profit seeking manner to a target group which, arising from its articles of association, the association supports, or makes support payments to the persons belonging in the target group;

3) the association does not distribute its assets or income, grant material assistance or monetarily appraisable benefits to its founders, members, members of the management or controlling body (§ 9), persons who have made a donation to it or to the members of the management or controlling body of such person or to the persons associated with such persons within the meaning of clause 8 (1);

4) upon dissolution of the association, the assets remaining after satisfaction of the claims of the creditors shall be transferred to an association or legal person in public law entered in the list;

5) the administrative expenses of the association correspond to the character of its activity and the objectives set out in its articles of association;

6) the remuneration paid to the employees and members of the management or control body of the association does not exceed the amount of remuneration normally paid for similar work in the business sector.

(3) The requirement specified in clause (2) 3) does not apply to an association engaged in social welfare, or to a case where the associated person belongs to the target group supported by the association and does not receive additional benefits as compared with other persons in the target group.

(4) An association shall not be entered in the list if:

1) it is not operating in accordance with its articles of association;

2) if the documents submitted for entry in the list do not conform to the requirements established by legislation;

3) it is engaged in business as its principal activity or uses business income for purposes other than those specified in its articles of association; The principal activity of an association is deemed to be business if over a half of the income of the association is received from business, unless at least 90 % of the business income minus the expenditure related to business are used in the public interest;

4) it is engaged in advertising the goods or services of a founder or donor, or promotion of the professional activity or business of a person in the target group;

5) it has tax arrears for which no payment schedule has been arranged;

6) it has repeatedly failed to submit, by the term or pursuant to the procedure prescribed by legislation, a report or tax return to a tax authority, or it has repeatedly delayed payment of tax;

7) it is being terminated or bankruptcy proceedings have been brought against it;

8) it is a professional organisation, organisation for business support, trade union or political association. An association is deemed to be a political association if it is a political party or election coalition or if the main objective of the association or the principal activity of the political party or election coalition is organising campaigns or collecting donations for or against a person running for an elected or appointed office of a political party or election coalition, or an office for the performance of public duties.

(5) The requirement specified in clause (4) 4) does not apply if the association provides, based on a contract, advertising services at the market price.

(6) The following is not deemed to be business within the meaning of this section:

1) activities directly related to the objectives set out by the articles of association (for example publication of printed matter, training, information exchange, organisation of events);

2) activities for the sale of donated capital;

3) organisation for lotteries and auctions for charitable purposes, and other such activities for collecting donations unless such activity is the principal activity of the association;

4) receiving financial income which results from the principal activity.

(7) The Government of the Republic has the right to delete an association from the list if:

1) the activity of the association does not meet the requirements set forth in subsection (2), or

2) the circumstances specified in subsection (4) become evident, or

3) the association has failed to notify a regional structural unit of the Tax and Customs Board of amendment of its articles of association within thirty days after the date of entry of the amendment in the register of non-profit associations and foundations, or

4) the association has submitted a written application for deletion of the association from the list.

(8) The Government of the Republic shall establish, by a regulation, the procedure for compiling the list, a list of documents to be submitted for such purpose, the procedure for entry in and deletion from the list of associations, the procedure for formation of the expert committee, its rules of procedure, and the procedure for appointment and removal of the members of the committee.

(9) An application for entry of in the list shall be submitted to a regional structural unit of the Tax and Customs Board by 1 February or 1 August. After obtaining the recommendations of the expert committee, the regional structural unit of the Tax and Customs Board shall inform the association by 15 March or 15 September correspondingly of an initial decision to deny entry in the list or to delete the association from the list.  Based on the proposal of the Minister if Finance, the Government of the Republic shall enter an association in the list or delete an association from the list as of 1 July or 1 January by an order.

(10)   A legal person entered in the register of religious associations pursuant to the Churches and Congregations is deemed to be a non-profit association benefiting from income tax incentives without being included in the list.

(31.05.06 entered into force 01.01.07 - RT I 2006, 28, 208)

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Chapter 10

Special Cases of Payment of Income Tax

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§ 51. Income tax on expenses not related to business

(1) A resident company shall pay income tax on expenses not related to business unless income tax has been paid on such expenses in accordance with §§ 48 –50 of this Act.

(2) For the purposes of subsection (1), expenses not related to business are:

1) expenses or payments specified in clauses 34 3)–6) and 11);

(06.12.2000 entered into force 01.01.2001 - RT I 2000, 102, 667; 17.12.2003 entered into force 01.01.2004 - RT I 2003, 88, 587)

2) entrance and membership fees paid to non-profit associations, unless participation in such associations is directly related to the business of the taxpayer;

3) payments concerning which the taxpayer does not have a source document in compliance with the requirements prescribed in legislation regulating accounting;

4) expenses incurred or payments made in order to purchase services not related to the business of the taxpayer;

(06.12.2000 entered into force 01.01.2001 - RT I 2000, 102, 667)

5) expenses incurred or payments made in order to fulfil obligations not related to the business of the taxpayer.

(06.12.2000 entered into force 01.01.2001 - RT I 2000, 102, 667)

(3) A resident non-profit association, foundation or religious association which is a legal person shall pay income tax on expenses and payments specified in clauses (2) 1) and 3) and in § 52 and on expenses incurred in purchasing services or property not related to the activities specified in the person’s articles of association (including business permitted by the articles of association).

(11.12.2002 entered into force 01.01.2003 - RT I 2002, 111, 662)

(4) A resident legal person shall pay income tax on the total amount of the loans and advance payments made in a calendar month to natural persons associated with the legal person (§ 8), which exceeds 50 per cent of the total amount of the payments subject to social tax pursuant to the Social Tax Act and made by the taxpayer during the preceding calendar month. Loans and advance payments refunded during the same calendar month by natural persons associated with the resident legal person, the cost of goods and services purchased out of the aforementioned advance payments during the same calendar month, and the size of salaries or service fees paid out of such advance payments shall be deducted from the total amount of the loans and advance payments specified in the previous sentence. This subsection does not apply to loans granted by a credit institution if granting of loans to natural persons is ordinary business activity of the credit institution.

(06.12.2000 entered into force 01.01.2001 - RT I 2000, 102, 667; 31.05.2006 entered into force 01.01.2007 - RT I 2006, 28, 208)

(5) Expenses specified in clauses 13 (3) 6)-10) are not deemed to be expenses not related to business.

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