ARCO VARA AS - NASDAQ OMX Baltic

In addition, as the current income tax system applicable in Estonia provides that the profits of Estonian
legal persons are not taxed upon their generation but are only taxed upon their distribution to
shareholders, income tax is not charged on capital gains realized by Estonian legal persons from the
sale or exchange of Shares upon their generation.
Income tax is, however, charged on gains realized by Estonian individuals from the sale or exchange
of Shares.
If income tax is due to be paid as described in the previous paragraphs, it is charged on the gains
realized from the sale or exchange of a shareholding, with the gains being deemed to be equal to the
difference between the acquisition costs and the sale/exchange price of the relevant shareholding.
Capital gains realized are currently subject to income tax of 22 per cent, and are required to be
declared annually by the relevant person by 31 March in each year following the sale or exchange of
the Shares.
Payments made by the Company as a result of any redemption of its Shares or any repurchase of its
Shares or the proceeds of any liquidations of the Company which are paid to Estonian individuals or
non-residents (whether legal persons or individuals) are also treated as capital gains which are
chargeable as described above (even if such non-residents’ capital gains are not chargeable upon a sale
or exchange of the Shares).
Estonian taxation laws and regulations provide that the currently applicable income tax rate of 22 per
cent chargeable on capital gains referred to above will be reduced to 21 per cent on 1 January 2008
and to 20 per cent on 1 January 2009.
Exemptions or more favorable tax rates available to non-residents may be enjoyed under international
treaties in effect between Estonia and certain other states.
In general, the international treaties provide that capital gains from the alienation of immovable
property located in Estonia or shares in a company the assets of which consist mainly of such property
may be taxed in Estonia. For instance, such provision is provided in Article 13 of the Double Taxation
Treaty between Latvia and Estonia.
Possible Changes in Corporate Taxation in Estonia
As described above, Estonia currently enjoys a corporate income tax regime under which income tax
is deferred until profits are distributed. It is the opinion of the EU authorities that the Estonian
corporate income tax payable on profit distributions is a withholding tax and is in contradiction with
the Council Directive of 23 July 1990 on the common system of taxation applicable in the case of
parent companies and subsidiaries of different Member States (the EC parent-subsidiary directive,
90/435/EEC). Upon Estonia’s accession to the European Union on 1 May 2004, Estonia was granted a
transitional period to harmonize its income tax regime with the EC parent-subsidiary directive by 31
December 2008. Thus, Estonia has to adjust or change its corporate income tax regime. There is,
however, still no political agreement whether Estonia should implement a classical corporate income
tax system or adjust its current regime partly.
Stamp Duty and Other Transfer Taxes
There are currently no stamp duties or other transfer taxes payable on the transfer of Shares. However,
fees and charges are generally levied by the operators of securities accounts in the ECRS on
transactions in the Shares which are cleared and settled through the ECSD.
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