Passiivsemaks

Passiivsemaks is a tool used in the context of taxation in Estonia, a country in the Baltic region of Northern Europe. It is also known as'shadow capital' or'silent capital', referring to income hidden from taxation. This tool allows individuals or companies to reduce their tax liability by allocating income to a subsidiary in a low-tax jurisdiction, typically using a network of shell companies and other legal structures designed to minimize tax obligations.

The system of passiivsemaks was officially discouraged by the government of Estonia, which aimed to limit income hiding and encourage more transparent tax reporting. However, the practice continues, albeit with more regulated and controlled methods.

In the early 2020s, there were reports that foreign companies took advantage of Estonia's business environment to reduce their tax liabilities. This development triggered international discussions about tax evasion, the Pandora Papers leak, and anti-money laundering rules.

Laws were passed to restrict business practices that allowed for passiivsemaks. The country implements a more comprehensive and international perspective on data exchange, all in an effort to limit the secrecy of financial transactions. It is essential to note that transnational business practices might still revolve around avoiding geographically disparate tax rates; regulated in a proposed presence of applied law to reign in the negative consequences.