WACC calculator for Estonian companies
The weighted average cost of capital shows what a company's capital costs it overall, weighting the cost of equity and debt by their shares. International calculators multiply the cost of debt by (1 − Tc), because elsewhere interest reduces taxable profit. Estonia taxes the distribution of profit rather than profit itself, so there is no annual taxable profit for interest to reduce — and no shield arises. That is why Tc defaults to zero here.
At market value where you know it. Book value is an approximation, not the same thing.
Interest-bearing liabilities. Trade payables and other non-interest debt do not belong here.
The return an owner expects. Usually from CAPM: risk-free rate plus beta times the market risk premium.
The weighted average interest rate the company actually pays on its borrowing.
Zero for an Estonian company: no shield arises, because retained profit is not taxed. Change it only when the company you are valuing pays an annual profit tax.
- Equity weight
- 70%
- Debt weight
- 30%
- Cost of debt after the shield
- 6%
- Total capital (V)
- €1,000,000
Rates and thresholds
- Formula
- WACC = E/V × Rₑ + D/V × R_d × (1 − Tc)
- V
- E + D, total capital at market value
- Tc for an Estonian company
- 0%
- Rate on retained profit
- 0%
- Rate on distributed profit
- 22/78 of the net amount (28.21%)
- Competition Authority's WACC 2025
- 4.24%–6.25% across sectors, with no tax shield
Should an Estonian company's WACC include the (1 − Tc) term?
No. The classic formula assumes a system where profit is taxed annually and interest reduces taxable profit — that is where the shield comes from. Estonia does not tax retained profit at all, and tax arises only on distribution, so there is no base for interest to reduce. The Competition Authority's WACC guidance in force says so directly: “Formula 1 does not contain a tax shield, because under the Estonian Income Tax Act no tax shield arises (income tax is only on dividends paid).” An independent expert confirmed the same to the Authority.
What if the company pays dividends regularly — does a shield appear then?
No, and interest and dividends need to be kept apart. Interest is not a profit distribution: interest paid on arm's-length terms attracts no company-level income tax, however much the company pays out. A dividend, by contrast, carries income tax of 22/78 of the net amount. That is a difference between equity and debt, but it is not the classic tax shield and it does not get modelled in the discount rate: dividend tax belongs in the cash flow reaching the owner, not in WACC. The Competition Authority likewise refuses to apply a dividend income tax component, citing among other things the Supreme Court's judgment of 12 December 2017 in case 3-11-1355.
Why do international WACC calculators give a different answer for an Estonian company?
Because they ask for a corporate tax rate and apply it as a shield, assuming a classical profit tax by default. Enter Estonia's 22 there and you understate the cost of capital: debt looks cheaper than it is, the discount rate comes out too low, and the present value it feeds is inflated. The same goes for some Estonian calculators that adopted the formula unchanged. The field exists on this page but defaults to zero, and it should only be raised when the company you are valuing sits in a country that taxes profit annually.
What cost of equity should I use?
CAPM is the norm in Estonia: risk-free rate plus beta times the market risk premium, with a size premium where warranted. For regulated sectors the Competition Authority publishes both the method and the inputs, and under its 2025 guidance the allowed WACC runs from 4.24% to 6.25% depending on sector. That is a useful order-of-magnitude check, but not a number for an unregulated company: a regulated monopoly carries less business risk than an ordinary firm.
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