Taxation is often the most important aspect when choosing a location for business. Learn the basics about Estonian taxes relevant to e-residents.
Personal tax residency
Regardless of your e-Residency status, you must always pay personal tax in the country in which you are a tax resident. It is very important to understand the difference between e-residency and residency, one of them being a digital status, other a physical with residential benefits and obligations. E-Residency does not mean you are an Estonian tax resident.
A person is only regarded an Estonian tax resident if their place of residence (the place where they permanently, or primarily, live) is in Estonia or if they have lived in Estonia for at least 183 days over a consecutive 12-month period. Learn more on the Estonian Tax and Customs Board website.
Generally, residents are taxed on their worldwide income in their state of residence. This means that the country where you submit your annual personal income tax returns usually wants to tax income you have earned from everywhere else in the world. Normally there are also both domestic as well as bilateral measures in place to avoid or mitigate double taxation if this income has already been subject to tax in the country where you received it from, i.e. the source state.
For that reason, you should have proof of taxes paid or taxes that have been withheld in Estonia readily available to be presented to your local tax authorities. Local tax treatment could be different for each type of income (dividend, salary, directors’ fee) and it could also be affected by what has been agreed in the tax treaty your country has concluded with Estonia.
Please note that the information presented above is a generalization of a complex set of rules depending entirely on laws applicable in your state of residence and the treaty it has concluded with Estonia and is therefore only for illustrative purposes.
If you are location-independent, you should understand the tax system of your home country and any country in which you work for an extended period of time. Everyone's personal tax situation is unique, so we strongly recommend you seek professional tax advice in your home country or from an expat specialist. If tax specialists from your home country are not yet familiar with the term of e-Residency, please provide them with this explanation from the Estonian Tax and Customs Board.
Corporate tax residency
Estonia has a simple rule which says that a company is a tax resident in Estonia if it is incorporated under Estonian laws. If you have registered your Estonian OÜ, then this means your company is an Estonian tax resident and subject to tax in Estonia.
However, some countries have different rules for deciding if a company is tax resident. It is common that in addition to the place of incorporation, the place of effective management triggers tax residence. If you run your company from a country with such rules, then the company might end up having dual tax residence – this happens when two states believe that the company is tax resident in their jurisdiction and will want to tax the company’s profits.
In case business activities of this company are carried out elsewhere or the company is managed from outside of Estonia, the income received in a foreign state will be taxed in this foreign state and Estonia will ensure avoidance of double taxation. Estonian Tax and Customs Board has a list of all Conventions for the avoidance of double taxation.
Never rely on general advise, however, when it comes to taxation. International taxation rules may be complex and are dependent on the specifics of your business activities and location.
A few of the service providers in our Marketplace can advise on international taxation. For more complicated situations, you may want to contact a tax consultant familiar with Estonian law and/or a tax consultant based in the relevant country.
Although international taxation is complex, having e-Residency can make the tax paying process more transparent and easy through e-services available in Estonia. For example, if you do owe corporate taxes in Estonia, you can declare all taxes entirely online.
Learn more about corporate taxation on the EMTA website.
And also read an article by the Head of the Tax Department at the Estonian Tax and Customs Board (ETCB) on How do e-residents pay taxes?
Estonian tax system
In Estonia, income tax is not assessed on the profit earned every year. Income tax is assessed on a monthly basis and only when profits have been distributed (when you pay out dividends for example). The corporate tax rate is generally a flat 20%, calculated as 20/80 from taxable net payment. Since 2019, if regular dividends are paid out, a reduced rate of 14/86 may apply.
Besides corporate income tax, e-residents with businesses in Estonia will also need to consider the following Estonian taxes:
- 20% income tax from the director's fee;
- 33% social tax from the director's fee.
This again is a generalization and exceptions apply depending on the specifics of your business, so do consult with your business service provider.
Find an overview of tax rates at the Estonian Tax and Customs Board website.
If your annual taxable turnover is below €40,000, VAT registration in Estonia is not obligatory. Learn more about VAT registration.
Tax identification number
There is no company tax ID in Estonia. An 8-digit company registration code and your 11-digit personal identity code (isikukood) should be enough for all institutions and services in Estonia.
If you are requested to present your unique taxpayer number (sometimes called TIN) somewhere else in the world, then there is no other number to present besides your registration code. If you are being asked for VAT registration number then this is also not mandatory to have in Estonia (until your company exceeds certain thresholds) and therefore should not be compulsory to access any service inside or outside of Estonia.
We strongly advise e-residents to consult a qualified tax professional in order to determine personal and corporate tax obligations. Visit our Marketplace to find a few of the taxation consultants who have a good understanding of e-Residency and, specifically, Estonian corporate taxes.