Taxation is often the most important aspect when choosing a location for your business. In this article, you will find some basic general information on taxation, what taxes may be relevant for you as an e-resident and a company owner, and resources for further information.
The Estonian Tax and Customs Board (EMTA) is the agency governing taxation in Estonia. On their website, you can find several resources on taxation and regulations in Estonia, as well as a section specifically regarding tax information relevant to e-Residency. The Estonian state portal eesti.ee also provides an explanation of the full tax system
Personal tax residency
Regardless of your status as an e-resident, 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 physical or tax residency. While e-Residency grants you access to Estonian government e-services and the ability to authenticate yourself online, your physical residency status comes with residential benefits and obligations unrelated to e-Residency. E-Residency does not mean you are an Estonian tax resident.
NB!
A person is only regarded as 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, though how this is done varies country-to-country. This means that the country where you submit your annual personal income tax returns usually wants to tax the income you have earned from everywhere else in the world. Normally, there are both domestic and bilateral measures in place to avoid or mitigate double taxation if this income has already been subject to tax in the country from which you received it, i.e. the source state. You can find a full list of agreements Estonia has in place on the home page of the Ministry of Finance.
For tax reporting, you should keep any 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.
If you are location-independent, you should ensure you understand the tax system of your home country and any country where you work and reside 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 a specialist on cross-border taxation. You can find some experts by browsing our Marketplace. If tax specialists from your home country are not yet familiar with the term e-Residency, please provide them with this explanation from the Estonian Tax and Customs Board.
Corporate tax residency
Estonia has a simple rule that says a company is a tax resident in Estonia if it is incorporated in Estonia under Estonian law. If you have registered your Estonian OÜ, then your company is an Estonian tax resident and subject to being taxed 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 can trigger tax residence. If you run your company from a country with regulations like this, then the company may 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.
If the 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 could be taxed in this foreign state, and Estonia will ensure avoidance of double taxation. You can find a list of all Conventions for the avoidance of double taxation on the home page of the Ministry of Finance.
Several of the service providers listed on 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 easier through e-services available in Estonia. For example, if you owe corporate taxes in Estonia, you can declare all taxes entirely online. You can find a guide for declaring taxes online here.
You can learn more about cross-border taxation from this recording of one of our monthly webinars streamed in 2023.
On our blog, you can find a variety of articles that cover the topic of taxes, what you should know when starting and running your company, as well as other e-residents' stories and experiences.
Estonian tax system
In Estonia, corporate income tax is not assessed on the profit earned every year. Instead, income tax is assessed on a monthly basis and only when profits have been distributed (for example, when you pay out dividends). The corporate tax rate is a flat 22%, calculated as 22/78 of the taxable net payment.
Besides corporate income tax, e-residents with businesses in Estonia may also need to consider the following Estonian taxes:
- 22% income tax from the director's fee;
- 33% social tax on the director's fee;
- 22% Value Added Tax, relevant only if your company pays VAT in Estonia. You can learn more about VAT here.
You can find an overview of current tax rates on the home page of the Estonian Tax and Customs Board.
Tax identification number
There is no company tax ID in Estonia. An 8-digit company registration code (which you can find through the e-Business Register) 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 company's registration code. If you are being asked for a VAT registration number, then this is also not mandatory to have in Estonia (until your company both exceeds a €40,000 annual revenue threshold and pays VAT in Estonia) and therefore should not be compulsory to access any service inside or outside of Estonia.
More information
We strongly advise all e-residents and company owners to consult a qualified tax professional in order to determine personal and corporate tax obligations. Visit our Marketplace to find experts on taxation who have a good understanding of e-Residency and, specifically, Estonian corporate taxes.
For further questions on taxation in Estonia, please visit the Estonian Tax and Customs Board website or contact them directly via e-mail: nonresident@emta.ee
Please note
the information presented in this article is a generalisation 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 general information. Never rely solely on general advice when it comes to taxation. International taxation rules may be complex and depend on the specifics of your business activities and location.
Articles in the Knowledge Base are intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. This information should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers.