Taxation Outside Estonia25. March 2020
Your Estonian company is registered in Estonia and is taxed in Estonia. This taxation is handled and collected by the Estonian Tax and Customs Board. See their website for various information about taxation in Estonia: https://www.emta.ee/eng
e-Residents who own and manage companies in Estonia are usually themselves not Estonian tax residents, simply and mainly because they do not actually live in Estonia. It is therefore possible, that your home country (the country in which you are a tax resident), may wish to tax you additionally. This may concern corporate income tax or any other taxes. In doing so, foreign tax authorities can base their claims on the fact that your company’s actual location of doing business is in their jurisdiction (according to the principle of paying taxes in the country where the value is generated.)
It is therefore very strongly advisable, that when you set out in running your Estonian company, you pay a visit to a qualified tax advisor in your home country. Please explain to your tax advisor that you have established a company in Estonia and describe the business model that you intend to use. Ask your tax advisor to describe to you what tax obligations you may face in your home country (if any).
Please inform us about the advice you have received from your tax advisor in your home country and keep in mind that e-Residency Hub handles your taxation only in Estonia. We do not handle tax reporting in other countries and any tax reporting (and of course, paying these taxes in other countries) will have to be done by you. You can read more about taxation of e-residents’ companies on the e-residency blog: https://medium.com/e-residency-blog/how-do-e-residents-pay-taxes-73b8c96902b6
According to Estonian tax regulations and practice, in case a company generates sales revenue, the company also needs to pay salaries (i.e. if value is created, which you are selling, somebody needs to work to create that value and that work needs to be compensated by some sort of payments). Thus, in case your company sells goods or services, you are expected to pay salaries to the people who do that work. Holding companies, where value is generated simply by the increasing prices of the assets that the company passively holds, do not have to pay salaries if they do not wish to.
Employees in Estonia
In case you plan to employ people who are tax residents of Estonia, please send us their Estonian ID code and start and end dates of their employment contracts. You must do that BEFORE these people begin actual work in Estonia. We will enter this information in the Estonian Employee’s Registry.
NB! Employees who are not Estonian tax residents and do not live in Estonia do not need to registered! In case your company is paying salaries to its employees who are Estonian tax residents, the company is required to withhold the following taxes and transfer them directly to the Estonian Tax and Customs Board:
- 20% of personal income tax
- 1.6% unemployment insurance payment (employee’s share)
- 0.8% unemployment insurance payment (employer’s share)
- 33% social tax
In case the company has employees who are not Estonian tax residents and who live and work outside Estonia, salary payments to these foreign employees are not taxed in Estonia and we do not submit any tax declarations about these employees. In such case, these foreign employees must declare their income from your Estonian company in the country in which they live and are tax residents.
It is your responsibility to make sure any income of your foreign employees is properly declared in the foreign countries in which they live. In case any supporting documentation is required on behalf of your Estonian company – please let us know.
As e-residents, you do not actually live in Estonia. When accounting for business trips, your home country rules apply (amount of per diems, what kinds of expenses can be considered business expenses, etc).