Determining residency

A non-resident legal person pays income tax in Estonia only on Estonian income. Income tax is usually withheld upon making a payment, but in certain cases the non-resident is obliged to declare income. Registry codes are necessary for non-residents to declare their income. A permanent establishment or an employer must be registered in the Tax and Customs Board.
  • A legal person is a resident of Estonia if it is established under Estonian law.
  • A legal person is a non-resident if it is not considered to be a resident.
  • A branch of a foreign company registered in the commercial register is a non-resident in Estonia.

If a non-resident legal person does not have a permanent establishment in Estonia, it is taxed in a similar way as a non-resident natural person. A non-resident’s permanent establishment is not a resident of Estonia, but is taxed similarly to an Estonian resident company.

If the residency determined on the basis of an international agreement differs from the residency determined on the basis of the law, the provisions of the international agreement apply to taxation.

Thus, if a person is a resident simultaneously in Estonia and in another country that has concluded a Convention for Avoidance of Double Taxation and Prevention of Fiscal Evasion (tax treaty) with Estonia, double residency of the person is avoidable.

To avoid double residency, we recommend submitting a request for application of the tax treaty.

Frequently asked questions on tax residency

Residency for tax purposes (tax residency) is a term used when determining whether a person pays income tax in that country on his or her worldwide income or only on that country’s income.

The Social Insurance Board or the Estonian Unemployment Insurance Fund will also verify the recipient’s tax residency when deciding on granting benefits and supports.

The amount of income tax calculated on a person’s income also depends on tax residency, because non-residents have a different income tax rate for some types of income (licence fee, performance fee 10%) or there is a different tax exemption (interest).

For example, a non-resident cannot deduct the basic exemption (up to 6,000 euros per calendar year) from his taxable income in Estonia if he or she is not a resident in a country that is a member of the European Economic Area (European Union Member States, Iceland, Liechtenstein, Norway).

Tax residency does not depend on or alter the citizenship of a person, i.e. residency does not residency grant citizenship or take it away.

A resident of Estonia is a person whose permanent place of residence is in Estonia or who stays in Estonia for at least 183 days within 12 consecutive calendar months. Double residency is also avoided; i.e. if a person is a tax resident in another country, it is important to consider whether the person has a place of residence only in Estonia, where is his or her family, where he or she is spends more time.

Tax residency cannot be decided by a person himself or herself, because it depends on his or her connection to Estonia: where is his or her home, family, and where does he or she spend more time.

Since all these circumstances need to be considered as a whole, but not all this information is available in the state databases, the person must contact the Estonian Tax and Customs Board and submit the application for determination of residency (form R).

The determination of residency is important for income tax to be calculated on the income of a person correctly and in the right country, and it determines the entitlement to some benefits or supports.

Estonian residents pay income tax in Estonia on their worldwide income, double taxation is avoided, foreign income tax reduces the Estonian income tax amount (if a certificate is available) or, depending on the type of income and circumstances, income taxed abroad is exempt from taxation in Estonia. On the basis of a one-time application, the basic exemption of up to 500 euros per calendar month can be deducted from payments made to an Estonian resident, depending on the amount of the person’s income.

A funded pension contribution is withheld from the salaries and wages of a resident if the recipient is of the corresponding age and has joined the second pillar pension. The contribution to the funded pension will not be withheld from a non-resident’s salaries and wages.

At the same time, for example, if a non-resident works outside of Estonia, his or her salaries and wages are not subject to any income tax at all in Estonia.

Since the amount of income tax depends on residency, in the case of incorrect data on residency in the database of the Estonian Tax and Customs Board, taxes on salaries and wages or other payments may be calculated in a higher or lower amount than required by law.

Thus, the application for determination of residency must be submitted both upon arrival in Estonia and upon departure.

In order to determine residency, one must fill in the application for determination of residency (form R) and answer the questions in it regarding arrival in Estonia; then sign and submit it to the Estonian Tax and Customs Board. Send the digitally signed form R by e-mail to emta@emta.ee, submit it in the Estonian Tax and Customs Board’s e-services environment e-MTA (select Registers and inquiriesRegistrationDetermination of residency from the menu) or submit it on paper in a service bureau.

A notation on the residency is made to the database of the Estonian Tax and Customs Board according to the answers of the person, which allows payers to obtain this information about the recipient’s tax residency status and to calculate the taxes correctly on payments made in Estonia.

If a person leaves Estonia, he or she must submit an application for determination of residency on departure from Estonia.

Useful to know

Since in Estonia the basic exemption depends on the person’s worldwide income, the final tax amount is calculated on the basis of the income tax return submitted by the person per calendar year. Some people, therefore, receive a refund of part of the income tax withheld on their wages and salaries and some have to pay additional income tax.

During the year, it is possible to check in the e-services environment e-MTA:

  • the taxes paid on your salaries and wages (Registers and inquiriesMy inquiriesMy employments), and
  • the use of basic exemption (Registers and inquiriesMy inquiriesMy income) because the person himself or herself can submit a request for the application of the basic exemption to one employer.

It is possible to check in the e-services environment e-MTA (My employments) whether an entry of employment has been made in the employment register. It should be noticed that the tax calculation is cash-based, i.e. if a person starts working in January and receives a salary in February, the data on the taxes paid on the salaries and wages will be visible after 10 March.

Last updated: 01.06.2022

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