Submission of declaration form TSD

A person providing services according to a contract under the law of obligations receives a remuneration in the amount of 1200 euros (code 123). This person’s income is subject to tax exemption arising from a convention for the avoidance of double taxation with respect to income tax concluded between Estonia and another country.

Diana is a German tax resident who is paid 1200 euros (gross amount) for services provided in the territory of Estonia on the basis of a contract under the law of obligations. Diana is in Estonia for a short time.

As Estonia and Germany have concluded a convention for the avoidance of double taxation with respect to income tax (tax treaty), according to which (article 14) such income for services in Estonia will not be taxable in Estonia, unless a fixed base is regularly available to the service provider in Estonia.

Valid data of a certificate of the German tax residency confirmed by the German tax authorities is entered in the database of the Estonian Tax and Customs Board. Thus, the tax exemption arising from the tax treaty is applied (tax rate 0% is indicated in code 2160 and the amount of withheld income tax in code 2170 is also 0).

As Germany is a Member State of the EU, and there is a valid certificate of Diana´s tax residency confirmed by the German tax authorities submitted to the Estonian Tax and Customs Board, the Estonian employer may apply the basic exemption as prescribed in the Estonian Income Tax Act when calculating the Estonian income tax to be withheld on the payment.
However, since the payment is already subject to tax exemption under the tax treaty, there is no need to apply the basic exemption under Estonian law in codes 2154 and 2155.

Diana is therefore not required to submit an application for applying the Estonian basic exemption, as the payment is already exempt from tax due to the tax treaty.

Diana has an A1 form certifying the social security of Germany, i.e. social tax and unemployment insurance premiums are also not paid in Estonia. In this case, the payment type is 124.

If the person has both the certificate of tax residency and form A1 and if there is no actual tax liability on the payment in Estonia, the payer must still declare the income of a German resident in Annex 2 to the form TSD.

If the payment recipient has been registered as a sole proprietor in Estonia or another Member Country of the European Economic Area (Member State of the EU, Iceland, Liechtenstein or Norway; Germany in the example) and if there is an A1 form, then the payer is exempted from declaring the payment in annex 2 of the form TSD. The recipient declares the possible tax obligation in Estonia. Thus, if Diana is registered as a sole proprietor in Germany, Diana will declare the possible Estonian tax liability herself.

Tax calculation

• Withheld income tax 1200 x 0 = 0 euros

Net payment of 1200 euros (1200–0) is made to Diana´s bank account.

Declaration in Annex 2 of Form TSD

Tax calculation without a valid certificate of tax residency

If the recipient of the payment does not have a valid certificate of tax residency, it is not allowed to apply:

• tax exemptions arising from the tax treaty (income tax rate is 22% in code 2160)

• the basic exemption according to the Estonian Income Tax Act (in codes 2154 and 2155).

Withheld income tax is 1200 x 22% = 264 euros.

Form A1 certifying social insurance in Germany is submitted.

Net payment of 936 euros (1200–264) is made to Diana´s bank account.

Declaration in Annex 2 of Form TSD