A non-resident business operator pays income tax on business income at the rate of 20%. If a non-resident is permanently engaged in business in Estonia, the business income derived in Estonia shall not be exempted from tax even if a treaty for the avoidance of double taxation has been concluded with the country of residence of the recipient of the income and the tax authority of the country of residence has issued a certificate of residency.
Business income received in Estonia is declared on Form E1. Form E1 is submitted by a non-resident:
- who is registered as a sole proprietor with the Estonian commercial register or the register of another contracting state of the European Economic Area (EEA). The tax return must be submitted even if no business income was received in Estonia.
Sole proprietors registered with the Estonian commercial register or a register of another EEA contracting state may deduct from their business income any certified expenses directly related to their business activities during the taxable period.
- who received business income in Estonia, but is not registered as a sole proprietor in Estonia. In such a case the non-resident cannot deduct expenses from the business income.
A resident of an EEA contracting state may declare business income also on Form E and take into account the Estonian basic exemption at the rate applicable in Estonia.
If a non-resident is registered as a sole proprietor with the Estonian commercial register or a register of another EEA contracting state, he or she may declare the business income also on Form E. In such a case, also expenses directly related to business may be declared and deducted from taxable income.
Advance payments of social tax
Business operators have to pay advance payments of social tax regardless of whether they have received income in Estonia.
As an exception, advance payments of social tax need not be paid if a business operator:
- receives state pension,
- is a person with partial or no work ability,
- is a student,
- will start or terminate business activities during the quarter, or
- social tax for him or her is paid by the employer or state,
- has the certificate A1 issued by a foreign state.
Advance payments of social tax are paid four times a year for each quarter by the 15th day of the last month of the quarter - March 15th, June 15th, September 15th and December 15th - into the bank account of the Tax and Customs Board.
The monthly rate providing the basis for the payment of social tax is established in the state budget for each year. The monthly rate of social tax for 2020 is 540 euros.
The social tax liability for one quarter calculated on the basis of the applicable rate is 534.60 euros (540 × 3 × 33%). The tax liability shall be paid with the accuracy of the euro cent.
Any certified expenses directly related to business in Estonia can be deducted from the income received in Estonia when submitting an income tax return. The social tax shall be deducted from business income by dividing the sum of the gain derived by 1.33, irrespective of the social tax actually paid. No division operation is done if the product of the gain and 0.33 is smaller than the minimum rate of social tax liability. In this case, the income will be reduced by the minimum rate of social tax before calculating income tax. The part of the social tax thus calculated which exceeds the business income shall not be transferred to subsequent taxable periods.
Advance payments of income tax
Sole proprietors who received business income in the previous taxable period (year) have to pay advance payments of income tax.
Advanced payments of income tax are paid twice a year - by September 15th and December 15th into the bank account of the Tax and Customs Board.
The amount of advance payments of income tax is calculated on the basis of the taxable business income of the preceding year of operation.
If the Estonian Social Tax Act does not apply to the taxation of business income, the division operation is not done and the statutory social security contributions paid abroad can be deducted from the business income taxable in Estonia.
Further information on sole proprietors' tax liabilities can be found in the manual FIE ABC.
Last updated: 14.04.2021