When taxing wages in Estonia, account must be taken of whether the employee is posted or staying on a business trip, but also for how long the employee is staying in Estonia. See when the tax liability arises on taxation of the wages of a non-resident working in Estonia, a non-resident on a business trip and a posted worker.
Taxation of remuneration received in Estonia
In Estonia, income tax is charged on non-residents' remuneration received for
- work under an employment contract;
- work under a contract for services, authorisation agreement or any other contract under the law of obligations;
- work in public service;
and in case the work is performed in Estonia and the employer is from Estonia.
Taxation of remuneration received outside Estonia
If a non-resident is staying outside Estonia while working, the income tax is not charged on her or his wages in Estonia and the payment made to the non-resident is not declared in Estonia.
As in this case the non-resident's income is not taxable, the non-resident employee does not have to declare the income in Estonia either.
For example, an employee of an Estonian company who is resident in Lithuania performs his duties only in Lithuania. The Estonian company does not declare in Estonia the wages paid from Estonia to the non-resident.
An employer is from Estonia if it is an institution of Estonian state or local government authority, resident of Estonia, non-resident operating in Estonia as an employer, or non-resident through its permanent establishment situated in Estonia.
If duties are performed in the form of temporary agency work at a user undertaking that is one of the above-mentioned persons, even if the remuneration is paid by a foreign person not mentioned in the preceding sentence, the user undertaking is regarded as the employer from Estonia.
The remuneration received by a non-resident natural person for employment on aircraft engaged in international transport or ship engaged in international carriage of goods or passengers by sea is taxed in Estonia if the employer of the person or operator of such aircraft or ship is the above-mentioned person from Estonia. In detail about the special arrangements of the taxation of the remuneration of a ship and aircraft crewmembers.
If a non-resident receives remuneration from an Estonian employer for work done in Estonia, income tax is charged on the remuneration in Estonia, regardless of the number of days spent working in Estonia.
Withholding of income tax and declaration
An employer withholds income tax upon payment and declares non-resident’s remuneration in Annex 2 to the TSD form.
Basic exemption can be deducted from payments to non-resident natural person only if the recipient is a resident of another Member State of the European Economic Area and has submitted an application to the person making the payments for the calculation of basic exemption and a certificate of residency from the tax authority of his or her home country has been entered in the database of the Estonian Tax and Customs Board.
The certificate of residency is usually valid for 12 months, unless otherwise specified in the certificate. The Tax and Customs Board accepts other forms as certificates of residency if the forms contain the same information that must be entered in parts I, II and V of the TM3 form of the certificate of residency. The rate of withheld income tax on the remuneration received for the work or service under the employment contract or contract under the law of obligations is 20%. The rate of income tax withheld from remuneration for performance is 10%.
An unemployment insurance premium withheld in Estonia must be deducted from the payment before the calculation of income tax if the payment of the insurance premium was compulsory in Estonia. You must declare gross remuneration, the unemployment insurance premium withheld is deducted in Annex 2 of the TSD declaration.
An unemployment insurance premium of 1.6 % is withheld from the payment of 1 000 euros to a non-resident employee and the income tax to be withheld is calculated as follows (1000-16) × 0,20 = EUR 196.80.
The employee receives 1000-16-196.80 = 787.20.
A non-resident is resident in an EEA Contracting State, such as Latvia, Lithuania, Poland, Germany, Finland, etc., his residency certificate has been entered in the database of the ETCB and he has applied for basic exemption. An unemployment insurance premium of 1.6 % is withheld from the payment of 1 000 euros to a non-resident employee and the income tax to be withheld is calculated as follows (1000-16-500) × 0,20 = EUR 96.80.
The employee receives 1000-16-96.80 = 887.20.
The income tax correctly withheld by an employer is considered as the final tax and a non-resident does not need to declare the income. A non-resident declares the income received only in the case where the payer has not withheld the income tax correctly.
A non-resident natural person can make the deductions, from his or her taxable income in Estonia under the same grounds as residents of Estonia if he or she is a resident natural person of a contracting state of the European Economic Area and submits the income tax return of an Estonian resident natural person. In this case, the non-resident has to declare in Estonia also foreign income which is not taxed in Estonia, but which is taken into account in the calculation of the basic exemption applicable in Estonia.
If a non-resident receives remuneration from a person who is not a withholding agent in Estonia (e.g. a non-resident payer or natural person), the non-resident must declare the taxable income on Form A1 or E1.
Social tax on non-residents' wages received in Estonia
If an employer pays wages to a non-resident employee who is employed in the territory of Estonia, the employer has to pay social tax (33 %) and the employer’s unemployment insurance contribution (0.8 %) and withhold the employee’s unemployment insurance contribution (1.6 %) on the wages under Estonian law.
There are exceptions listed in the EU Regulation No 883/2004 providing that an employee is subject to the social security legislation of another member state, for which the employee must hold a certificate A1 issued by the competent social security institution of that state.
Application of tax treaties
According to tax treaties, remuneration received for working in Estonia by a resident of another state is usually taxed in Estonia. If the payer is from Estonia or if the non-resident employer operates in Estonia through a permanent establishment, taxation in Estonia shall not be limited by the number of days spent here.
Remuneration derived from the business or professional activities of a resident of another state in Estonia shall be taxable in Estonia in accordance with the tax treaties only if the income is obtained from the provision of services in Estonia through a registered office or permanent establishment or during sufficiently long period (for example, 183 days during 12 consecutive calendar months). If the activity in Estonia lasts for a shorter period, the tax exemptions arising from the tax treaty can be used in Estonia if a certificate of residency confirmed by the tax authority of the recipient's country of residence has been submitted to the Tax and Customs Board before the declaration of payments.
The certificate of residency is valid for 12 months unless otherwise indicated on the certificate. If the data on the valid tax residence of a foreign country have been entered in the database of the Estonian Tax and Customs Board, it is not necessary to resubmit the certificate for every following payment. If there is a certificate of residency, the payer must still declare the payment in Annex 2 to Form TSD, but no income tax is calculated.
You can check whether the Tax and Customs Board register includes a required certificate of residency through the Inquiry of non-residency.
As an exception, in the case of the remuneration paid to non-resident artists or athletes for their performances or competitions in Estonia, the right to tax the remuneration in Estonia does not depend on the length of the period of stay in Estonia. Income tax is usually withheld on non-residents’ taxable income in Estonia. The person making payments is obliged, as a withholding agent, to withhold income tax on the taxable payments made to non-resident recipients.
Remuneration of the member of management or controlling body
The basis of taxation is the remuneration for being a member of the management or controlling body of a company resident in Estonia or for the performance of official duties of a member of the management body of a non-resident permanent establishment in Estonia.
Remuneration paid to non-residents under a contract of a member of management board or a supervisory board shall be taxed differently from wages and business income.
Remuneration paid under a contract of a member of management or controlling body of a resident legal person in Estonia shall be taxable in Estonia regardless of where the work was actually done. Remuneration of a non-resident for the service rendered under the contract under the law of obligations or work performed under the employment contract is taxable in Estonia with income tax in the part in which the work or service has taken place in Estonia.
The amount of remuneration payable to members of management board of a private limited company and the procedure for payment shall be determined by a resolution of the shareholders or, in the case there is a supervisory board, by a resolution of the supervisory board (Commercial Code, § 1801 (1)).
The amount of remuneration payable to members of management board of a public limited company and the procedure for payment shall be determined by a resolution of the supervisory board (Commercial Code § 314).
The remuneration for the work of members of supervisory board of a public limited company is set out in § 326 of the Commercial Code, the general meeting shall specify the procedure for and amount of remuneration for the members of the supervisory board (Commercial Code, § 326 (1)).
In view of the above, the amount of the remuneration of a member of the management and controlling body should be known to the company.
If a non-resident receives remuneration in the form of a single sum for many tasks, it is necessary to find a verifiable proportion for taxation in what proportion and for which tasks the remuneration is paid. This may depend on the time spent on tasks, the importance of tasks, etc.
If an Estonian company is not a paying agent for the remuneration of a member of management or controlling body, the Estonian company is not obliged to withhold income tax on the remuneration or to check whether income tax has been paid on that remuneration in Estonia.
The recipient of remuneration is obliged to declare the income and pay income tax in Estonia.
A member of a management or controlling body who will have a tax liability in Estonia needs to be registered in the employment register. In order to be registered in the employment register, a non-resident member of management or controlling body must have an Estonian personal identification number.
Although an Estonian company does not have the obligation to withhold income tax, it is still obliged, as an employment provider, to register a non-resident member of management or controlling body in the employment register. If the person making payments (submitting tax returns) and the actual employment provider are different persons, the details of the actual payer must also be indicated upon the registration in addition to the details of the person who is doing the work.
A non-resident legal person who pays the remuneration of a member of management or controlling body taxable in Estonia to a non-resident is not required to register as a non-resident employer or pay income tax or withhold income tax in Estonia.
If a resident legal person in Estonia pays remuneration to a non-resident member of management or controlling body, the payer is an withholding agent pursuant to § 40 (1) of the Income Tax Act and therefore obliged to declare the payments (on Annex 2 to Form TSD) and pay income tax.
We assume that resident legal persons of Estonia should not fail to fulfil their obligation. However, if the payer is a non-resident who is not obliged to withhold income tax in Estonia, the recipient of remuneration is obliged to declare the payments either on a non-resident Form A1 or, if he is a resident of a contracting party of the European Economic Area, on the income tax return of a resident natural person.
If a non-resident member of management or controlling body does not receive remuneration, there is no income tax liability, therefore there is also no obligation to declare or register in the employment register in Estonia.
The non-resident recipient of the remuneration of a member of the management board or supervisory board of a non-resident company does not have to pay income tax in Estonia.
Most tax treaties contain a provision according to which the remuneration of a member of the board or other similar bodies of a company that is resident in Estonia, which is paid to a resident of another state, is taxed in Estonia pursuant to the Estonian Income Tax Act.
Remuneration of entertainers or sportspersons
Income tax is charged on
- remuneration paid to a non-resident artist or athlete in connection with his or her performance or competition in Estonia or the presentation of his or her works in Estonia;
- remuneration paid to a non-resident third person in connection with the activities of a resident or non-resident artist or athlete in Estonia.
For the purpose of this guide, the artist is an artist or entertainer who receives payment in connection with a public performance (e.g. a performer at the theatre or concert, on radio or television, in the movies etc.), and thus, it is important that the artist himself be a public performer. For example, a painter is not considered an artist due to her or his performance at an exhibition, a lecturer at a training, a director, a cameraman, etc.
For the purpose of this guide an athlete is a person who receives remuneration in connection with a public performance at a competition or other entertainment event held in Estonia. It can be any sport, including athletics, football, bodybuilding, cricket, bridge, billiards, golf, etc.
Taxation of the remuneration for performance does not depend on the number of days or hours spent in Estonia, it is important that the performance take place in Estonia.
This provision applies to the taxation with income tax regardless of whether the recipient has concluded an employment contract, a contract under the law of obligations, etc. Upon the taxation of the remuneration for performances, it is important to know whether the person is present and performing in Estonia, including in the case of broadcasts on television, radio or the internet. In the latter case, the basis for the taxation of the remuneration for performance arises only because the recording or shooting of the performance took place in Estonia.
The rate of income tax withheld is 10 % of the entertainer's or sportsperson’s remuneration unless rates that are more favourable are provided for in the tax treaty.
In a particular tax treaty, there may be different restrictions on the taxation of the remuneration for performances in Estonia in respect of activities financed from the funds of the state or local authority of one or both of the contracting states.
Last updated: 20.12.2021