Rental income and licence fee

Rental income and licence fees received by a non-resident in Estonia are taxable income subject to income tax in Estonia. As a rule, income tax on rental income and licence fees is withheld and declared to the Estonian Tax and Customs Board by the payer.

Rental income

Income tax is charged on a non-resident’s rental income, which is derived from:

  • an immovable located in Estonia or
  • an object (including monetarily appraisable right, such as securities, usufruct etc.) which has been or must be entered in an Estonian register.

Rental income is rent, consideration for constitution of right of superficies and tolerating a real encumbrance, and other consideration received for tolerating a restriction on the use of an object arising from law or transaction. The rate of income tax on rental income is 20%.

Obligations of the receiver of rental income

If the payer has withheld income tax from rental income on Form TSD Annex 2, the non-resident receiver is not obliged to submit the income tax return. The non-resident receiver of rental income has to submit the income tax return if the payer has not withheld income tax on the rental income.

A non-resident must also submit the income tax return if he or she wishes to deduct 20 % of the costs related to the rental. For covering these costs, 20% is automatically deducted from the rent derived under the lease contract of a dwelling upon submission of the tax return in accordance with the Law of Obligations Act.

It is obligatory to declare the total income from which the estimated expenditure has been deducted, irrespective of the amount of actual expenditure certified by relevant documents.

Declaration

  • A non-resident declares his or her rental income on Form A1.
  • If a resident of another Contracting State of the European Economic Area (EEA) wishes to use the tax benefits allowed in Estonia, he or she may also declare the rental income on the income tax return of a resident natural person. In this case, he or she has to declare his/her total income worldwide.

Income tax returns shall be submitted to the Tax and Customs Board no later than by 30 April of the year following the period of taxation. Income tax shall be paid into the bank account of the Tax and Customs Board no later than by 1 October of the year of submission of the income tax return..

Tax treaties do not restrict the taxation in Estonia of the rental income received from immovable property located in Estonia. 

The Estonian Tax and Customs Board shall not issue a tax notice to non-residents.

Licence fee

Income tax is charged on the licence fee received by a non-resident for the following:

  • consideration for the right to use a copyright of a literary, artistic or scientific work (including cinematographic films or videos, recordings of radio or television programmes or computer programs), and for the right to use a patent, trade mark, industrial design or utility model, plan, secret formula or process, or consideration for transfer of the right to use the above, if the payer of the consideration is the Estonian state, a local government, a resident or a non-resident through or on account of its permanent establishment located in Estonia.
  • consideration for the right to use industrial, commercial or scientific equipment or information about industrial, commercial or scientific experience (know-how), or consideration for transfer of the right to use the above, if the payer of the consideration is the Estonian state, a local government, a resident or a non-resident through or on account of its permanent establishment located in Estonia.

When purchasingsoftware (ka digitaalse) (also digital), the price may include fees for different licenses, but often the purchaser does not use the copyright of the software, but rather uses the software as a service or goods for his or her own personal or commercial purposes.

When taxing the income of a non-resident software vendor, the type of income is determined based on the substantive rights transferred to the purchaser. In each particular case, specific circumstances are considered, but when purchasing software for personal or commercial purposes, the purchaser of the software typically does not use the software's copyright, and the remuneration received by a non-resident is not taxed as a licence fee.

Even if the purchaser of the software has certain limitations on how to use it, but the purchaser still uses the software for only personal or commercial purposes, this is not the case of a licence fee. Such income received by a non-resident may be taxed as a service fee or gain from the transfer of property.

Depending on its substance, an author's remuneration may not be subject to taxation as a licence fee. For more information, please read the article Taxation of remuneration (licence fee).

The rate of income tax withheld on the licence fee is 10%.Depending on the country, the tax treaty may provide for a lower rate than imposed by the Income Tax Act, for example, the tax rate for renting equipment is 5% in many countries and exempt from tax in Estonia. The definition of a licence fee in the tax treaty and the Income Tax Act may vary.

Obligations of the receiver of licence fee

If the payer has withheld income tax from licence fee on Form TSD Annex 2, the non-resident receiver of the licence fee is not obliged to submit the income tax return. Likewise, submission of the income tax return is not necessary, if tax exemptions or preferential tax rates under the tax treaty are applied to the taxation of a licence fee at the time of payment, and the database of the Tax and Customs Board does not include the receiver's valid certificate of residence for tax purposes issued by the tax authority of a foreign state.

The income tax return has to be submitted for the income on which the payer has not withheld income tax and the tax treaty does not provide for tax exemptions.

Declaration

  • A non-resident declares his or her licence fees on Form A1.
  • If a resident of another Contracting State of the European Economic Area (EEA) wishes to use the tax benefits allowed in Estonia, he or she may also declare licence fees on the income tax return of a resident natural person. In this case, he or she has to declare his/her total income worldwide.

Income tax returns shall be submitted to the Tax and Customs Board no later than by 30 April of the year following the period of taxation. Income tax shall be paid into the bank account of the Tax and Customs Board no later than by 1 October of the year of submission of the income tax return..

The Estonian Tax and Customs Board shall not issue a tax notice to non-residents.

Last updated: 14.04.2021

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