Determining residency

The instruction for determining the residency for tax purposes of a natural person explains when a natural person is considered a resident, gives an overview of the circumstances of the change of residency and the obligation to declare and pay income tax.

Instruction for determining the residency for tax purposes of a natural person

Definition of resident

Pursuant to § 6 (1) of the Income Tax Act, a natural person is a resident of Estonia if at least one of the following requirements is met:

  • the person’s place of residence is in Estonia;
  • the person is staying in Estonia for at least 183 days over the course of a period of 12 consecutive calendar months;
  • the person is an Estonian diplomat who is in foreign service.

A person is considered a resident from the date of his or her arrival in Estonia. A resident natural person shall pay income tax on all income derived by him or her in Estonia and outside Estonia, regardless of whether the income is listed in sections 13 – 22 of the Income Tax Act or not.

The basis for determining the residency for tax purposes consists of three criteria. If at least one of these criteria is met, the person will be considered as a resident in Estonia. In the case of Estonian residents, the change of the place of residence is important for determining the residency. For persons arriving in Estonia from abroad for a temporary visit, the number of days spent in Estonia is important.

A non-resident is a natural or legal person not specified above. A non-resident pays income tax only on the income received in Estonia.

If the residency determined on the basis of a tax treaty differs from the residency determined under Estonian law or if the tax treaty prescribes more favourable conditions for the taxation of income than those provided by law, the provisions of the tax treaty shall apply.

Change in residency

The decision about the change in a natural person’s status (from a resident to a non-resident or vice versa) shall be made by the tax authority –the Tax and Customs Board. If a person arrives in or leaves Estonia due to circumstances that may affect his or her residency, the person will turn to the Tax and Customs Board for the determination of his or her status of residency for tax purposes. According to subsection 6 (6) of the Income Tax Act, a natural person is obliged to notify the tax authority about the creation of or change in the residency for tax purposes. This can be done on Form R approved by the Minister of Finance for determining natural person’s residency for tax purposes, where an overview is given on the circumstances of essential importance affecting a person’s residency for tax purposes. By this form you can solve the problem of double residency that can arise due to different rules for the determination of residency for tax purposes in different countries. If information necessary for determining residency is not submitted by taxpayers or the data received are not reliable, the Tax and Customs Board has to make a decision on the person’s residency only on the basis of the data collected by the Board. The person shall submit data and proof about the circumstances affecting the residency to the Tax and Customs Board. The Tax and Customs Board shall have the right to request that the person submit additional proof and documents.

In the case of change in residency of people living in Estonia, the existence or change of the place of residence and the vital interests to be carried abroad in connection with the change of the place of residence will be important in the determination of residency. For persons arriving in Estonia for a temporary stay, the number of days staying in Estonia is important. Resulting from the legislation applicable in different states, a person may be considered a resident in several states at the same time, so a person may have a double residency. If a convention for the avoidance of double taxation with income tax and the prevention of fiscal evasion (hereinafter the tax treaty) has been concluded and valid between Estonia and another state, it is possible to avoid double residency. In order to avoid the double residency arising from the tax treaty, a person has to submit a certificate of residency confirmed by a foreign tax authority.

If the Tax and Customs Board has doubts about the person's residency for the purposes of the tax treaty, despite of the certificate of residency issued by the other state, the tax authorities of the two states shall determine the person’s residency in the course of the mutual agreement procedure in accordance with the criteria provided for in the tax treaty.

A person has also the right to initiate a mutual agreement procedure for the elimination of double residency by submitting a relevant application to the tax authority. The mutual agreement procedure is governed, as a rule, by Article 25 of the tax treaty.

After having analysed the circumstances and certificates, the Tax and Customs Board will make a decision on the registration of a person as a resident or non-resident. The Tax and Customs Board shall make a notation on the person’s residency for tax purposes in the register of taxable persons and, at the person’s request, shall issue a corresponding certificate. Information concerning the residency of a person shall be public.

If the circumstances that are known do not enable to determine the change in person’s residency in the future, the status of the person as a resident or non-resident will be considered unchanged until the circumstances are clear (for example, the person has stayed in Estonia for at least 183 days). In such a case, a natural person has to go to the Tax and Customs Board, provide information of the circumstances changed and submit Form R together with the required documentary evidence. The residency will be changed from the date of arrival/exit afterwards. It is possible to recalculate taxes on the basis of the income tax return of a resident natural person or the notice of assessment (for example, if deductions which are only allowed to residents have been made from the income of a non-resident who is not entitled to such deductions, the non-resident has to pay the additional amount due on the basis of the notice of assessment. Overpaid amounts of taxes shall be refunded on the basis of the income tax return of a resident natural person or pursuant to § 106 of the Taxation Act.

A paying authority cannot decide on the change of residency of the recipient independently, the residency of the payee must be confirmed by the decision of the Tax and Customs Board

For the purposes of the Income Tax Act, the status of a natural person as a resident or non-resident is considered to change during the taxable period (calendar year) on the date of the change of status, i.e. on arrival in or leaving Estonia.

In the case of the change in a person’s permanent or primary place of residence, the residency for tax purposes shall change as of the date when the change in the place of residence takes place. For persons who are staying in Estonia temporarily, the residency shall commence and terminate according to the calculation of the days during which the person was staying in Estonia. In order to avoid double residency according to the tax treaty, in every particular case the dates of commencement and termination of the residency in another state shall be also taken into account on the basis of the certificate of residency for tax purposes confirmed by the tax authority of that state.

A non-resident natural person shall be deemed to be a resident in Estonia as of the certified date of his or her arrival in Estonia over the course of a period of 12 consecutive calendar months, provided that the person meets the conditions laid down in subsections 6 (1) and (5) of the Income Tax Act.

A natural person who arrives in Estonia shall apply to the Tax and Customs Board with his or her application on Form R for determining his or her residency for tax purposes. The Tax and Customs Board may make a decision immediately, at a person’s request, on the determination of the person’s status as a resident on his or her arrival in Estonia, if there is reason to presume, on the basis of the data submitted by the person, that he or she is staying in Estonia for at least 183 days over the course of a period of 12 consecutive calendar months or he or she has come to Estonia with the intention to settle in Estonia. If a person comes from a state with which Estonia has concluded the tax treaty, possible double residency shall be examined and eliminated in each case in particular circumstances provided for in the tax treaty.

A natural person possessing a place of (permanent or primary) residence in Estonia is deemed to be a resident during a full period of taxation pursuant to the Income Tax Act. If a person’s place of residence is changed, the status of residency for tax purposes shall be considered changed as of the date when the change of the place of residence takes place.

A natural person arrived in Estonia is a resident if he or she is staying in Estonia for at least 183 days over the course of 12 consecutive calendar months. A natural person shall be deemed to be a resident as of the first day of his or her arrival over the course of 12 consecutive calendar month. A natural person arrived in Estonia shall be deemed to be a resident until the day of leaving (included), save in the case if the person has got a permanent, lasting or primary place of residence in Estonia.

If a natural person is a resident in Estonia under the Income Tax Act, but according to the tax treaty shall be deemed to be a resident in another country, the person shall be registered as a non-resident in Estonia as of the date of the creation of treaty residency for tax purposes in that country. For registration as a non-resident, a person shall notify the Estonian Tax and Customs Board about the circumstances concerning a change in his or her residency for tax purposes and shall submit the certificate of residency for tax purposes received from the other country.

On the basis of the information obtained from a natural person, the Tax and Customs Board shall register the person as a resident or non-resident as of the date of arrival in Estonia. If the circumstances related to changing person’s residency for tax purposes become apparent considerably later, the person shall be registered as a resident afterwards, when all circumstances are evident, as of the first day of arrival in Estonia. If the circumstances affecting the residency change, the person shall be obliged to notify the Estonian Tax and Customs Board about the changes on the first opportunity in writing.

A resident natural person shall be deemed to be a non-resident as of the calendar day following the date of his or her leaving Estonia, if the person meets the conditions provided for in subsections 6 (3) and (5) of the Income Tax Act.

If a resident natural person settles elsewhere in a manner whereof one can draw the conclusion that the person intends to change his or her place of residence (subsection 14 (3) of the General Part of the Civil Code Act) and there is no place of residence left for him or her in Estonia, and the person does not stay in Estonia for more than 183 days over the course of a period of 12 consecutive calendar months, and he or she is not an Estonian diplomat either, he or she shall be deemed to be a non-resident in Estonia as of the day following the date of leaving Estonia.

A resident natural person who has reason to presume that his or her status as an Estonian resident will change as he or she is leaving Estonia shall apply to the Tax and Customs Board with his or her application on Form R for changing his or her residency for tax purposes in the register of taxable persons. A natural person shall be registered as a non-resident in Estonia, if the person no longer meets or there is reason to presume that he or she will not meet (in the future) the conditions provided for in section 6 of the Income Tax Act.

The Tax and Customs Board, having analysed the circumstances concerning a person’s residency for tax purposes (also the future, if known) shall make a decision on the person’s residency. A person shall be registered as a non-resident as of the day following the day when the person leaves Estonia. If it is not possible to determine on the basis of the data submitted by the person or collected by the Tax and Customs Board whether the person's status as a resident is to be changed when leaving Estonia, the relevant decision shall be made, if necessary, afterwards when all circumstances are evident.

Moreover, if a person leaving Estonia is an Estonian resident on the basis of the criteria provided for in subsection 6 (1) of the Income Tax Act, but he or she leaves for a state with whom Estonia has concluded the tax treaty and he or she is deemed to be a resident in that state pursuant to the valid tax treaty, the person shall be registered as a non-resident as of the day when the person is deemed to be a resident in that other state pursuant to the tax treaty. In order to avoid double residency on the basis of the tax treaty, a person shall submit to the Estonian Tax and Customs Board the certificate of residency for tax purposes confirmed by the tax authority of the other state. If the circumstances affecting the residency change, the person shall be obliged to notify the Estonian Tax and Customs Board about the changes on the first opportunity in writing.

If the Tax and Customs Board has doubts about the person's residency for the purposes of the tax treaty, despite of the certificate of residency issued by the other state, the tax authorities of the two states shall determine the person’s residency in the course of the mutual agreement procedure in accordance with the criteria provided for in the tax treaty.

On determining the place of residence, we proceed from the definition of a place of residence in section 14 of the General Part of the Civil Code Act, according to which the place of residence of a person is the place where he or she permanently or primarily lives. Under this provision, the place of residence may be simultaneously in several places and the place of residence is deemed to be changed if the person settles elsewhere in a manner that expresses his or her intention to change the place of residence. If the place of residence of a person cannot be determined, the place where he or she is staying each time shall be deemed to be his or her place of residence.

The place of residence is deemed to be permanent if it is clear that the place of residence is established for permanent use, contrary to the conditions wherefrom it can be seen that the person intends to dwell at the said place for a short time only. The place of residence can be either a house or an apartment, as well as a room or a dwelling place of the same kind, owned by the person himself or herself, rented or otherwise possessed by a person for the permanent dwelling (e.g. also an apartment of the spouse or the room rented by the employer).

To determine a person’s place of residence, it is important that the place of residence would be permanent and lasting, i.e. it must be apparent that the person has made preparations or efforts for changing the place of residence for himself or herself all the time and making permanently available, not acquired for the purpose of short-term dwelling (a holiday trip, a business trip, a study trip, training courses, etc.). Possession of property (as well as an immovable) in Estonia itself does not make a person a resident for the purposes of the Income Tax Act. If the apartment or house owned by a person is let out to other persons, this shall not be deemed to be the person’s place of residence.

For the determination of the residency for tax purposes, only ‘the days when a person was physically present’ will be taken into account for calculating 183 days. All the days on which the person is staying in Estonia will be counted up, despite of the reasons of staying here (except the cases when the person who had to leave Estonia could not do it with a good reason, for reasons beyond his or her control (for example, a serious illness)).

In addition to the full days during which a person was staying in the country, also parts of the days (including days of arrival and departure) shall be included in the 183 days.

The full days on which a person is out of Estonia, whether on holiday, on a business trip or for some other reason, shall not be included in the 183 days. Whereas the time, nevertheless how short, during which the person was staying in Estonia, shall be counted as one day in the 183 days.

Example
The person is staying in Estonia from 1 January to 2 July (i.e. 182 days) and then on 31 December. The person is deemed to be a resident from 1 January to 31 December (also in the period from 3 July to 30 December).

Declaration and obligation to pay income tax

Resident natural persons shall declare their entire income in Estonia. It means that a person shall be charged on the principle of worldwide income (income earned anywhere in the world). If income tax has been withheld from taxable income of a non-resident at the rates provided for in section 43 of the Income Tax Act pursuant to section 41 of this Act, the non-resident shall not have an obligation to declare the said income. Non-residents shall declare the taxable business income received in Estonia pursuant to section 29 of the Income Tax Act and the gains derived from the transfer of property, as well as the income taxable pursuant to section 41, wherefrom the income tax was not withheld.

A natural person who has not been a resident during the whole period of taxation shall submit an income tax return concerning the income received during the period only when the person was a resident, and he or she may make deductions allowed under Chapter 4 of the Income Tax Act for the same period. The deductions provided for in sections 23 and 23¹ of the Income Tax Act and the limit of deductions specified in section 28² of the same Act shall be taken into account in proportion to the number of months during which the person has been resident (subsection 44 (1²) of the Income Tax Act). The proportionate calculation means that, for example, the status of residency for tax purposes during the period of time from 16 January 2016 to 3 March 2016 allows to deduct the basic exemption of 1500 euros maximally from the income during a period of taxation (one calendar year) (3/12 x 6000 from the year 2020). At the same time, the basic exemption is also subject to a limitation depending on the amount of income – if the total annual income exceeds 25 200 euros, there is no right to basic exemption at all.

The income received as a non-resident during the same period of taxation shall not be indicated on the resident’s tax return, for the said income, the obligations for declaration of income provided for a non-resident shall be applied.

If a person is deemed to be a resident in several states pursuant to the laws of different states, the double residency can be avoided on the basis of tax treaties. If a person is deemed to be, pursuant to the tax treaty:

  • a resident in Estonia, the person shall declare his or her worldwide income in Estonia;
  • a resident in another tax treaty state, not in Estonia, the tax incentives and exemptions under the tax treaty shall apply to the person, taking into account the obligations of a non-resident on declaration of the taxable income received in Estonia. In order to apply the tax incentives or exemptions to the income of a non-resident under the tax treaty, a person shall submit the certificate of residency for tax purposes confirmed by the tax authority of the other state.

If a resident or non-resident natural person has received income taxable in Estonia pursuant to the Income Tax Act, the income shall be declared according to the prescribed procedure provided for in the Income Tax Act, taking into account the tax incentives or exemptions under the tax treaty. Thus, for example, if a non-resident received the taxable income in Estonia pursuant to section 29 of the Income Tax Act, which is exempt from income tax on the basis of the tax treaty, the non-resident’s taxable income shall be declared, indicating the rate of income tax and the amount as “0”.

Last updated: 04.11.2021

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