Taxation of wages and fringe benefits
When taxing wages and fringe benefits in Estonia, it must be taken into account whether the employee is posted to Estonia or on a business trip, but also how long the employee stays in Estonia. See when the tax liability arises upon the taxation of the wages and fringe benefits of a non-resident working in Estonia, a non-resident on a business trip or of a posted employee.
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.
If employees perform their duties in Estonia, the employer must also pay taxes in Estonia on fringe benefits granted to non-resident employees.
Example
The value of a fringe benefit granted to an employee is 1000 euros.
The employer declares the fringe benefit in Annex 4 to Form TSD and pays the taxes:
- income tax 1000 × 22 ÷ 78 = 282.05 euros
- social tax 33 % of 1282.05 i.e. 423.08 euros
Total tax expense for the employer is 705.13 euros.
The employee does not declare the fringe benefit granted in Estonia in the Estonian income tax return and does not pay taxes thereon in Estonia.
More information
If a non-resident receives remuneration or fringe benefit from an Estonian employer for work done in Estonia, income tax is charged on the remuneration and fringe benefit in Estonia, regardless of the number of days spent working in Estonia.
If a non-resident stays outside Estonia while working, income tax is not charged on the remuneration in Estonia and the payment made to the non-resident or fringe benefit is not declared in Estonia.
Since in this case the non-resident's income is not taxable, the non-resident employee does not have to declare it 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 or fringe benefits granted to the non-resident from Estonia.
The tax liability arises for the employee and the employer on the basis of the laws of the foreign country.
An employer is from Estonia if it is a resident of Estonia, an institution of Estonian state or local government authority, a non-resident operating in Estonia as an employer, or non-resident through its permanent establishment situated in Estonia.
An employer is also deemed to be from Estonia if the tasks are performed as temporary agency work at a user undertaking which is one of the persons specified in the previous sentence, regardless of the fact that the payment of remuneration is made by a foreign person not specified in the previous sentence.
The remuneration for employment on aircraft engaged in international transport or ship engaged in international carriage of goods or passengers by sea must be taxed in Estonia regardless of where the non-resident stays if the employer of the person or the operator of such aircraft or ship is the aforementioned Estonian person. More about special arrangements for taxing the income of crew members.
Withholding and declaration of income tax
An employer withholds income tax on wages taxable in Estonia, pays social tax and unemployment insurance premium upon making a payment and declares the non-resident's remuneration in Annex 2 to Form TSD. The payment types and tax rates can be found in the TSD payment types table.
In Estonia, unlike wages, fringe benefits are subject to income tax and social tax only at the level of the employer and are declared in Annex 4 to Form TSD (see instructions for filling in Annex 4).
Basic exemption can be deducted from payments to non-resident natural person only if the recipient is a resident of another 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 22%. The rate of income tax withheld from remuneration for performance is 10%.
The unemployment insurance premium withheld in Estonia must be deducted from the payment before the calculation of income tax if the payment thereof is mandatory in Estonia (if there is no form A1 certifying the social insurance cover of a foreign state). The gross remuneration must be declared, the withheld unemployment insurance premium is deducted in Annex 2 to Form TSD.
Example 1
An unemployment insurance premium of 1.6% is withheld from the payment of 1000 euros (gross) made to a non-resident employee that is declared in Annex 2 to Form TSD (type 120). The income tax to be withheld is calculated as follows:
(1000 – 16) × 0.22 = 216.48 euros.
The employee receives 1000 – 16 – 216.48 = 767.52 euros.
Example 2
A non-resident working in Estonia is resident in an EEA Contracting State, such as Latvia, Lithuania, Poland, Germany, Finland, etc., and the non-resident's residency certificate has been entered in the database of the ETCB and the non-resident has applied for basic exemption. An unemployment insurance premium of 1.6 % is withheld from the payment of 1 000 euros (gross) to a non-resident employee that is declared in Annex 2 to Form TSD (type 120). The income tax to be withheld is calculated as follows.
The employee is not at the pensionable age, receives no other payments:
(1000 – 16 – 654) × 0.22 = 72.60 euros.
The employee receives 1000 – 16 – 72.60 = 911.40 euros.
The employee is not at the pensionable age, receives no other payments, has form A1 certifying the social insurance cover of a foreign state:
(1000 – 654) × 0.22 = 76.12 euros.
The employee receives 1000 – 76.12 = 923.88 euros.
The employee is at the pensionable age but does not receive pension yet:
(1000 – 16 – 776) × 0.22 = 45.76 euros.
The employee receives 1000 – 16 – 45.76 = 938.24 euros.
The employee is at pensioable age, the basic exemption of 776 euros (since 2024) has already been applied to the Estonian pension:
1000 × 0.22 = 220 euros.
The employee receives 1000 – 220 = 780 euros.
Example 1 (as of 2026)
An unemployment insurance premium of 1.6% is withheld from the payment of 1000 euros (gross) made to a non-resident employee that is declared in Annex 2 to Form TSD (type 120). The income tax to be withheld is calculated as follows:
(1000 – 16) × 0.22 = 216.48 euros.
The employee receives 1000 – 16 – 216.48 = 767.52 euros.
Example 2 (as of 2026)
A non-resident working in Estonia is resident in an EEA Contracting State, such as Latvia, Lithuania, Poland, Germany, Finland, etc., and the non-resident's residency certificate has been entered in the database of the ETCB and the non-resident has applied for basic exemption. An unemployment insurance premium of 1.6 % is withheld from the payment of 1 000 euros (gross) to a non-resident employee that is declared in Annex 2 to Form TSD (type 120). The income tax to be withheld is calculated as follows.
The employee is not at the pensionable age, receives no other payments:
(1000 – 16 – 700) × 0.22 = 62.48 euros.
The employee receives 1000 – 16 – 62.48 = 921.52 euros.
The employee is not at the pensionable age, receives no other payments, has form A1 certifying the social insurance cover of a foreign state:
(1000 – 700) × 0.22 = 66 euros.
The employee receives 1000 – 66 = 934 euros.
The employee is at the pensionable age but does not receive pension yet:
(1000 – 16 – 776) × 0.22 = 45.76 euros.
The employee receives 1000 – 16 – 45.76 = 938.24 euros.
The employee is at pensioable age, the basic exemption of 776 euros (since 2024) has already been applied to the Estonian pension:
1000 × 0.22 = 220 euros.
The employee receives 1000 – 220 = 780 euros.
The income tax correctly withheld by an employer is considered as the final tax and a non-resident does not need to additionally declare the income. Non-residents themselves must declare the income received only in the cases where the payer has not withheld the income tax correctly.
A non-resident natural person can make 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 to the EEA Agreement and submits to the payer the application for basic exemption and a certificate of residency from foreign tax authority.
The final basic exemption amount is calculated in the Estonian income tax return of a natural person. In this case, income from abroad which is not taxed in Estonia but which is taken into account in the calculation of the amount of basic exemption applied in Estonia must also be declared in Estonia.
If a non-resident receives remuneration from a person who is not a withholding agent in Estonia (for example, a non-resident payer or a natural person), the non-resident must declare the taxable income himself or herself either on form A1 or E1, a resident of another Contracting State to the EEA Agreement on the income tax return of a natural person of Estonia.
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.
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 the remuneration of a non-resident member of the management or controlling body is taxed in Estonia, the fringe benefits granted are taxed in Estonia with income and social tax as income of the grantor of the fringe benefits.
Remuneration of a non-resident member of the management or controlling body of an Estonian resident legal person or a member of the management body of a permanent establishment of a non-resident company in Estonia is subject to income tax (20%, 22% from 2025) and social tax (33%) based on Estonian law.
Social tax is not paid on the remuneration of a member of the management body of an Estonian company in Estonia only if the recipient of the remuneration has been issued a certificate of social security in that foreign country in form A1 from the home country.
Estonian company submits the form TSD, declares the payments made to the non-resident board member in Annex 2 of the form TSD and the fringe benefit in Annex 4, and pays the taxes to the Estonian Tax and Customs Board by the 10th day of the month following the payment.
The data of the member of the management or controlling body who receives taxable remuneration in Estonia must be entered in the employment register by the company (the person providing employment).
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.
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.
Last updated: 14.11.2025
