The concept of residency is important in taxation because it is the deciding factor as to the extent of the Estonian taxation of a person's income: either their global income or only their Estonian income.
A resident is a person of unlimited tax liability: both Estonian and foreign income are taxed in Estonia but double taxation is avoided.
A non-resident only pays income tax in Estonia on Estonian income.
A natural person is a resident if one of the following conditions is met:
- his or her place of residence is in Estonia;
- he or she stays in Estonia for at least 183 days over the course of a period of 12 consecutive calendar months. A person shall be deemed to be a resident as of the date of his or her arrival in Estonia;
- Estonian diplomats who are in foreign service are also Estonian residents.
There is Form R which shall be submitted to the Estonian Tax and Customs Board for informing about changes in the natural persons residency. If you leave or arrive at Estonia, we suggest you to ask help from the tax administration, in order to decide if your residency has changed.
An e-resident is not a tax resident of Estonia but a non-resident who is only subject to Estonian taxation on Estonian income. E-residency does not provide an automatic exemption from taxation elsewhere.
The purpose of e-residency is to make life easier by using secure e-services, it is a state-issued secure digital identity for non-residents that allows digital authentication and the digital signing of documents. E-residency does not entail any residential or citizen rights.
A legal person is a resident if it is established pursuant to Estonian law.
European Company (in Latin Societas Europaea, SE) and European Cooperative Society (in Latin Societas Cooperativa Europaea, SCE) are regarded to be residents if their place of establishment is registered in Estonia.
A non-resident is a natural or legal person not specified above.
Non-residents (natural and legal persons) have a limited tax liability in Estonia, only the Estonian-source income is taxed.
Thus, where by reason of the provisions of agreement between two countries who have concluded a convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (hereinafter tax treaty), a person is a resident of both contracting states, his status shall be determined according to article 4 of the tax treaty.
If the residency prescribed on the basis of an international agreement (for example tax treaty) differs from the residency prescribed pursuant to the Estonian Income Tax Act, the provisions of the international agreement apply.
That means that a person who is deemed to be resident of another country according to article 4 of the tax treaty,that person is deemed to be non-resident according to the Estonian domestic law.
As a person shall be deemed to be a resident as of the date of his or her arrival in Estonia, it is possible, that a person shall be deemed to be resident for one part of the period of taxation (calendar year) and non-resident for the other part of the period of taxation.
A non-resident's permanent establishment is not a resident of Estonia but it is taxed in a manner similar as a resident.
An Estonian company formed by an e-resident is an Estonian resident but if the business is carried out elsewhere or the management of the Estonian company occurs outside of Estonia, the income earned in a foreign country is taxed in the foreign country and Estonia will ensure the avoidance of double taxation.