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To e-residents

An e-resident’s digital identity card gives foreign citizens safe access to the Estonian e-services.

Information on the Estonian e-residency can be found on the website of e-residency and webpage "Application for e-resident’s digital identity card".

Using Estonian Tax and Customs Board’s electronic services

E-residents can use the Estonian Tax and Customs Board’s electronic services in the e-Tax/e-Customs environment on the same conditions as the persons with the Estonian ID card. For instance, it is possible:
  • to submit all tax and customs declarations
  • to register their company liable to value added tax
  • to pay taxes and view tax payment history
  • to send documents and notifications to the Estonian Tax and Customs Board
  • to view documents and notifications sent by the Estonian Tax and Customs Board
  • to compile certificates (e.g. on the absence of tax arrears) for submitting to business partners etc.
  • as a representative of a company, to authorize private persons to use electronic services on behalf of the company, etc.

A contract for the use of the e-Tax/e-Customs has to be concluded in order to use the Estonian Tax and Customs Board’s electronic services.

How to conclude a contract for the use of e-Tax/e-Customs?

A private client (a natural person) can conclude the contract on the Internet. Entering the e-Tax/e-Customs and signing the electronic contract is possible with the help of an e-resident’s identity card.

An account will be created for the private client in the e-Tax/e-Customs and the client can start using all private client’s electronic services.

In case an e-resident has established a company in Estonia, the business client’s electronic services can be used after creating a business client’s account in e-Tax/e-Customs, which can also be done electronically. By signing the contract, the business client will be created an account for using all business client’s electronic services. In order to use the services, a legal representative has to authorize private persons, including themselves.

Creating business client’s account for e-services and authorizing users »

Estonian e-residency versus taxes

An e-resident is a non-resident according to Estonian tax legislation. Only income derived in Estonia is taxed in Estonia.
About income taxation of a non-resident »

The Estonian e-residency does not automatically exempt from taxation elsewhere.
About residency »

An Estonian company established by an e-resident is an Estonian tax resident. In case business activities of this company are carried out elsewhere or the company is managed from outside of Estonia, the income received in a foreign state will be taxed in this foreign state and Estonia will ensure avoidance of double taxation. Therefore, an Estonian company established by an e-resident may likely have tax obligations in foreign states and the Estonian e-residency does not automatically exempt from foreign tax obligations nor ensure taxation only in Estonia.
About tax rates »
Tax calendar »

An Estonian company established by an e-resident is an Estonian tax resident. In case business activities of this company are carried out elsewhere or the company is managed from outside of Estonia, the income received in a foreign state will be taxed in this foreign state and Estonia will ensure avoidance of double taxation. Therefore, an Estonian company established by an e-resident may likely have tax obligations in foreign states and the Estonian e-residency does not automatically exempt from foreign tax obligations nor ensure taxation only in Estonia.
About tax rates »
Tax calendar »

Company income tax

In Estonia, income tax is not assessed on profit earned every year. Income tax is only assessed when profits have been distributed, including:

  • corporate profits distributed in the tax period;
  • gifts, donations and representation expenses;
  • costs and payments not related to business.

The corporate income tax rate is 20%, calculated as 20/80 from taxable net payment. Hence, there is no obligation to submit a tax return every year, regardless of profits or losses.

Income tax is assessed monthly, thus taxable income must be declared monthly whenever profits are distributed or other taxable expenses are incurred.

Avoidance of double taxation

If profit of the Estonian resident company is distributed as dividends to the e-resident owner of the Estonian resident company, it has to be distinguished from income tax withheld on dividend income of the recipient. There are 2 different types of income taxes:

The Estonian company pays corporate income tax at the moment of dividend payment, while tax rate is calculated from net amount, 20/80 of the payment.

No income tax is withheld from income of the e-resident recipient.

From year 2019, a lower tax rate (14/86) applies to part of dividends paid by the Estonan resident company regularly.

The e-resident natural person receiving such dividends taxed at a lower rate in the hands of the Estonian company, has to pay income tax at a rate of 7% in addition. It has to be withheld by the payer.

An e-resident natural person has to pay income tax on dividends received from the Estonian company in the resident country also and he or she cannot take into account the corporate income tax (20/80 or 14/86) paid in Estonia by the Estonian resident company to avoid double taxation of the recipient. Only the income tax withheld at a rate of 7% may qualify to avoid double taxation of the e-resident recipient.

Employment income

If an e-resident natural person receives employment income from an Estonian resident company, from work done while staying in Estonia, the income will be taxable by with employment taxes in Estonia. If and when the work is done outside Estonia, employment income of ane-resident as a non-resident will not be taxable in Estonia.

In Estonia, employer has the main obligation to declare and pay all taxes from wages and other employment income at the moment of payment already. Usually the employee only has to submit tax return to get refund because of additional allowances available for the whole income of a calendar year.

Member of a management body

In case of fees to a member of the management or controlling body, income is taxable in Estonia, no matter if the work is done in Estonia or outside.

The resident country of an e-resident will also tax the same income, but the income tax paid in Estonia will usually be taken into account by the other country to avoid double taxation.

Examples
Example 1

An e-resident has established an Estonian company, which has received profit of 1000 euros in year 2015 and 500 euros in 2016.

Income tax is not paid in 2015 and 2016, since the profit is not taken out. In 2017, dividends in the amount of 1200 euros are distributed to the e-resident owner.

Income tax of 300 euros, calculated as 1200 × 20 ÷ 80, has to be paid by the company in the month following the dividend payment in 2017.

The e-resident receives dividends in the amount of 1200 euros, no income tax will be withheld.

Example 2

If an e-resident receives income of 100 euros every month for performing activities of the member of the board of the Estonian company, income tax at the rate of 20% will be withheld and social tax of 33% paid by the Estonian resident company in Estonia.

The cost for the company is 133 euros, the e-resident receives 80 euros.

If profit of the Estonian resident company is derived in a foreign country through a permanent establishment there, dividends distributed in Estonia may be exempted in full from income tax in Estonia.

If an e-resident manages an Estonian company from abroad, the foreign income tax has to be paid from profit derived outside Estonia.

 


Example 3

Latvia as a country of the place of management of an Estonian resident company of an e-resident (Latvian tax resident), applies the income taxation rules of Latvia to the profit of the permanent establishment of the Estonian company in Latvia.

If the profit of the permanent establishment of the Estonian company in Latvia is 100 euros and corporate income tax paid by the Estonian company in Latvia is 15% and the Estonian company pays dividends in the amount of 85 euros, there will be no additional income tax in Estonia assessed to the dividends paid from the Estonian company to the e-resident owner.

The profit of the Latvian permanent establishment must still be declared on form TSD Annex 7 when received and dividends declared on form INF 1, when distributed without income tax.

Sole proprietor

If an e-resident registers as a sole proprietor in Estonia, it is accompanied by a commitment to pay advance payments of social tax 4 times a year. The size of advance payment actually does not depend on the size of income, it is set each year with the state budget.

Sole proprietors' tax liabilities » (in Estonian)

Value added tax (VAT)

An Estonian entrepreneur (a company or sole proprietor registered in Estonia) is not automatically treated as a taxable person for VAT purposes. The entrepreneur must register for VAT liability if his taxable supply–the supply of the goods and services which shall be taxed in Estonia and which VAT rate is 20%, 9% or 0%–from the beginning of a calendar year exceeds the threshold established in Article 19 of the Estonian Value Added Tax Act. Today the threshold is €40,000 (note that the transfer of fixed assets is not included in the aforementioned threshold). If the annual turnover of the entrepreneur is less than this threshold than the entrepreneur has no obligation to register for VAT liability and has no obligation to pay VAT if he or she sells such goods or provides such services. Every entrepreneur, however, has the right to register for VAT liability voluntarily before his or her taxable supply has exceeded the threshold.

If a company already has an Estonian VAT Identification Number, the company must submit the VAT returns and pay VAT to the Tax and Customs Board. The taxation period for VAT purposes is one calendar month and the VAT return must be submitted and the amount of VAT due must be paid to the Tax and Customs Board by the 20th day of the following month. The VAT return should be submitted even if there was no taxable supply for that particular period.

The standard VAT rate is 20% in Estonia. A list of goods and services that are taxed with reduced VAT rate 9%, 0% VAT rate or exempt from VAT, is available here.

More detailed information about the Estonian VAT rules in English is available here.  English instructions on filling in the VAT return and its appendix are available here. Information about the VIES declaration (when the VAT payer must submit this declaration and how to complete it) is available here.

 

 

12.10.2018