Natural persons are regarded to be residents or non-residents for taxation purposes.
Non-residents have a limited tax liability in Estonia, only the Estonian-source income is taxed.
Income tax is withheld upon payment of taxable income. The general income tax rate is the same (20% in 2018) for resident and non-resident persons. Income tax withheld in accordance with the rates specified in the Estonian Income Tax Act or in tax treaties is, for a non-resident recipient, the final income tax on income from Estonian sources.
In Estonia, the tax incentives or exemptions arising from conventions for the avoidance of double taxation (hereinafter tax treaty) can be applied only if the recipient of the payment has certified her or his residence status to the withholding agent. The certificate of residency shall be submitted to a service bureau of the Estonian Tax and Customs Board not later than at the moment of filing the tax return. The document need not be submitted if valid data on the recipient of income and the residency of the recipient of income have been entered in the register of taxable persons.
You may use Form TM 3 for certifying the recipient of income and the residency of the recipient or a relevant form issued by the competent tax authority of your country. The certificates are valid 36 months upon legal persons and 12 months upon natural persons as recipients of income.
In case the income tax on the payments made to the taxpayer has been withheld at higher rate than prescribed in tax treaty, the beneficial owner of the income or his representative has the right to apply to the Estonian tax authority within three years after the due date for payment of the tax for a refund of the overpaid tax amount.
In order to get back the overpaid income tax amount, the application on Form TM 3 for a refund of the Estonian income tax withheld at source has to be submitted to the service bureau of the Estonian Tax and Customs Board in Tallinn (Lõõtsa 8a, 15176 Tallinn, Estonia, e-mail address: firstname.lastname@example.org).
A freeform application will be accepted, but it must include taxpayer's bank account number and information about amounts of payments and tax withheld in Estonia. Upon the refund of overpaid tax to a taxpayer by transferring the amount to the taxpayer’s bank account located in a foreign state, the costs of transferring the refunded amount shall be covered by the taxpayer.
A duplicate of a certificate issued on income derived and taxes paid to a taxpayer in Estonia would be eligible to enclose. In order to facilitate refunding process a taxpayer should inform the tax authorities about when did the payments and taxation take place in Estonia.
Thus, non-residents generally do not have to file income tax returns (depending on the type of income, they might have to, for example in case of taxable gain from transfer of properties and from business income).
Generally, non-residents may not claim for tax deductions and allowances available to residents and income tax shall be withheld from the gross amount, without permission of any deductions like basic exemption.
Unemployment insurance premiums withheld pursuant to clause 42 (1) 1) of the Unemployment Insurance Act from a payment made to a natural person are deducted form payment before calculation of the income tax to be withheld in accordance with § 41 of the Estonian Income Tax Act.
The deduction shall be calculated at the moment of payment already. The amount of income tax thus calculated will be regarded to be final tax. There is no need to submit income tax return to get the abovementioned deduction.
Although non-residents generally may not claim tax deductions, the deductions provided for resident natural persons in chapter 4 of the Estonian Income Tax Act in proportion to the share of the Estonian income in the persons total taxable income can be made from the income subject to taxation in case a person, who is a resident natural person of another Contracting Party to the EEA (European Economic Area) Agreement, who submits an income tax return of resident natural person (§ 311 (2, 3, 4) of the Income Tax Act).
If the abovementioned person has derived less than 75% of his or her taxable income in Estonia, she or he may deduct only basic exemption in proportion to the Estonian taxable income in the persons total taxable income.
Taxable income means income before deductions pursuant to the legislation of the state where the income has been derived or of the state of residence of the person concerned.
Thus, the deductions from the Estonian taxable income have been made available for a non-resident natural person as prescribed in § 311 of the Income Tax Act. But the deductions could not be done at the time of withholding the income tax; it can be done once a calendar year only. A non-resident has an opportunity to file income tax return for a resident natural person not later than by 31 March of the following year in order to get the overpaid amount refunded.
The income tax return shall be filled in with the Estonian taxable income and the income tax withheld. Taxable income received from the resident country abroad shall also be filled in to provide the possibility to calculate the percentage of the Estonian taxable income of the person. Income of non-residents gained from foreign states is not taxable in Estonia.
Thus, the Estonian Tax and Customs Board shall refund the overpaid Estonian income tax to non-resident natural persons post factum once a year according to the filed income tax returns of resident natural persons.
Deductions allowed to resident natural persons, applied proportionally to non-residents who comply with the conditions specified under item 2:
- basic exemption (2160 euros in 2017)
- increased basic exemption (1848 euros) for each child of up to 17 years of age, starting with the second child (§ 231 of the Income Tax Act)
- increased basic exemption in event of state or mandatory funded pension (2830 euros in 2017 for a calendar year, § 232 of the Income Tax Act)
- increased basic exemption in event of compensation for accident at work or occupational disease (768 euros for a calendar year, § 233 of the Income Tax Act)
- housing loan interest (§ 25 of the Income Tax Act), not more than 300 euros in 2017
- training expenses (§ 26 of the Income Tax Act)
- gifts, donations (§ 27 of the Income Tax Act)
- insurance premiums and acquisition of pension fund units (§ 28 of the Income Tax Act)
- contributions to mandatory funded pension (§ 281 of the Income Tax Act).
The deductions for housing loan interest, training expenses, gifts, donations and trade union entrance and membership fees are altogether limited to 1200 euros per taxpayer during a period of taxation (calendar year), and to not more than 50 per cent of the taxpayer's income of the same period of taxation, after the deductions relating to enterprise have been made (§ 282 of the Income Tax Act).
The deductions for insurance premiums and acquisition of pension fund units during one period of taxation are limited to 15 per cent of the taxpayer’s income of the same period of taxation.
Latvian resident has worked for 5 months in Estonia for the Estonian employer. The amount of salary to the Latvian resident for a month was 1000 euros. The employer has withheld income tax at a rate of 20% from monthly payments. The taxable amount in Estonia for a year is 5000 euros (5 −1000). The amount of unemployment payment withheld at a rate of 1,6% is deducted before calculating the amount of income tax to be withheld in the amount of 984 euros = (5000 − 80) × 0.20.
The taxable income from resident country (Latvia) for the same year has been 1000 euros. The Estonian income constitutes 83,33% of the taxable income of the Latvian resident. Thus, the person has a right to submit income tax return for resident natural person in Estonia and make deductions from the Estonian taxable income. Let us suppose that the Latvian resident had two children of up to 17 years of age and has paid training expenses in the amount of 200 euros in year.
Simplified example of calculation of the final amount of income tax payable in Estonia for 2017:
|Taxable income in Estonia||5000|
|Income tax withheld in Estonia||984|
|Unemployment insurance premium withheld in Estonia||80|
|Increased basic exemption in case of children of up to 17 years||1848|
|Proportion of income in Estonia||0,8333|
|Total deductions||3586.52 (= ((2160 + 1848 + 200) × 0,8333) + 80)|
|Estonian taxable income after deductions||1413,48 (= 5000 − 3586.52)|
|Final amount of income tax pay||282,70 (= 1413,48 × 0,20)|
|Amount of income tax to be refunded||701,30 (= 984 − 282,70)|
A non-resident shall submit income tax return of a resident natural person in order to use deductions allowed to persons specified in point 2 of this guide and to get back overpaid Estonian income tax withheld from payments made to the non-resident.
Income tax return shall be submitted not later than by 31 March of the following year.
A joint income tax return may also be submitted if
- one of the spouses is a resident and the other spouse is the non-resident as specified in § 311 (2) or (3) of the Income Tax Act (see point 2 of this guide) or
- if both of the spouses are non-residents specified in § 311 (2) or (3) of the Income Tax Act and their entire income meets the conditions provided in § 311 (2) or (3) of the Income Tax Act (see point 2 of this guide).
In case of joint income tax return, separate forms of tax return for each spouse shall be filled in. The amount of overpaid income tax will be refunded to bank account of only one spouse.
A non-resident has to mark a sign into the income tax return to confirm he or she is the resident of an EAA Member State, because otherwise he or she cannot submit income tax return of resident natural persons.
If the Estonian ID-code does not exist, a non-resident shall fill in the registration code in the Estonian Tax and Customs Board. If the latter does not exist, a non-resident has to apply to the Estonian Tax and Customs Board in order to get the registration code. Application forms for registration are available here.
The Estonian registration code could be checked in the website of the Estonian Tax and Customs Board here: "Inquiry of non-residency".
For a non-resident, only the income taxable in Estonia shall be filled in to the income tax return. Income derived abroad and taxable in resident country of the non-resident shall be filled in table 8.9 of the tax return in order to declare the worldwide taxable income.
A non-resident shall not fill in other tables for income abroad (tables from 8.1 to 8.8 of the income tax return).
Expenses made by a non-resident shall be filled in to tables from 9.1 to 9.8 only if the taxpayer has a document certifying the expenses.
Submission of an application for claiming the refund of overpaid amount of income tax is not necessary if a non-resident has submitted the tax return for resident natural persons. The Estonian Tax and Customs Board shall refund the amount of tax overpaid by a natural person to the bank account of the taxpayer or of his or her spouse indicated in the tax return. Overpaid amounts of tax shall be refunded not later than by 1 July (or 1 October in case of gain from transfer of property or business income exists) of the year following the taxable calendar year.
Application is needed in case of applying tax incentives and exemptions provided for according to tax treaties and if not provided at the moment of payment (see point 2 of this guide).
If a refundable tax amount should be transferred to a taxable person’s bank account located in a foreign state, the tax authority has the right to deduct the costs of transferring the refunded amount from the refunded amount (§ 106 (4) of the Taxation Act).