Income from employment derived abroad – wages and salaries, remuneration received for provision of services under contracts concluded under the law of obligations and payments made to a member of a management or controlling body of a legal person – are exempt from income tax in Estonia, if all the following conditions have been met:
- a person has stayed in the foreign country for the purpose of employment for at least 183 days over the period of 12 consecutive months,
- employment income and other remuneration were subject to income tax abroad (even in the cases when the final amount of taxes was zero euros), and
- taxation is certified by documents.
Also, the dividends received abroad are exempt from income tax in Estonia, if the income tax paid on the share of profit which was the basis for dividends has been paid or withheld in the foreign country.
Although a person is not required to pay income tax in Estonia on the income from employment derived abroad and on the dividends received abroad, he or she is still required to declare such income in table 8.8 of the income tax return on income derived outside Estonia.
The dividends subject to taxation, received on financial assets involved into the system of the investment account and transferred to the investment account, shall be declared in table 6.5 as payment, form an exception.
The taxpayers are also required to declare income not subject to taxation under an international agreement.
Income taxable outside Estonia and declared in table 8.8 is not subject to any further income tax, irrespective of the amount of income tax paid abroad.
Income charged with income tax in a foreign country and entered in table 8.8 is not included in the taxable income in Estonia.
Income from employment and dividends received abroad are taxable in Estonia in the following cases:
- if a resident natural person has stayed in the foreign state for the purpose of employment less than 183 days in the period of 12 consecutive months;
- if the payment received from employment abroad is not subject to taxation in that state, even if the person has stayed in a foreign country more than 183 days in the period of 12 consecutive months;
- income tax on dividends has not been withheld in a foreign country and the foreign company has not paid the income tax in the foreign country on the share of profit which was the basis of the dividend.
Income derived abroad and taxable in Estonia is declared in table 8.1 of the income tax return ”Income derived outside Estonia”.
Counting the days stayed abroad for application of tax exemption starts from the day of arrival to a foreign country for employment and it does not depend on the calendar year. The days of physical stay in the country of employment (incl. the day of arrival and the day of departure) in 12 consecutive months are included in the computation of days. If a person has stayed in different states outside Estonia, all days when a person stayed in foreign countries for the purpose of employment are summarised.
Income tax paid outside Estonia is not refunded
If an Estonian resident natural person has not paid income tax in Estonia, then it is not possible to refund him or her the deductions allowed from the taxable income (e.g. basic exemption applicable in Estonia, housing loan interest, contributions to a funded pension, training expenses), because the income tax paid abroad is not subject to refund in Estonia.