Taxation of a non-resident

Information on this page is simplified. Various actual circumstances may cause differences in taxation.
 

About residency


Foreign citizens, who derive income from Estonia or while staying in Estonia, are non-residents for the purposes of taxation. An Estonian citizen is a non-resident when he/she also has a place of residence in a foreign country and a stronger connection (centre of vital interests, longer stay) to this foreign country according to a tax treaty (bilateral Conventions for Avoidance of Double Taxation and Prevention of Fiscal Evasion).

An e-resident is not an Estonian resident, but a non-resident. Therefore, only his/her Estonian income is taxed in Estonia.

E-residency does not automatically exempt from taxation outside of Estonia.

As a non-resident is mainly staying outside of Estonia, his/her income is also taxed in his/her home country and in other countries, where income arises. However, double taxation is avoided in the country of residency.
 

Taxable income


A non-resident pays income tax only on Estonian income.

The tax rate of withheld income tax is:

  • 20%,

  • 10% on the income of an entertainer and an athlete in connection with his/her performance or competition,

  • 10% on royalties.

Income tax is withheld by the payer on remuneration and service fee, board member fee, rental income, pension, scholarship and grant, performance fee of an entertainer and an athlete, and royalties.

Payer will not calculate basic exemption on a non-resident natural person’s taxable income, but will deduct withheld unemployment insurance premiums if payment of these is mandatory in Estonia.

A non-resident does not have to submit an income tax return in case income tax has been correctly withheld.

In case Estonia has concluded a tax treaty with the beneficiary’s country of residency, and this treaty states more favourable taxation of a non-resident’s income than the Estonian Income Tax Act and the beneficiary’s tax residency has been proved with a certificate of residency confirmed by the foreign state’s tax authority (i.e. the beneficiary has presented a certification of residency on form TM3 (547.39 KB, PDF)), the tax reductions of tax treaties may be applied when making the payment. With the tax declaration form TSD, the payer submits a valid certificate of tax residency to the Estonian Tax and Customs Board if this has not been submitted yet (a natural person’s certificate is valid for 12 months and a legal person’s certificate for 36 months). A reduced tax rate of a tax treaty, which is certified as described in this paragraph, will be the final tax rate for the beneficiary and income tax return does not have to be submitted by the beneficiary on this income type.

A resident’s tax incentives (deductions) are generally not applied on a non-resident’s taxable income.

Spouses cannot submit a joint tax return.

  • In case the payer did not withhold income tax, but the non-resident beneficiary is obliged to pay income tax in Estonia, the non-resident beneficiary submits the income tax return form A1 on the income of the taxation period (calendar year) by 31 March of the following year.

  • If a non-resident received gains from transfer of property, he/she is obliged to submit the income tax return form V1 (Income Tax Act § 44 (4)), the payer does not have to withhold income tax.

When a non-resident transfers immovable property, the income tax return form V1 has to be submitted within a month after receiving the gains. With the rest of income types, the gains of a taxation period (calendar year) or the loss from the transfer of securities carried forward is submitted by 31 March of the following taxation period at the latest.

Taxable gains = sales revenue – acquisition cost – costs related directly to sale
Income tax = taxable gains × 20%

Certified expenses can be deducted, gains are calculated in the tax return, income and expenses are shown separately.

  • If a non-resident derived business income from Estonia, then he/she is obliged to submit the income tax return form E1 (Income Tax Act § 44 (5)).

    A sole proprietor, entered in the commercial register or a registry of a Contracting State, may deduct certified expenses relating to enterprise from taxable gains. Gains are calculated in the tax return, income and expenses are shown separately.

    Form E1 is submitted within the next six months following taxation period, by 1 July.
     

Non-resident’s deductions


A resident natural person of another Contracting State of the European Economic Area Agreement may submit the Estonian resident’s income tax return by 31 March in order to use the tax incentives of an Estonian resident (incl. basic exemption).

It is in this case necessary to mark “Yes” in the box “Are you a resident of another Contracting State of the European Economic Area Agreement, who wishes to use deductions in Estonia and who has derived income in Estonia according to the conditions of the Income Tax Act § 311 (2) or (3)”. In this case, the non-resident is required to declare his/her worldwide income. Although only Estonian income is taxed in Estonia, deductions can be taken into account partially, depending on the size of worldwide income of the non-resident. The non-resident indicates his/her foreign income only in the table 8.9 and other foreign income tables are not filled in.

 

General data necessary for declaration


If a person does not have an Estonian personal identification code, an Estonian registry code issued by the Estonian Tax and Customs Board is indicated on the income tax return.

If the Estonian Tax and Customs Board has not issued a registry code to the person by the time of submitting income tax return, the code can be received after filling in and submitting the respective application (view forms).

Registry codes issued by the Estonian Tax and Customs Board can be checked by the electronic query for checking a person’s non-residency (the page is in Estonian).

If it is necessary to pay additional income tax, reference number is necessary for transferring income tax. After submitting the income tax return, reference numbers are issued to the non-resident for transferring income tax to the bank account of the Estonian Tax and Customs Board.

Reference numbers and the bank account details can be found on the web page ”Requisites for payment of taxes”.
 

 

19.03.2018