An e-resident’s digital identity card gives foreign citizens safe access to the Estonian e-services.
There is no need for applying for tax identification number in Estonia separately, as ID code given upon e-residency serves as it.
Providing contact information and keeping it up-to-date
It is important to give the Estonian Tax and Customs Board the contact information, in order for the tax administration to be able to send an e-resident an important information.
According to the Estonian domestic law, an administrative act is regarded to be submitted, when it is made available on the e-MTA.
Appointment of a local contact person
If the management board of a company is located in a foreign state, the company must designate a contact person in Estonia. Only a notary, notary's office, advocate, law office, sworn auditor, audit firm, tax representative of a non-resident or a trust and company service provider specified in § 8 of the Money Laundering and Terrorist Financing Prevention Act may be designated a contact person.
Information about the local contact person is important, in order for a non-resident to better comply with domestic accounting and tax obligations in Estonia and to avoid unwanted trouble.
Using Estonian Tax and Customs Board’s electronic services
- 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 ETCB
- to view documents and notifications sent by the ETCB
- 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.
In order to use the e-services of the ETCB as an e-resident, an e-resident's digital ID application has to be submitted to the Estonian Police and Border Guard Board. When registering as an e-resident, a private client shall automatically receive an e-Tax/e-Customs user account and access permissions to use all electronic services for a private client.
If an e-resident has established a company in Estonia, the legal representative (member of the management board) shall receive automatic access permissions to the business client's electronic services (based on the data of the commercial register). A member of the management board can authorise other natural or legal persons to use the services.
Communication with the Estonian Tax and Customs Board
An e-resident has the possibility to notify the tax administration about the language preference (you can choose Estonian, English or Russian) by a message via the e-MTA (select under the heading ‘Communication’ the menu item ‘Correspondence’ and click on the button New conversation’) or e-mail to email@example.com. The tax administration does its best to follow the communication to be held in the language chosen since then.
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.
If there is no activity or income derived from Estonia, taxes should be paid in the country where the service is provided or activity is done or income is derived from, the pure e-residency alone does not influence the foreign or Estonian taxation.
The Estonian e-residency does not automatically exempt from taxation elsewhere.
An Estonian company established by an e-resident is an Estonian tax resident.
The tax return on form TSD (declaration of income and social tax, unemployment insurance premiums and contributions to mandatory funded pension) must be submitted in case of taxable event, by the 10th day of the following month after the payment. The form is used both for declaration of income tax payable by the Estonian company and of taxes paid or withheld from taxable income of the recipient by the payer. It may be, depending on the circumstances, there is an obligation to submit tax return TSD even in case there is no taxable event.
The annual report of the Estonian company is to be submitted to the commercial register, where the information is entered online and made accessible to the tax administration.
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 generally 20%, calculated as 20/80 from taxable net payment.
Since 2019, if regular dividends are paid out, a reduced rate of 14/86 applies instead.
Income tax is assessed monthly, thus taxable amount must be declared (form TSD with Annexes) monthly (by the 10th day of the month following the payment) whenever profits are distributed or other taxable expenses are incurred.
Hence, there is no obligation to submit a tax return annually, regardless of profits or losses.
The information here is only informative and not final.
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: company income tax and income tax to be withheld from payment made to dividend recipient.
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 profit distributed in a calendar year, which is smaller than or equal to the average distributed profit of the previous three calendar years (starting from 2018) on which a resident company has paid income tax).
The e-resident natural person receiving such dividends taxed at a lower rate (14/86) 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.
An e-resident has established an Estonian company, whose activity is in Estonia and has received the Estonian profit of 1000 euros in year 2017 and 500 euros in 2018.
Income tax is not paid in 2017 and 2018, since the profit is not taken out. In 2019, 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 2019.
The e-resident receives dividends in the amount of 1200 euros, no income tax will be withheld.
Avoidance of double taxation
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.
If all 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 the profit of the permanent establishment of the Estonian company in another EEA country is 100 euros and corporate income tax paid by the Estonian company in this foreign country 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 foreign 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.
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 employment taxes in Estonia. If and when the work is done outside Estonia, employment income of an e-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. If a foreign state issues a certificate A1 to a person, the remuneration of a member of the management board is not subject to social tax in Estonia.
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 a foreign state issues a certificate A1 to a person, the remuneration of a member of the management board is not subject to social tax in Estonia.
A foreign country as the place of management of an Estonian resident company of an e-resident, applies the income taxation rules of the foreign country taxation rules to the profit of the permanent establishment of the Estonian company in the foreign country.
Distinguishing the type of payout
In cases where an e-resident is a sole shareholder, management board member and employee (in one and the same person) in a company established in Estonia and he or she actively contributes not only to the management of the company but also to the economic activities of the company, provides services or sells goods, a distinction has to be made between the employment income, management board member remuneration and dividends when making payments and these payments have to be declared according to their actual content.
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.
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. If an Estonian entrepreneur actually does not have any business in Estonia, it has in Estonia neither taxable supply nor other transactions which are taxable with VAT in Estonia (for example, intra-Community acquisition of goods where the goods are transported from the other EU Member State to Estonia) – in such case, as a rule, the entrepreneur shall not be registered in Estonia for VAT liability. If an undertaking is registered in the Estonian Commercial Register, but performs in the course of business activities only transactions, taxable with VAT in a foreign country – such undertaking must contact with the tax authority of correspondent foreign country and find out its VAT obligations in that foreign country.
Examples of the transactions where VAT obligations shall arise in a foreign country and the supplier must not register for VAT liability in Estonia
- An Estonian company purchases goods from China, the goods are transported to Germany and are released for free circulation in Germany. From a warehouse located in Germany these goods are sold to businesses and private persons – for example, in Germany, to France, to Poland. The place of supply is not Estonia. If the goods are sold from that German warehouse to VAT payers of other EU Member States or to German private persons, the place of supply is always Germany. If the goods are sold from the German warehouse to other Member States to private persons, it is treated as distance selling – the seller must pay attention when the threshold, established for distance selling in the Member State of the purchaser, is exceeded (in Estonia this threshold is 35,000 euros as calculated from the beginning of a calendar year but it is not the same in all Member States). Until the threshold established in the Member State of the purchaser is not exceeded or the seller is not registered for VAT liability in the Member State of the purchaser voluntarily before the exceeding the threshold, the place of supply is Germany. When the threshold established in the Member State of the purchaser has exceeded or the seller is registered for VAT liability in the Member State of the purchaser voluntarily, the place of supply is the Member State of the purchaser.
- An Estonian company purchases goods from Poland, the goods are transported to a warehouse located in Germany. From that German warehouse these goods are sold to businesses and private persons – for example, in Germany, to France, to Sweden, to Austria etc. The place of supply is not Estonia. If the goods are sold from that German warehouse to the VAT payers of other EU Member States or to German private persons, the place of supply is always Germany. If the goods are sold from the German warehouse to other Member States to private persons, it is treated as distance selling – the seller must pay attention when the threshold, established for distance selling in the Member State of the purchaser, is exceeded (in Estonia this threshold is 35,000 euros as calculated from the beginning of a calendar year but it is not the same in all Member States). Until the threshold established in the Member State of the purchaser is not exceeded or the seller is not registered for VAT liability in the Member State of the purchaser voluntarily before the exceeding the threshold, the place of supply is Germany. When the threshold established in the Member State of the purchaser has exceeded or the seller is registered for VAT liability in the Member State of the purchaser voluntarily, the place of supply is the Member State of the purchaser.
- An Estonian company sells in its own name tickets to a concert which will take place in Finland (entrance service). The place of supply is not Estonia but Finland where the event takes place.
- An Estonian company provides transport services, related to the carriage of passengers, in Sweden. The place of supply is not Estonia but Sweden where the transport of passengers takes place.
- An Estonian company provides to private persons transport services for goods from Poland to Estonia and inside Poland. The place of supply is not Estonia but Poland where the transport begins.
- An Estonian company leases means of transport in Italy on a short-term basis. The place of supply is not Estonia but Italy.
- An Estonian company imports goods from Ukraine, but the goods are transported from Ukraine not to Estonia but to Lithuania and the goods are released for free circulation and resold in Lithuania (the goods are not transported to Estonia at all). The place of supply of the resale transaction is Lithuania, not Estonia.
- An Estonian company provides construction services in Finland to a private person. The place of supply of the services, connected with an immovable, is always the country where the immovable is located – therefore currently Finland, not Estonia.
Transactions where the Estonian entrepreneur has VAT obligations in a foreign country are not taxed with VAT in Estonia and are not declared in a VAT return submitted in Estonia. If the Estonian entrepreneur has only such kind of supply, it has no obligation and no necessity to register for VAT liability in Estonia.
The entrepreneur must register for VAT liability in Estonia if its 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 the Estonian Value Added Tax Act; today this threshold is 40,000 euros. 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 in Estonia if it sells goods which are taxable with VAT or provides services which are taxable with VAT.
If a company has registered in Estonia for VAT liability, it must submit the VAT returns and pay VAT to the Estonian 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 Estonian Tax and Customs Board by the 20th day of the following month. The VAT return should be submitted even if there was neither taxable supply nor deductible input VAT for the particular period.
The Estonian Tax and Customs Board has the right to delete the person from the register of the Estonian VAT payers if the person has failed to submit a VAT return for the last six consecutive taxable periods or has not submitted upon the request of the Estonian Tax and Customs Board the proof that it is still engaged in business in Estonia (subsections 22 (3) and 22 (31) of the Estonian Value Added Tax Act).
The standard VAT rate is 20% in Estonia.
A company, registered in Estonia for VAT liability, is also required to submit a report on intra-Community supply by the 20th day of the month following the taxable period if it has effected intra-Community supply or has transferred goods as a reseller in a triangular transaction during the taxable period.
The sale of goods from Estonia to the VAT payers of the other EU Member State together with the transport of goods from Estonia to the other Member State, and the provision of such kind of services to a VAT payer of the other Member State where the Member State of the recipient of the service shall be treated as the place of supply, irrespective of the country where the services were actually provided (the provider of the service declares the services in its own Member State as the supply with 0% VAT) – these transactions are treated as intra-Community supply. Services which always shall be taxed with VAT and shall be declared in the country where the services were actually provided, irrespective of the recipient of the service (incl. the recipient is a VAT payer of the other EU Member State) – such services shall not be declared in the report on intra-Community supply. The seller, registered for VAT liability in Estonia, shall not add VAT to the sales price of the goods which are transported to the other Member State to a purchaser who is a VAT payer (or are transported to that Member State by the purchaser). However, the supply is effected in the country of dispatch of the goods (the goods are taxable with 0% VAT rate in that country), but the goods shall be taxed with VAT in the country of destination, according to the VAT rates established in the country of destination. Additionally to the transfer of goods, the transport of goods by a VAT payer to the other Member State, without transferring them, for them to be used for business purposes there is also treated as intra-Community supply.
The place of intra-Community supply of goods is not Estonia if the goods are located not in Estonia but in any other Member State at the moment of the sales transaction. In such case the seller must follow the tax legislation of the Member State where the goods are actually located, and the seller must know whether he is required to register for VAT liability in that other Member State where the goods are located at the moment of the sales transaction (excl. triangular transaction).
A person of another Member State engaged in business with no permanent establishment in Estonia may appoint upon registration as a VAT payer a tax representative specified in the Estonian Taxation Act, who has been approved by the Estonian Tax and Customs Board.
A person of a non-EU country engaged in business with no permanent establishment in Estonia shall appoint, upon registration as a VAT payer, a tax representative (subsection 20 (6) of the Estonian Value Added Tax Act).