Answers to frequently asked questions about taxation in Estonia

Thinking of moving to Estonia or starting a business there? Then you’re definitely gonna want to read this article about taxation in Estonia! We’ve rounded up everything you need to know about taxes in Estonia, breaking down complex terms and offering helpful tips to save money and simplify your life. No boring legalese here—just clear answers to your burning questions.

Does Estonia’s tax administration follow the economic employer approach in interpreting Article 15 of the OECD Treaty?

Currently, Estonia’s Income Tax Act states that if a non-resident temporarily works in Estonia under an agency arrangement with a user enterprise, such as an Estonian governmental authority, municipal authority, resident entity, or non-resident employer operating via a permanent establishment in Estonia, the user enterprise is deemed the employer.

Is there a threshold number of days beyond which the economic employer approach would be enforced locally?

No, there is no minimum number of days required for applying the economic employer approach.

Which types of income are generally subject to taxation?

Generally speaking, all forms of remuneration connected to employment or assignments are taxable. Non-monetary benefits granted to employees do not count towards the employee’s taxable income but are taxed at the employer’s level.

Would a non-resident appointed as a statutory director within a group company in Estonia face personal tax implications despite receiving no separate remuneration for board membership?

Yes, if a non-resident derives income from serving as a member of the management or supervisory body of a resident legal entity or a permanent establishment of a non-resident in Estonia, this income becomes subject to income tax. Physical presence at board meetings in Estonia is immaterial, nor does it matter which entity within the group pays the remuneration.

How might the taxation differ if the costs are directly or indirectly charged back to the Estonian subsidiary?

Notably, charging such costs to the Estonian entity may exacerbate tax risks. Estonian tax authorities could reclassify management fees partially or entirely as board-member fees and impose income tax (possibly including social tax) accordingly. Consequently, the Estonian entity would bear the corresponding tax liability.

Assuming tax liability arises, how would the taxable income be computed?

To mitigate potential risks, it is advisable for the non-resident board member to allocate a portion of their overall remuneration specifically linked to their role as a board member. They should then file a non-resident taxpayer declaration in Estonia and pay a 20% income tax on said allocation. Any tax paid in Estonia can subsequently be offset against taxes owed elsewhere.

Are there any types of income that are free from taxation in Estonia?

Travel allowances given to employees for business trips, inclusive of compensation for using a private car, are exempt from taxation up to amounts set by the government.

Are there any concessions available for expatriates living in Estonia?

There is no special tax regime for expatriates in Estonia.

Is salary earned overseas taxed in Estonia?

Salary earned by an Estonian resident while working abroad is exempt from Estonian income tax if the following criteria are satisfied:

● The individual spent at least 183 days abroad within a continuous 12-month period solely for employment purposes.

● The income was taxed in the foreign country, evidenced by a certificate indicating the amount of tax paid (including zero tax scenarios).

● The duration of employment and stay abroad lasted six months or more, and the income was taxed in the country where the work occurred.

However, if the employment period abroad lasts fewer than 183 days and income tax was levied abroad, the tax paid will be recognized and credited toward the Estonian personal income tax.