E-Residents' guide: taxes in Estonia

Estonian e-residency does not mean, that the person is Estonian tax resident. On the contrary, e-resident as natural person is NOT a tax resident in Estonia. Tax residency status arises considering other circumstances like the person’s place of actual residence and length of staying in Estonia. Keep in mind, that having Estonian e-residency does not free you from tax obligations in your home or other countries. 

E-resident, a natural person, is a non-resident from taxation point of view in Estonia. This means, that only income received in Estonia and salaries received from working in Estonia are taxable here.  

Salary from employment in Estonia 

In Estonia, e-residents' income is declared by the person who makes the payments. Taxes are withheld, calculated, and paid to the authorities without any actions needed by e-resident himself/herself. Taxes which are withheld from your gross salary are income tax and unemployment insurance premium. Employer must calculate on top of gross salary unemployment insurance premium and social tax. If the e-resident is covered by social security system of another member state, social tax in Estonia is not paid in case A1 certificate is issued by this other member state and presented to Estonian employer.  

So called Directors Fee from Estonian entity  

This is renumeration for management positions (e.g. CEO or member of supervisory board). Such income is taxable in Estonia regardless of where the work is actually performed. Tax reporting and taxes triggering are the same as for salary, except for unemployment insurance premium, which does not apply for Directors Fee. In case the e-resident is executing management position and receiving fee for that, and also actively doing the work for salary, proportion of those two income should be determined as taxation differs.   

Income from sale of property or acting as sole proprietor in Estonia 

In case e-resident earns income from those sources, it needs to be declared in annual income tax return and income tax of 20% (22% from 2025) has to be paid by e-resident himself/herself. 

To submit a tax return in Estonia e-residency personal identification code can be used, no additional registration number issued by the tax authorities is needed. All returns are submitted though e-MTA system.  

In case e-resident owns a company registered in Estonia, the company is a tax resident in Estonia. Following are the most common tax registrations needed. Keep in mind that depending on the area of business you may also need customs, excise duty, environmental charges registrations.  

• Corporate taxation 

There is no special registration needed in order for the Estonian entity to become the payer of corporate income tax. As soon as you have company registered in the business register, the entity is a taxpayer.  

• Value added tax 

Registration for VAT is not automatically deemed differently from corporate taxation. A company can register as VAT liable person in case it has business taxable in Estonia or other transactions subject to VAT (for example purchase of goods from EU received in Estonia). If not and there is only foreign supply or tax-exempt supply, the registration is not needed.  

You must apply for VAT registration in case your taxable supply in Estonia exceeds 40 thousand euros during calendar year. Application to register for VAT is submitted though e-MTA system. It should be noted that the authorities could inquire for proof that the taxable supply has occurred or soon will occur.  

• Payroll taxation 

Similarly to corporate taxation, Estonian entity can automatically hire employees, withhold, calculate, and pay payroll taxes. No additional registration is needed. Though keep in mind, when hiring employees, you need to register them in the employment register before they start working.  

When the registrations are sorted out, the next steps are to understand how and when are the taxes due.  

• Using e-MTA system 

Main communication channel with the tax authority is e-MTA system. E-residents can use the e-services under the same conditions as Estonians. System is used for both natural persons and legal entities. If an e-resident has established a company in Estonia, the legal representative (registered in business register) receives the access to business client e-services automatically. Just log in with your e-residency.  

In the online system you can submit tax returns, receive documents from tax authorities, send inquiries to tax authorities, generate certificates (for example to prove you have no tax debts), give others (e.g. accountant) right to use system, receive information about your companies’ tax behavior ratings. 

Note, that the tax authorities official working language is Estonian, though many forms and services are available also in English. The tax authority issues its decisions and other official documents only in Estonian.  

• Corporate taxation 

There is no annual profit taxation applied in Estonia for earned profit and the time of taxation is delayed until profit is distributed. Therefore, in case all the profit is reinvested, no taxation triggers. Corporate income tax triggers when dividends are distributed. Tax rate is 20% from gross payment, rate will increase to 22% from 2025. Tax is due by the 10^th of the month following the dividend payment. In addition, specific costs are taxable on a monthly basis. Such costs are fringe benefits (also taxable with social tax), gifts, donations, representation costs, non-business related expenses.  

The fact that the company is resident in Estonia does not free it from taxation in other countries.  In case the business is actually carried out in another country, the profit earned is taxed in this country and Estonia ensures there is no double taxation. The same goes if the company is actually managed outside of Estonia.  

• Value added tax 

Taxable period for VAT is a month and the return should be submitted and tax paid by the 20^th of the following month. Input VAT from costs related to taxable supply can be deducted. In case you have registration, a VAT return must be filed even if no supply or input VAT occurred during the month.  

Having Estonian VAT number does not free you from VAT liability in foreign countries. Depending on business of your company, the place of purchased/sold goods, type of transaction (e.g. real estate, event, transport related activity) and client (individual or tax payer), VAT liability in other countries may trigger.  

• Payroll taxation 

In case the company has employees in Estonia (e-resident itself or others, residents or non-residents) payroll taxes are reported and paid by the 10^th of each month following the salary payment. Taxes which are withheld from your gross salary are income tax 20% (22% from 2025) and unemployment insurance premium 1,6%. Employer must calculate on top of gross salary unemployment insurance premium 0,8% and social tax 33%. Fringe benefits offered to employees are taxable as well (corporate income tax, social tax). In case the employees of your Estonian entity are non-resident working outside of Estonia, this countries payroll tax system should be followed.  

Are you already a e-resident in Estonia looking for someone who will help you sort out the taxes and be your own tax person? Our tax expert is happy to jump on board and think together with you.