Taxation of Non-Residents in Estonia
A resident of a foreign State who receives income from Estonia or while in Estonia is considered a non-resident for tax purposes. A resident of Estonia who has a residence in a foreign State but who has established closer ties with a foreign State on the basis of a tax treaty on the avoidance of double taxation shall also be considered a non-resident of Estonia (centre of vital interests, longer stay). An e-resident is not considered to be a resident of Estonia, he is a non-resident of Estonia and his income is taxed in Estonia only in respect of income derived from sources of income in Estonia. E-residency is not an automatic basis for tax exemption in other countries.
The income of a non-resident is taxed in the State of residence and in other States where the income arose, with double taxation rules applicable in the State of residence.
When the wages of foreigners are taxed in Estonia, account should be taken of whether the employee is a seconded worker or a worker on a business trip and the length or length of time that the employee is in Estonia.
A non-resident pays income tax in Estonia only on income derived from sources of income in Estonia.
Rate of income tax:
- 10% of the fees for the performance of an athlete and an artist
- 10% of licence fees
- 7 per cent of dividends if the recipient is a natural person and 14 per cent lower tax rate applied to dividends.
On the salary, on the payment of a service, on the remuneration of a board member, on the payment of a rent or rent, on the payment of a licence, on a pension, on a scholarship, on the payment of a performance by a sportsman or an artist, the income tax must be withheld by the person making the payment.
The person making the payment does not deduct the non-taxable income from the taxable income of the non-resident natural person, but only the withheld payment for unemployment insurance, provided: that the payment in Estonia was obligatory.
- If the non-resident is a resident of another Member State of the European Economic Area, the payer may, when making the payment, take into account the non-taxable income if the recipient has made such a declaration, from 2022 as a result of the Income Tax Act, which is to be amended.
- If the person making the payment has not withheld income tax, but the non-resident has an income tax obligation in Estonia, then the non-resident is obliged to file an income declaration for the tax period (calendar year) (form A1) not later than by 31 March of the following calendar year.
- If a non-resident has profited from the expropriation of property, then he is obliged to file a Declaration of Income (Form V1) pursuant to Part 4 of Article 44 of the Income Tax Act, the person making the payment must not withhold income tax in this case.
- If a non-resident has received business income in Estonia, then he is obliged, in accordance with article 44, part 5, of the Income Tax Act, to submit an income declaration, form E1. An entrepreneur – a natural person registered in the business register or in the register of a contracting country may, in the declaration, deduct from the taxable income by himself the incurred and documented expenses directly related to the enterprise. Income from business activities is calculated on the basis of the data provided in the declaration, income and expenditure should be reported separately
A natural person who is a resident of another country party to the Agreement on the European Economic Area may submit a declaration of income to an Estonian resident once a year, by 31 April of the following year, in order to receive the benefits provided for an Estonian resident.
If a person does not have a personal code assigned to him in Estonia, then the income declaration shall contain the registration code issued by the Tax and Customs Department.