What Taxes Must be Paid if the Board Member is a Foreigner in Estonia
The board member of an Estonian enterprise is a foreigner. If he obtains a temporary residence permit in Estonia with the right to work and wishes to receive remuneration (wages or dividends), what taxes should be paid? Was it true that non-taxable income and compulsory contributory pension contributions were excluded? Are there any other particularities that we should be aware of?
If a board member expects to be in Estonia for a period of at least 183 consecutive calendar months, he must register with the Tax and Customs Department as a tax resident from the day of arrival in Estonia, and then the tax of his remuneration can be applied to the tax of non-taxable income.
Income tax, compulsory contributory pension contributions should be deducted from the remuneration of a member who is a resident of Estonia, if he joins the second pension, and social tax should be paid.
If a member of the board is not in Estonia for at least 183 days during 12 consecutive calendar months, the amount paid to him shall be subject to income tax in accordance with article 29 of the Income Tax Act. Remuneration of a non-resident for work or service performed on the basis of a contract of obligations or an employment contract is taxed in Estonia as long as the work or service was performed in Estonia.
Since the seat of the board member is an enterprise registered in Estonia, the board member should be paid income tax and social tax. In this case, he is not entitled to a deduction of income tax-free income.
If a non-resident employee performs tasks not related to the management of the enterprise on the basis of an employment contract, the income tax and social tax will depend on whether he is in Estonia or abroad in the performance of his duties (In Estonia only income derived from work performed in Estonia is taxed).