Salary Taxation in Estonia?

In general, there are two options to pay a fee from a company in Estonia: a regular salary and a board member’s fee. A regular salary is paid for active work that is done in the company to bring value. A board member’s fee is paid for administrative tasks that are done to manage the company.

If you are the only owner and an employee of your company, then you can decide which fee you pay for yourself. You can pay yourself a regular salary, a board member’s fee, or a combination of both.

A company has to pay out salary taxes on a regular salary only if the employee actually works in Estonia. If the employee is not an Estonian tax resident and doesn’t work in Estonia, but the company still pays them a salary, then the salary taxes should be paid in another country where the person is a tax resident and works in reality.

The regular tax rates for Estonian tax residents in Estonia are 20% for personal income tax, 33% for social tax, 1,6% for unemployment tax, 0,8% for employer’s unemployment tax and 2% for pension. In Estonia, employees can also get a maximum of 500 € income-tax-free, but the amount decreases depending on the size of the salary.

If you work in Estonia and are tax resident here, then you also have to pay social tax in Estonia, which means that you can receive health insurance only in Estonia. Keep in mind that you can only get social benefits from one country. Therefore, the personal income tax can be paid in many different countries, but the social tax should be paid in a country where you live and where you need to get the social benefits.

The taxation of a board member’s fee is a bit different than that of a regular salary. If a board member is an Estonian tax resident, then all the taxes will be paid in Estonia. But if the board member is a foreigner and doesn’t work or live in Estonia, then the 20% income tax still has to be paid in Estonia. Social tax can be paid in Estonia or in another country where the board member wants to receive the social benefits.

In case you are a digital nomad and travel in different countries while working, then the salary taxation might become quite complex. If you are a tax resident in one country, then everything is simple, and you will pay taxes in that country. If, however, you don’t have a tax residency and receive a salary, then you still have to pay taxes somewhere. Otherwise, at some point, some government can claim that you need to pay taxes in their country. So, if you are staying in a certain country and doing work, then this is the country where you should pay the taxes.