Virtual Office FAQ
Estonia has a very transparent tax system and it is easy to understand for the foreigners, because of the flat tax rates. Here are some of the main tax benefits of an Estonian company. It is very important to understand that there are different taxes for the company, and you as a private person. Therefore, you have to keep your personal and company’s money separate, as these are two independent persons: a natural person and a legal person. This also means that it is not considered as double taxation when the company distributes dividends and pays corporate income tax, and when a private person receives dividends and pays personal income tax on that. We will discuss how double taxation works in the following section. A natural person is a resident if one of the following conditions is met: Taxation requirements also apply according to residency status. Corporate tax status is determined by where the turnover is generated, where the profits are distributed, and where the employee is resident in the country. [sonaar_audioplayer albums=”8609″ artwork_id=”” hide_artwork=”false” show_playlist=”false” show_track_market=”false” show_album_market=”false” hide_timeline=”false”][/sonaar_audioplayer] Non-residents not registered in the commercial register in Estonia and operating in Estonia through a permanent establishment or non-residents not having a permanent establishment but being employers in Estonia have to register with the Estonian Tax and Customs Board. Likewise, non-resident employees and recipients of payments not having an Estonian personal identification code have to be registered with the Estonian Tax and Customs Board. Closer look: https://www.emta.ee/en/business-client/registration-business/non-residents-e-residents/registration-non-resident Estonian law allows for the physical person the cancellation of the order within 14 days after the order is submitted if there is a reasonable basis and in the case of sales of goods. This requirement does not apply to the service already provided. Note that your application must be made before the service duration has ended and you should not have unpaid bills. It is not possible to terminate the Contract prematurely. Disputes are resolved by way of negotiations. Upon not reaching an agreement the dispute is resolved in the jurisdiction of the service provider. The litigation is based on the Estonian Law of Obligations Act (VÕS) in general and on transactions made through a computer network more narrowly ( § 62 1 ). If there is no activity or income derived from Estonia, taxes should be paid in the country where the service is provided or activity is done or income is derived from, the pure e-residency alone does not influence foreign or Estonian taxation. An Estonian company established by an e-resident is an Estonian tax resident. The Estonian e-residency does not automatically exempt from taxation elsewhere. Tax residency is the place where you actually have to pay the taxes. For example, if you are an Estonian citizen, but have lived more than 183 days per year in Finland, then you become a tax resident in Finland and have to pay the taxes there. Generally, a company’s tax residency is in the country where the company is established. So, if the company is based in Estonia, then by law the tax residency is in Estonia. There are exceptions to this rule that will change the tax residency of your company, which we will discuss later in this article. When talking about tax residency or even e-Residency, it is essential to emphasize that neither is an actual residency. So, if you receive your e-Residency card, then this doesn’t make you a resident nor a tax resident of Estonia – it is a common false perception. E-Residency is not related to a visa or a resident permit and doesn’t enable you to travel to Estonia. An e-Residency card is a digital identity that allows you to run a business in Estonia from a distance and fully online. Only the paid-in share capital can be returned. The authorized capital and the funds remaining in the bank account can be returned to the owner 4 months after the start of the liquidation process. A natural person is a resident if one of the following conditions is met: Taxation requirements also apply according to residency status. Corporate tax status is determined by where the turnover is generated, where the profits are distributed, and where the employee is resident in the country. [sonaar_audioplayer albums=”8609″ artwork_id=”” hide_artwork=”false” show_playlist=”false” show_track_market=”false” show_album_market=”false” hide_timeline=”false”][/sonaar_audioplayer] MOSS stands for Mini One Stop Shop and is part of the VAT, but it only concerns digital goods or services. For example, services covered under the MOSS scheme include website hosting, a supply of software, access to databases, downloading apps or music, online gaming and distance teaching. When selling digital goods and services, the regular rule is that the place of turnover is where your customer is located. So normally if you sell physical goods to a certain country, then at some point you have to get a VAT number in that country. But MOSS simplifies the process for digital goods and services which means you don’t have to get a VAT number in many different countries. For example, if an Estonian company sells digital services to different private persons all over the EU, then the company’s invoices will have an Estonian VAT number, but a client’s home country VAT rate. Meaning that your company will pay all the other countries’ VAT to the Estonian tax office who will then spread the VAT itself between those countries where the customers purchased your digital goods or services. Therefore, MOSS will save you a lot of time and money in the end. MOSS scheme can be used only if the company is VAT liable. In Estonia, you have to declare MOSS in a special quarterly declaration. So, it is not part of the regular monthly VAT declaration, but additional reporting. You still have to submit monthly VAT declarations, even if most of the goods or services you sell, are covered with MOSS. It is very important that you fully understand what selling digital goods and services means when it comes to MOSS. You will have to set up a very good system to gather all the information about your clients, the countries where they’re from, and the VAT rates of the countries where your customers completed the purchases, as this will greatly help from the tax reporting point of view. As the name says, double taxation stands for paying the same taxes in different countries. Double taxation can be avoided, if the country where your company is established, and where you as a private person live, have signed a double tax treaty agreement. See the list of the countries that have double tax treaty agreements with Estonia. If the countries have not signed the treaty, then the double taxation can’t be avoided. For example, Estonia doesn’t have a double tax treaty with Russia, which means that the company may need to pay corporate income tax in Estonia as well as in Russia. In the previous section, we already mentioned that income taxes for a natural person and a company are two separate things. If a company pays out dividends, then this is taxed with the corporate income tax. However, in most of the countries, private persons have to pay personal income tax from the received dividends. This is not considered as double taxation, because these are two separate taxes. There is no tax ID in Estonia. An 8-digit company registration code and your 11-digit personal identity code (isikukood) should be enough for all institutions and services in Estonia. Estonia has a very transparent tax system and it is easy to understand for the foreigners, because of the flat tax rates. Here are some of the main tax benefits of an Estonian company. It is very important to understand that there are different taxes for the company, and you as a private person. Therefore, you have to keep your personal and company’s money separate, as these are two independent persons: a natural person and a legal person. This also means that it is not considered as double taxation when the company distributes dividends and pays corporate income tax, and when a private person receives dividends and pays personal income tax on that. We will discuss how double taxation works in the following section. Applicants must have access to “Submit a VAT registration application”. In order to grant access, the authorized person must enter the e-MTA as a representative and select “Settings”> “Access Rights”> “Representative Access Rights”. On the Access Rights Administration page, you must enter the user ID of the user to be authorized and select “Access to VAT registration” under the “Individual rights” section. Log in: https://maasikas.emta.ee/v1/login?authst=eitUBZa5iT Non-residents not registered in the commercial register in Estonia and operating in Estonia through a permanent establishment or non-residents not having a permanent establishment but being employers in Estonia have to register with the Estonian Tax and Customs Board. Likewise, non-resident employees and recipients of payments not having an Estonian personal identification code have to be registered with the Estonian Tax and Customs Board. Closer look: https://www.emta.ee/en/business-client/registration-business/non-residents-e-residents/registration-non-resident Residents pay tax on their worldwide income. Taxable income includes, in particular, income from employment (salaries, wages, bonuses and other remuneration); business income; interest, royalties, rental income; capital gains; pensions and scholarships (except scholarships financed from the state budget or paid on the basis of law). Taxable income does not include dividends paid by Estonian or foreign companies when the underlying profits have already been taxed. The personal income tax is withheld from the employees’ gross salary every month and paid by the employer. Non-residents pay personal income tax only on their income received from Estonian sources. Taxable income in Estonia includes: Permanent establishment is something that people are usually not aware of, but it is important to consider as it can determine where you have to pay the taxes. Permanent establishment occurs in a different country than where your company is registered, and in a location where the business management and selling goods or services happens. So, if you permanently manage your business from another country, then you have the risk of having a permanent establishment there. For example, if you have an Estonian company, but manage your business in Finland, then this might result in a permanent establishment in Finland and means that taxation will be according to the Finnish tax rules. Besides management location and permanently selling in some country, a permanent establishment might occur if you sign agreements with the clients and negotiate about the prices in some other country than where your company is established. Other aspects can also create a permanent establishment for your company in a foreign country. As taxes are case sensitive, then a tax advisor has to evaluate and analyse the nature of your company’s business and see whether there is a risk for a permanent establishment occurring somewhere else. So, if the permanent establishment happens, then your tax residency might change, and you have to start paying taxes in that foreign country. In that case, you will be notified about the tax obligations by this country’s government. For example, the Finnish tax office might see that you’re conducting your business in Finland and therefore lets you know that, as you have a permanent establishment in Finland, you have to pay the taxes in Finland and according to their rules. All the above means that once a permanent establishment occurs, then Estonian regular taxation rules do not apply to your company anymore. So, at the end of the year, you have to pay taxes according to the laws of the country where you have the permanent establishment. It is important to evaluate all the risks that you have regarding the permanent establishment when starting a business. As mentioned earlier, permanent establishment mainly takes place if you manage the business or sell goods or services permanently in a different country from where your company is established, but there are also many other aspects to consider. So, it is recommended to get a tax consultation before starting a company in Estonia, just to save you money and nerves in the future and avoid arguments with tax offices about where you are obligated to pay the taxes. The rate of social tax is 33% (20% for social security and 13% for health insurance). Besides the social tax, unemployment insurance tax at a rate of 0.8% must be paid on the gross salary (an additional 1.6% is withheld from the employees’ salary). Employers registered in Estonia (including the permanent establishments of foreign entities) must pay social tax on all payments made to employees, except on those specifically exempted by law. In case your company has made profit, it is possible to pay dividend to the shareholders. Shareholders receive dividends proportionately to the share of the company that they own. NB! Before the company is allowed to pay dividend, the company’s share capital needs to be paid into the company bank account. After you have made the share capital payment, please inform your e-Residency hub accountant, so we could formulate the changes in the company registration documents Dividends are taxed with 20% corporate income tax. Example: A company decides to spend €100,000 of its accumulated profit to make a dividend payment. This sum is divided in the following manner: In the case described above, the €80,000 which is received by the company’s shareholders, may be considered their income in the country where they are tax residents. It may therefore be taxed with a personal income tax in their country of residence. Please check with a tax advisor in your country of residence to find out if this applies to you. If there is no activity or income derived from Estonia, taxes should be paid in the country where the service is provided or activity is done or income is derived from, the pure e-residency alone does not influence foreign or Estonian taxation. An Estonian company established by an e-resident is an Estonian tax resident. The Estonian e-residency does not automatically exempt from taxation elsewhere. Tax residency is the place where you actually have to pay the taxes. For example, if you are an Estonian citizen, but have lived more than 183 days per year in Finland, then you become a tax resident in Finland and have to pay the taxes there. Generally, a company’s tax residency is in the country where the company is established. So, if the company is based in Estonia, then by law the tax residency is in Estonia. There are exceptions to this rule that will change the tax residency of your company, which we will discuss later in this article. When talking about tax residency or even e-Residency, it is essential to emphasize that neither is an actual residency. So, if you receive your e-Residency card, then this doesn’t make you a resident nor a tax resident of Estonia – it is a common false perception. E-Residency is not related to a visa or a resident permit and doesn’t enable you to travel to Estonia. An e-Residency card is a digital identity that allows you to run a business in Estonia from a distance and fully online. The only income that is sourced within Estonia is subject to taxation in Estonia. In cases where there is no activity or income sourced from Estonia, taxes must be paid in the jurisdiction where the service is provided, activity is conducted or income is derived from. It is important to note that e-residency alone does not have any bearing on taxation in Estonia or any other jurisdiction. Furthermore, e-residency does not automatically provide an exemption from taxation in other jurisdictions. It should also be noted that an Estonian company established by an e-resident is deemed an Estonian tax resident. 0% There is no corporate income tax on retained and reinvested profits. Tax on distributed profits is 14-20%. Distributed profits include: Dividends paid to non-residents are no longer subject to withholding tax, irrespective of participation in the share capital of the distributing Estonian company. However, various withholding taxes may still apply to other payments to non-residents if they do not have a permanent establishment in Estonia or unless the tax treaties otherwise provide. As the tax period for corporate entities is a month, income tax must be returned and paid monthly by the 10th day of the following month. It is possible to run your company without any corporate income taxation at all. Anno 2023. If you are unable to use the above-mentioned authentication methods, we recommend you apply for Estonia’s e-Residency. E-Residency offers foreigners secure access to Estonia’s e-services. Holders of the e-resident’s Digi-ID card can digitally sign documents and use the Digi-ID to sign in to all portals and information systems that recognize the Estonian ID card. You can apply for an Estonian e-resident’s Digi-ID electronically at https://eresident.politsei.ee/. The questions are what the Tax and Customs Board wants to know when accepting the application. 1. Has the desire to register arisen voluntarily or compulsorily? 2. Brief description of business activity, 3-4 sentences. 3. 2-3 main business partners. 4. Sources of business financing: loan, equity or grant? 5. Are there plans to register employees?
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General (4)
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Since we offer services, not commodities, it is generally not possible. Exceptionally, for example, if a service has not yet been provided, cancellation of the order is possible.
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An e-resident is a non-resident according to Estonian tax legislation. Only income derived in Estonia is taxed in Estonia.
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Liquidation (1)
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Taxis in Estonia (15)
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An e-resident is a non-resident according to Estonian tax legislation. Only income derived in Estonia is taxed in Estonia.
NB!
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As per Estonian tax legislation, an e-resident is considered a non-resident for tax purposes.
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As a non-resident, you can sign in to the Estonian Tax and Customs Board’s self-service environment and use the e-services if you have:
Estonia’s e-Residency
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