International taxation of an Estonian company in a nutshell

In today’s world, most of the business is international. This means that the tax rules of several countries should be considered. It can be a little difficult at the beginning and it makes sense to get a tax consultation before making any decisions, but in this article we answer some of the questions our clients usually have. Please bear in mind that this is a very simplified overview and might not be valid in your case.

If your company is registered in Estonia (country A), but is doing some business outside of it (country B), then this company could be liable for taxes in country B. Estonia has tax treaties in place that regulate taxation with other countries and these need to be studied to understand what to do in a particular case.

Permanent establishment

Non-residents must consider tax risks related to the permanent establishment of their Estonian company in another country. Very simplified it means that your company has to pay taxes in another country and has to register for it in country B’s tax office. If your company is late with the registration, it might result in fines and interests from country B’s tax office.

There are several options of how a company registered in Estonia becomes a permanent establishment in another country. The cases are different, but you should definitely think about it if your company has a place of management, a branch or an office in country B.

Corporate income tax for your Estonian company and personal income tax

According to Estonian law the income tax has to be paid on profit only when the company pays dividends to the shareholders. If Estonian company pays dividends from profit earned in the permanent establishment and therefore already taxed in another country, such dividends are tax except in Estonia.

On a personal level, there are 3 options to receive income from Estonian company: salary, management fee and dividends. Each option is taxed differently and here we only cover the last option – dividends. In Estonia there is no double taxation for our residents so if an Estonian receives a dividend income in Estonia they don’t have to pay a personal income tax from this profit.

Most countries apply personal income tax to all sources of income, including dividend income, but again, it depends on a country and should be studied case by case.

VAT in Estonia

You have to register your Estonian Company for VAT if your company sells goods or services in the European Union for at least 16 000€. You are also allowed to register before you reach that milestone. After you are registered for VAT you need to file income tax declarations every month, even if the sales of some months are 0€.

Usual VAT rate in Estonia is 20%, but as always, there are some exemptions.

Staying in Estonia

Owning an Estonian company through e-residency or otherwise doesn’t mean that you automatically have a permit to live here. The exact time of how long you are allowed to stay depends on where you are from. For EU citizens it is allowed to stay in Estonia on the basis of a valid travel document for the period of three months without a residence right. The issue of residence permits to the third country nationals is regulated by the Aliens Act.

Resident permits may be temporary or long term and generally, if a residence permit has been issued, the owner of a resident permit is permitted to work in Estonia.

As you can already see international taxation is rather complex, depends on industry, countries your company is doing business with and many more things. So we cannot recommend often enough to get a consultation as a first thing before starting your business in Estonia because it might save you a lot of money in the future.

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