Anyone here have experience with have a Estonian company?

tax
europe
estonia
incorporation

(Amadeusz Annissimo) #21

I got the answer for this question from LeapIN. I am pasting it here, in case someone has a similar problem.

TL; DR:

  • no tax residency in Estonia - no benefits at all
  • Board Member Salary + Tax Residency in Estonia = Health insurance, but no pensions
  • Employee Salary + Tax Residency in Estonia = Helth insurance + Pensions + Unemployment (with a ~4.6% total surcharge for last 2)

Original:

As for the benefits- if you are not resident in Estonia, then even if you pay the minimum social tax (155,1 EUR per month) in Estonia you still won’t have the health insurance. In order to get the health insurance you should become Estonian resident.
Also please note that if you become Estonian resident, then in order to receive the pension, then you should pay the employee salary which is taxed with income tax (20%), social tax (33%),unemployment insurance (company pays 0,8% and the employee pays 1,6%) and pension tax (2%). You should also join the pension fund. The board member salary is taxed with income tax and social tax and if the minimum of social tax (155,1 EUR per month) is paid, then you will receive the health insurance but no pension fund.


(Thomas K. Running) #22

@amadeann Thanks for that summary, that’s really helpful. :bowing_man:‍♂️ I assume that by tax residency in Estonia they are referring to full personal tax residency (unlimited global tax liability), not a limited tax liability (tax liable for part of your income to Estonia), correct?


(Amadeusz Annissimo) #23

Not 100% sure on that, since I haven’t asked explicitly, but I was referring to full tax residency, and I think this what LeapIN meant too in their reply.


(G) #24

I’m confused about the issue of income tax on a non-resident employee. I spoke with my Estonian accountant yesterday who insisted that income tax will be due on every employee, whether resident or not. This seems to be supported by the tax authority’s website. See https://www.emta.ee/eng/business-client/registration-business/non-residents/tax-obligations-employment-income#kakskaks

Yet the LeapIn site claims that “If you perform all your work outside Estonia (and are treated as a non-resident), no personal income tax nor social tax are paid on employee salary in Estonia.”

I will try to contact LeapIn to see how they explain this, but it’s not looking good.


(Thomas K. Running) #25

It seems you are confusing their term “non-resident taxpayer” with simply a non-resident who is receiving salary. The former would be a non-resident that for some reason still is liable to pay tax on part of their income in Estonia, for example if they have been working for the company in Estonia for a period, but is not a resident.

A non-resident employee, who performs no work physically in Estonia, owe no tax in Estonia, and hence is not a non-resident tax payer.

The one exception is if that employee is also performing board member duties (like managing the company). The part of the salary that is for board member/director compensation will be taxed in Estonia at 20% if the receiver is already paying social tax in the EU/EEA, or 40% if not (20% on the salary, and 33% social tax before salary, which is the same as ~40% on the salary).

You can minimize that part of the salary by for example tracking the time spent on those tasks, and paying a low board member salary as discussed above. By using LeapIN, you’re effectively outsourcing many of those management tasks, so their services is probably saving you a significant amount of tax.

PS! Also, it seems you should get a more competent accountant. Mind sharing who you are currently using so others can be warned?


(G) #26

Thanks for responding, Thomas. I would like to be sure of the answers before I name and shame anyone, but if I can confirm that my accountant is wrong, I would be happy to share a warning here. I am still waiting for clarification from both LeapIN and the EMTA.

The EMTA link which I posted above divides employees into only two groups: resident and non-resident, and both are liable for tax according to the link, with no exceptions listed. (In fact, the non-residents are hit with even higher taxes than residents!)

Anyway, I will wait for the clarifications and post my findings here. It might be of use to others.


(Thomas K. Running) #27

Sure thing!

I’ve actually asked the same question to EMTA in the past, and they did in fact confirm my view. I can see if I can dig up the correspondence later.

Anyway, I’m not sure which part of that website you are referring to saying that persons performing work for an Estonian company abroad have to pay Estonian income tax. You linked to paragraph 2.2. Is that the one?


(G) #28

Section 4.1 is the most relevant part. Part 3 is so poorly worded that I can’t be sure what it’s trying to say.


(Thomas K. Running) #29

So here’s what you missed: 4.1 only describes the taxes for a non-resident taxpayer. It’s not a given that a non-resident needs to pay tax. The conditions for which is described in 5.2:

I’ve tried to make it easy to understand by marking it up with :x:s and :white_check_mark:s and &s. Basically for a non-resident person to owe tax, the income needs to be Estonian-source. Income is considered Estonian-source and hence taxable if there’s at least one :white_check_mark: between each &.

In the following I’ve marked it up as would be the case for a non-resident salaried employee who performs the work outside Estonia:

The crucial :x: is the one by the sentence underlined with green in the middle. Since that is false, the income is not Estonian-source and no tax is owed.


(G) #30

Part of the problem is how poorly worded (and punctuated) that previous EMTA article is.

I did some more digging and found a much more clear article on the EMTA site:


(see https://www.emta.ee/eng/private-client/taxation-tax-system/e-residency )

When I presented this to my accountant, she admitted that she had been confused and that this new EMTA article was right.

I also heard back from LeapIN. While they said they could not offer legal advice, they did write the following:

To comment on the sentence you have pointed out regarding employee salary - the obligation to pay taxes on the employee salary arises when the place of work is Estonia (this applies to both Estonian residents and non-residents). In that case it’s also needed to register the employee at the employment registry. If the place of work is outside Estonia, then there’s no obligation to pay any income nor social tax or unemployment insurance premium on your salary in Estonia. It is assumed that it’s your responsibility to pay relevant personal taxes where you actually are located and in Estonia you receive the total salary without any deductions.

So I feel a bit more confident now. (I haven’t received a reply from the EMTA yet but will post that reply to the thread later if it seems useful to do so.)


(RG) #31

Do you guys know an alternative to LeapIN for estonian incorporation with 3 shareholders?


(Thomas K. Running) #32

I’ve heard 1Office is a decent alternative with flexible pricing, not the fixed pricing that LeapIN offers.


(Amadeusz Annissimo) #33

Reach out to them directly. I’ve heard from a friend who had the same issue a few months ago that they offer you custom pricing for a company with more than one shareholder.


(Mark Barrido) #34

:wave: Hi Everyone, as a US citizen with an Estonian e-Residency, if I setup an Estonian Company to sell goods and services, can I also enable it to invest in stock, bonds etc? Thanks! :smile:


(Thomas K. Running) #35

Hi @markrhap1! That’s shouldn’t be a problem.

You can (for example):

  • Reinvest profits from the sale of goods and services into stocks, ETFs, bonds, etc
  • Lend money to the company and have it invest it on your behalf (the profits would belong to the company, and you can lend the money at 0% interest—and the company can pay back the principal at any time)
  • Increase your capital contributions into the company, and invest that

(Mark Barrido) #36

Thank you, tkrunnning.