Anyone here have experience with have an Estonian company?

Tax and legal
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16

Hi,

Thanks for taking the time to explain this…but that’s not what the folks at Leapin said to me.

You have to pay board member salary. You can’t not pay an employee salary without paying a board member salary as well.

Here is their explanation:
Thank you for your reply! These are not restrictions made by LeapIN. These are how it works in Estonia. Each company registered in Estonia has to have at least 1 management board member. And if you establish your company without business partners and do not hire any external person to run the company on your behalf, you will be the management board member (apart from being the single owner of the company). If you start the company with a business partner, then at least one of you needs to take that role.

Since you perform the duties related to company management, usually the company pays ‘board member salary’ to you as the compensation. And as a rule, such salary is taxed both with personal income tax (20%) and social tax in Estonia (33%), independent on where you are actually based. Technically speaking, you receive the net sum, and the company pays both income tax and social tax on your behalf to Estonian tax authorities i.e. you (as a person, the board member) do not have to do anything else here. Thanks to double taxation avoidance agreements between Estonia and many other countries (e.g. Germany, Canada), there is no double taxation i.e. your board member salary is not taxed anymore in Germany or Canada.

As mentioned in my earlier email- "If you need to start paying out some salary, you are required to pay some board member salary as well to keep it fair enough. Usually people split board member vs employee salary as 20/80 or 30/70, arguing that majority of the work will be done as professionals (employees), but still, some company admin functions exist as well. "

  • receive dividends (you would need to pay 20% corporate income tax when you take the dividends out of your company, if you keep them in the company and e.g. reinvest them, then no taxes apply)

  • receive management board member salary (you would need to pay 20% personal income tax+ 33% Estonian social tax)

  • receive employee salary (not taxed in Estonia, you would need to pay social taxes in your country of residence)

So, as you can see.

  1. you have to be paid a board member salary, if you are a one-person show. They won’t allow you to receive employee salary, without paying a board member salary. They don’t consider it fair.