I think this depends on the country where you pay the salary?
Not really, since under most (probably all) treaties, board member fees are taxable in Estonia. So where the work is performed isn’t all that relevant.
In general you are quite safe to pay employee salary for any work done in the business. If someone does a lot of work for the business (as defined by their board member contract) it makes sense to compensate them for this. This compensation should be classified as board member salary.
For most people reading this (who are mostly working in the business, rather than being a primarily passive owner with some board member duties), that portion of the work (and hence compensation) is usually negligible.
On a question on whether you’re “legally required to pay a board member salary, as a sole owner and board member” of an Estonian company (when also working as a regular employee), the EMTA replied this:
There is no such strict or clear rule about obligation to pay salary.
If payment is made finally, the taxation must be in accordance with the type of income.
So there’s no strict rule about a need to pay salary for board member duties. But if you do pay a board member salary (for duties covered by the board member contract), it will be taxed as such. If you only pay employee salary (for work covered by the employment contract), it will be taxed as such.
Before you incorporate Estonian company you should define your
country of residence and study bilateral agreement , especially
section concerning “COMPANY RESIDENCE” .
There is high risks treat “Estonian OU” as legal person resident
in your home country depending on provisions set forth in bilateral agreements.
Please read model articles , comparing bilateral agreement between Estonia and: POLAND and UK.
POLAND
Article 4 “RESIDENT”
3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident of the Contracting State under the laws of which it derives its status as such.
UK
Article 4 “RESIDENCE”
(3) Where by reason of the provisions of paragraph (1) of this Article a person other than an
individual is a resident of both Contracting States, the competent authorities of the
Contracting States shall endeavour to settle the question by mutual agreement. In the absence
of such agreement, for the purposes of the Convention, the person shall not be entitled to
claim any relief or exemption from tax provided by this Convention
In the event if you run with new startup - you should register trademark in the name of Natural Person. After registration trademark is treated as Asset and you can grant a license to Estonian OU company ( be aware of Withholding tax ) or sell copyrights and taxation will be in your country of residence.
I have a lot of idea for legal transfers from Estonian OU company to your home country - I use mindmap and share my ideas to client.
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To pay out the Board Management Salary and the Employee Salary - do you need any kind of contracts and what kind if any? Do any of you have an example? Or is it enough to describe that x is paid out as Board Management Salary and Y is paid as Employee Salary?
Resurrecting this thread instead of starting a new one. 
Can someone clarify a handful of things for me:
- What ends up being taxable distributed profit (i.e. where you apply CIT, 20% or 14%, depending if it’s regular or not)? It’s pretty clear/obvious that any dividends to pay out, before you can pay them, will attract CIT. That one is easy. However, say your client paid 10000 EUR, and you wanted to pay yourself in salary 2000 out of this and keep the remaining part in company. Would CIT be applicable to that 2000EUR (distribution), or is that treated as company expense and as such, reduces company profits (thus, still no CIT)? Of course personal income tax/social security has to be paid , but do I understand correctly that in such case, CIT is still 0?
- Can a person live in any EU country, be employed in Estonian company & get salary, and pay taxes on that employment contract as-if it was a local company? That sounds to me a bit strange - after all, many EU countries have employer’s SS contributions, on top of personal taxes. How would Estonian company pay employer’s SS contributions e.g. in Spain? Wouldn’t Estonian company then have to register as Spanish employer (completely defeating the purpose of having less red tape)?
- What’s going through my head instead is: registering as self-employed in the country where I live at any given point in time, and issue invoices for work performed to Estonian company. This way, local tax where I live is sorted (I pay self-employed SS, and income tax), and my Estonian company can remain a single point of contact for my clients, wherever I happen to move. It can also retain and reinvest some of the profits, rather than having to pay out everything to myself straight away. I’m assuming that this invoice from myself (as self employed) becomes a business expense and as such, CIT again would not be paid on this? Does this sound like a sensible alternative, or is that going to get me into some sort of trouble?
My problem is: I am somewhere between nomad and permanent resident. I’m in Malta now, but I know I will only spend another year or so here. I’m thinking of moving to Spain next, but I may or may not stay there longer than a year. So I’m looking for a fairly flexible setup where my clients do not have to worry about signing new contracts with me every time I, as a person, move - my business should stay in one place. But because, as a person, I will get tax residency somewhere (even if for a year) many of the “digital nomads” solutions don’t fully apply to me.
Any hints? Does it sound like the Estonia OU+self-employment is a good idea, or should I look into something different?
did you ever get an explanation regarding the ‘1200 euros without paying taxes’ question that you had?..did you read that somewhere?..i’m going to be forming a corporation in estonia next month and i’m gathering info…thanks…paul
Why don’t you just pay yourself an Board member salary in Estonia. That salary is subjected to social tax. This would get provide you an A1 status. Viable in all EU countries. Keep in ind that the minimum (monthly) social tax is €165 in 2019 https://www.emta.ee/eng/business-client/registration-business/non-residents/tax-obligations-employment-income
Yes, I’ve read it at multiple places. Mainly at Tax Free Today site.
It seems they refer to this jurispendce:
Blockquote
(3) Income tax is not charged on: 1) compensation for expenses related to official travel or business travel, daily allowances during assignments abroad and remuneration for business travel abroad paid to an official, an employee or a member of the management or controlling body of a legal person by the employer or a third person instead of the employer, compensation for such expenses paid for a family member of an official, and compensation for relocation expenses arising from appointment to a position located in another area. The tax exempt limit of daily allowances during assignments abroad is 50 euros for the first 15 days of an assignment abroad, but at most for 15 days per calendar month, and 32 euros for each following day. The procedure for the payment of compensation for the expenses and daily allowances during assignments abroad exempt from income tax and specified in the first sentence of this clause shall be established by a regulation of the Government of the Republic;
Source: Income Tax Act–Riigi Teataja
Paragraph 13, (3) 1)
15 days * € 50 =€ 750
15 days * € 32=480
€750+€480=1230
Here are some calulation examples:
However to my understanding it is not allowed to have " consequtive " assignments abroad.
Like you have to travel from Estonia to the place of work.
There is no income tax to be paid on the daily allowance. But this does not mean it is completely tax free. As for example with the Portuguese NHR regime. Since there is no (effective) tax paid on the daily allowance it would not be tax exempt under the NHR regime. Thus this allowance would be subjected to regular Portuguese income tax.
This option is something I’m not sure I understand 100%. It is certainly fine from Estonian perspective - but not quite sure that Spain would be happy about this. I came across some info that there is something in Spanish law about having to register as “Foreign Non Resident Employer/Entity” if a foreign company wants to employ people resident in Spain. Payroll in Spain - Blue Marble Global Payroll
Are you sure about this? Last time I asked the Estonian tax board about this they said social taxes paid for board member salaries by non-residents won’t qualify get you an A1.
When you look at per diems or daily allowances for travel I think it makes more sense to look at the rules for your country of residency—and at worst you get the lowest of the two (where your company is based and where you’re resident). AFAIK Portugal has more generous daily allowances than Estonia anyway, so I don’t think they would tax your daily allowances up to the Estonian limit. Probably you can bake in the daily allowances (up to the Portuguese limit) into your Estonian employee salary payments and make a deduction for it in Portugal. That way you could effectively use the more generous Portuguese limits.
Yes, an Estonian (or any foreign) company might not be the best solution if you’re living full time in Spain and employ yourself there. Some people “freelance” for their own foreign companies or live off dividends to get around registering as employers locally. But I’d recommend talking to a local accountant in Spain which will be able to give you advice on what’s practical from a Spanish perspective (I have very little knowledge of their tax system).
But you’re absolutely right, depending on your lifestyle and your country of residence, incorporating abroad might just add extra layers of costs and complexity. But I think what you outline in your point #3 in your previous post sounds sensible—but again, check it with a local accountant to be sure!
No, I am not sure about this.
It is the situation outlined by my Portuguese lawyer.
As the Director of the company in Estonia one would be subjected to mandatory social security contributions in Estonia, unless you would present the so-called A1 form issued by a Social Security authority from other EU member State declaring that you already make mandatory Social Security contributions in such country.
To prevent that the company would be deemed to qualify as a permanent establishment of the Estonian company in Portugal it is recomended to not utilize any activities like negotiating and/or signing any contracts on behalf of the Estonian company in Portuguese territory.
The problem is that since your activity of Director would not be performed in Portugal as we recommend (and thus not subject to mandatory Social Security contributions in Portugal), most likely the Portuguese Social Security authorities would not issue form A1 required for the exemption of mandatory Social Security contributions in Estonia.
This could maybe be a deal breaker in the Estonia + NHR Structure.
How to acquire an A1 form if neither Estonia or Portugal is issuing one?
Still no reply on this topic. So guess my purposed route is stuck at the A1 issue
Do you think it’s possible to register a company in Estonia then delegate the work to another company in Hong Kong.
Let’s say I sell a service for 1000€, my Hong Kong company charge me 850€ to provide the service to my customer, only 150€ are left on the Estonian company i don’t get dividend or salary from the Estonian company as I don’t want to pay taxes.
I will get the dividends from the Hong Kong company as they are not taxed.
What do you think? It can works?
Thanks
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