Hey there. My name is Michael and I am a new Estonian e resident. I am American and was hoping to get advice with eresidency, on how taxes work with the US. I am aware we need to declare our foreign income but is it double taxed? I heard there was an income exclusion to a certain point but was looking to understand further. Any advice? Many thanks. Michael
Unfortunately, when you carry the blue book with the Eagle on the front you’re subject to taxation on your worldwide income. As well, e-Residency is not tax residency so keep that in mind too.
For some, determining your tax residency will be easy if you and your company are based in one country and you clearly work and generate your value in that country. For others though, there is no doubt that determining international tax obligations can get challenging, especially if you are a location-independent entrepreneur or a ‘digital nomad’.
Your personal tax residency and your company’s tax residency are not always the same because the criteria for determining them is different and your company’s circumstances might be very different to your personal circumstances.
Your personal taxes pay for a wide range of services from healthcare to pensions in the country that you are personally tax resident. It is possible that these kind of services could also one day be offered by a digital nation like ours, but this won’t happen in the near future.
Different countries have different ways of determining personal tax residency, but it is usually as simple as where you live for more than six months of the year. In Estonia, you are personally tax resident if you live here for at least 183 days over 12 consecutive months. In that case, however, you probably do not need a digital identity as an e-resident because you will likely have one as a resident.
If you are a location-independent entrepreneur or a digital nomad then it is possible that you won’t be in any one location long enough to qualify under this criteria. In that case, your personal tax residency is usually considered to be your ‘home country’.
Despite all these considerations, determining your personal tax residency is rarely a challenge for e-residents for the simple fact that most people do have a home country — even if they consider themselves to be location-independent — and it’s where they maintain a registered address.
Bare in mind that ‘not being in a country’ is generally not considered by tax authorities to be the same as ‘not living in a country’. If you go on holiday then it won’t affect your personal tax residency. The same can be true if you go traveling for an extended period, especially if you have an address that you can return to.
It is technically possible for you to not be personally tax resident anywhere if you keep moving, but that is far harder to achieve than people often think and it’s not worth the hassle. You would give up valuable benefits, like your social security, your credit rating and your ability to apply for many products and services, both now and in the future. You would also need to research the rules in every jurisdiction that you spend time.
It is rare, but also possible that two countries could consider you to be personally tax resident, especially if you are location-independent. Fortunately, you are protected by the same treaties that protect companies for the avoidance of double taxation.
Your personal tax is then paid on your income when your company pays your wage and it is subject to the rules in the country of your personal tax residency.
Corporation tax is paid by your company where your company is tax resident.
Part of the complexity of providing general advice for companies operating internationally is due to the fact that taxation is based on international rules and can not be decided unilaterally by any one country where you intend to pay taxes, whether that’s the country that your company is registered in or the country where you presently live.
Taxation is based on your company’s unique circumstances so it is ultimately your company’s responsibility to determine its tax obligations (whether it’s only in the tax resident country or also in another country through a permanent establishment or any passive type of income) and ensure those taxes are paid so that it does not encounter problems with any tax authorities in future.
Fortunately, Estonia has already signed 57 treaties for the avoidance of double taxation, which includes all EU member states and most OECD member states, as well as key countries where e-Residency is growing the fastest such as Ukraine and Turkey.
You might also find Filing US Taxes as an American in Estonia: A Guide for Expats this to be an interesting readA few interesting article you may find helpful on American expats/nomads / Estonia / and taxation
The most important advice any of us can give is that you should always consult your own qualified tax adviser if you have any doubt about your tax obligations.