First of all, thanks for this great community! Lots of useful reading.
I am planning on setting up my own company in Estonia via the e-residency scheme. I will be the only person owning the company. I live in Asia and my plan is to continue with IT-consulting using my Estonian company. Is there a mandatory minimum salary that needs to be paid out every month including social tax since I don’t have an A1 certificate?
I know you can wait with salary or dividends until you want to start paying it out, but my question is more after I pay the first dividends, do I also need to pay a salary going forward?
As an example, if I invoice 100k EUR per year, would it be possible to pay out all of that in dividends and pay 20% corporate tax in Estonia on the dividends, or am I also required to pay a minimum salary every month?
On the government site it seems there is a minimum salary requirement when I read the following:
“Until you start distributing dividends, there are no rules forcing you to pay yourself a taxable salary or fee. Once you do decide to make dividend payments, your role in the company (active employee/director vs passive shareholder), should be analysed in more detail to make sure that each role you carry out is compensated and taxed appropriately. This is because salaries are usually also taxed with social tax while dividends are not, but opting for dividends to save on taxes is not allowed.
To sum up this convenient feature of the Estonian tax system, you can operate your company without registering yourself as an employee or board member and you don’t have to pay any Estonian tax until your company starts making sufficient profit to pay salary or dividends.”
Well, the answer always is that it depends. You can pretty much pay yourself a salary as an employee or a member of the board, or with dividends as you said.
If you pay yourself a salary as a regular employee, there is no requirement to pay taxes in Estonia in most cases. However, you should proceed to consult a local tax professional in your country of tax residence (where you live in Asia) to determine how foreign earned salary is taxed and if there is a double taxation avoidance agreement between Estonia and the country in question.
The double taxation avoidance agreement will ultimately determine how your dividens will be taxed.
Thank you very much for the response.
I am fully aware of my tax situation locally in Asia.
My question is if I am allowed to only pay out dividends from my company in Estonia or if I am required to also pay a salary based on myself being the only person working in my own company and purely doing consulting work. You mention that it depends, which I assume relates to the type of business and the activities that are conducted.
To try and be as clear as possible:
I will register the company and after that do nothing more than consulting work for various companies, mostly project management.
I will not spend any time developing my own company or building any products, purely consulting.
Would this still not be enough information to determine if an employee salary is mandatory versus just paying out dividends ?
An employee salary wouldn’t be taxable in Estonia anyway (only board member/director’s fees are). So if you plan to pay out dividends instead, that leads to more taxes to Estonia, which they would hardly complain about.
I reckon the quote from the government website is more relevant for Estonian tax residents (with regards to dividends vs salary). Of course, if you’re not an active employee in the company and you still pay an employee salary, that could be open to scrutiny (perhaps they’d claim you should pay at least part dividends + director’s fees, both of which lead to Estonian taxation).