The Ultimate Guide to Estonian E-residency, Banking, and Taxes

Yes tax is charged on the value of consideration received in return for services provided, irrespective of the nature of consideration. For further reading kindly refer here

What if you are currently not a resident in any country?

Hi Thomas,

I hope you can help me. I am part of an Estonia company. We have been dormant last year.

The annual return is due on 30 June 2020. We have some very serious problem at the moment
and may not be able to submit the tax return by the 30 June.

I read from reliable source that a late submission penalty will probably be applied. Would
you happen to know approximately how much the penalty is? There are probably two elements.
A fixed penalty and/or then a penalty with a percentage of the due cooperation tax.

I did my best to google but only managed to find the late submission for VAT for Estonia companies which is a max of 2000 euros.

Thank you for your help.

I’m not sure how much the penalty would be, but failure to submit the annual report could eventually lead to forced closure of the company.

Note that the annual report is not a tax return, those are submitted on a monthly basis, and only when corporate income tax is due (e.g. after distributing dividends).

Generating and submitting the annual report only takes a few minutes to do online, and for a dormant company I think you’d be able to do it yourself. Worst case you hire someone to do it for a few dozen euros.

Hi Thomas,

Thank you for your very quick response. I was under the impression that only the VAT returns
is done on a monthly basis and not the corporate tax.

We were advised that we could not submit the tax returns ourselves as we
are not Estonian citizens (or e-residents)

Thanks again.

Hello Community,

I have some questions regarding Xolo, in case any one knows. Xolo don’t seem very responsive by email. Maybe they only respond to their established customers? Anyway, my questions:

  1. Their FAQ says they only accept business bank accounts with their banking partners (presumably just Wirecard, TransferWise, and LHV). How would that prevent a company from opening a business account with, for example, Revolut Business?

  2. Anyone know why the regular Leap service is limited to only one bank account? And what would prevent a company from opening another account itself anyway?

  3. Their FAQ states that a company owner can pay himself a salary when operating from outside Estonia. However it also states that an Estonian company can not employ anyone outside Estonia on a permanent basis. Do these rules not conflict at all?

Thank you in advance for any insight!

Hi Everyone!
New to the community but already have an established company in Estonia with the E-residency program.
There are some really useful info here in the thread!

I am now trying to find a service provider for accounting/bookkeeping.
Anyone has any good experience with any of the service providers? I got an offer from 1Office that almost made me fall off my chair.
The company is pretty new and small but growing. (not reached VAT threshold yet)
Anyone has experience with doing their own accounting/submitting annual report? Is it worth trying with limited accounting background?
Thanks in advance!

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Hi, I’m looking to establish a company some place and a friend sent me this article Running a business in Estonia and the UK - I’m wondering if anyone has experience in the UK and Estonia. Would you recommend one over the other? Is it really that inefficient to take out a wage from an Estonian company?

Great article Thomas, plenty of useful information.

I’m still working in some alternatives and studying if Estonian e-residency would be beneficial on my needs. I was hoping you could shed some light after yours years using it.

I’m a permanent traveller, usually spending no more than 3 months on each country I visit performing my activities of independent consultant.

As consultant I get paid on my TransferWise account by companies in “X” countries to perform activities on another countries. So in the end I have no ties with any country.

As I live nowhere, I’m planning to maybe get an e-residency on Estonia more to have a Legal Address and use it on TransferWise, so I could use more of their tools, which I currently can’t as my registered address is on my home country that allows me only Borderless account, and perhaps use this address for everything I may need address to.

Based on your experience, would be possible and even valid, to have e-residency and legal address, to act as Freelancer for my independent consultancy? I assume I would have to open a company where I’m the only employee, and then all income I receive on my TransferWise account could be left on TransferWise, or even moved to my home country for monthly expenses, but any idea how would be Estonia taxation in this scenario?

Thanks a lot!
Henry

Hi Henry,

I’ll jump in for Thomas here—thank you for your nice words!

Yes, you can have an Estonian e-residency company in order to provide consultancy service. You can still receive payments via Transferwise but you need to open their business account with your Estonian company. Many e-residency service providers have a platform with direct integration to Transferwise as well to make accounting more convenient. I recently wrote an article comparing the best e-residency service providers available. You might find it helpful when choosing your own.

Regarding taxes, usually, the best way is just to take out dividends as the owner of the company. You will have to pay 20% corporate tax, and since you are a perpetual traveler, that should be all the tax you pay.

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as the owner of an e-res corporation in estonia - may I pay myself a salary, as an expense on the corporation, and then pay taxes in my tax domicile country (USA)?..wouldn’t that be a more tax-efficient way to pay oneself if the salary was minimal?..

Yes, you can pay yourself a salary—in that case no taxes will be deducted in Estonia. You will only pay the taxes you need to pay in the US.

does an e-res corporation have to pay year-end income taxes for each calendar year, not just when a dividend is paid or profits are taken by the owner?..i ask this because I’ve only heard of taxes being paid to estonia when dividends are paid…

There are no year-end income taxes. You can keep the revenue in the company, and the taxes are only payable, when you pay out dividends.

I see that the Estonia company registry will show “location of management” and the address/country (outside Estonia) that you submitted during registration. What do people think about this? Any issues from a (previous) home country which you listed as where the management is located? For nomads I assume you have to use a previous residency here.

Hi all,

Thanks nomad for such an extensive article and thanks everyone for their questions. The Q&A is also quite helpful. :heart_eyes:

One thing I could not fully understand is the reference to Malta (see below excerpt from the article) :thinking:

Overall Estonia has an average tax burden, so if low tax is all you care about there are better options. If you care about cash-flow, easy day-to-day remote management in English and a generally business-friendly environment, Estonia might be for you.

One exception is if you are resident in a country that does not tax salary income from abroad. In that case you can pay yourself a salary completely (or nearly) tax-free. Just make sure the Estonian company won’t be considered tax resident where you’re resident. This will often be the case if you’re a nomad with a primary tax residency in a country with territorial tax or another favorable tax scheme (such as Malta and even Portugal

I am planning to move Malta to with travels around EU as my work requires. I am an EU citizen so this move should be smooth. I am planning to use an Estonian e-residency to do my invoicing, for it seems so straightforward with flat tax regimes. What is the best route that I should follow to optimize my taxes however: How do I pay myself a salary with no taxes as this is what I read from the above statement? Also based on someone else’s case from the US where they plan to pay themselves a salary with no tax in Estonia, only to be then taxed in the US (I know US is a specific case…), but the first part of this scenario is appealing to me. :innocent:

Thanks in advance and all the best,
D

hi Hanna, just to elaborate on my post #53 – a similar question is posted in #47, in that case salary taxes between US/Est is discussed…

Hi all,

Thanks for all the information and explanation. It was really helpful, but I still have a question.

I am brazlian and portuguese. With a fiscal residence address in both countries (Brazil and Portugal). Nowadays, I work for a company in Sweden, but I am facing the necessity of opening a small company to provide digital service. I was convinced about opening the company in Portugal, when I started to get to know more about Estonia.

One thing I could not fully understand is the reference to Portugal (see below excerpt from the article)

One exception is if you are resident in a country that does not tax salary income from abroad. In that case you can pay yourself a salary completely (or nearly) tax-free. Just make sure the Estonian company won’t be considered tax resident where you’re resident. This will often be the case if you’re a nomad with a primary tax residency in a country with territorial tax or another favorable tax scheme (such as Malta and even Portugal)

What is the best route that I should follow to optimize my taxes? How do I pay myself a salary with no taxes as this is what I read from the above statement?

I am looking for a way to live location-independent. What could be my motivation to go with the e-residency and registering a company in Estonia if I have the disadvantage of paying taxes on both countries then?

Thanks in advance.
C.

@din Indeed, you shouldn’t have any issues moving to Malta as an EU citizen. I assume you’d just be “ordinarily resident” in Malta.

Regarding taxation, the crucial part of the statement you quoted is if you’re a nomad. Since you’ll most likely be non-Domiciled in Malta you only pay local tax on income earned locally (meaning anything you earn while you are traveling outside Malta is excluded) and income earned elsewhere that you remit to or spend in Malta.

If you take out more than €35,000 in salary + dividends in a given tax year (no matter if earned outside and not remitted to Malta), you’ll have to pay a €5,000 minimum tax to Malta. For income earned during the time spend in Malta the regular progressive Maltese tax rates apply, but there are some quite high tax-free quotas that you can avail yourself of. The first €9,100 paid for work in Malta is completely tax-free (assuming you’re unmarried), with progressive rates up to 35% above that.

If you pay, say, €2,000 in taxes for your Maltese source (meaning earned while physically in Malta) income, and earn more than €35,000 globally, you’ll pay another €3,000 in taxes so that you pay a minimum of €5,000 to Malta. You wouldn’t pay another €5,000 for a total of €7,000, since the tax already paid in Malta is deducted.

With an Estonian company, you have the benefit of controlling how much you pay yourself in a given year, meaning that in most years you could pay yourself less than the €35,000 limit and potentially pay no tax (depending on how much time you spend in Malta). Then every so often you can pay yourself as high a salary as possible and pay the €5,000 minimum tax in those years only.

@Chandra_Melo Do you have NHR status in Portugal? That’s a prerequisite to avoid all or most taxes in Portugal with a similar setup. You’d also need to be mostly nomadic. If you’re living most of the year in Portugal the NHR would only really help you pay zero tax in Portugal on passive income (dividends), not earned income (salaries).

On the other hand, since you’re still tax resident in Brazil this may not work for you at all. Since even though Portugal wouldn’t tax certain income it doesn’t mean Brazil wouldn’t tax the same income.

So most likely you’d have to:

  • Be registered as a non-habitual resident in Portugal
  • Stop being fiscally resident in Brazil
  • Be nomadic most of the year, not perform most of your work in Portugal

If these are not applicable to you I wouldn’t bother with a company in Estonia for your circumstances.

For both of you @Chandra_Melo & @din, if you were to spend the bulk of your time in a given country (Portugal or Malta) and manage the Estonian company there, you may run into an issue with the Estonian company becoming tax resident there (unless you’re note actually managing the company yourself, but have employees that do that). In that case it would simply be easier to have a local company.

Hello Thank you for the article
@tkrunning
I want to establish a company in a country with low taxes. I am not willing to do business there it is just trading buying and selling goods inside and outside EU . I was seeking which country is best and how can I get profits without having to pay taxes on those. is estonia a good place? does e residency solve the whole issues? or i need somebody in estonia to manage this?

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