Tax residency in Estonia

When am I tax resident in Estonia?

An individual is resident on either of two grounds: their place of residence is in Estonia, or they stay in Estonia for at least 183 days over a period of 12 consecutive calendar months (TuMS § 6 lg 1) [1]. The days are counted over 12 consecutive calendar months, not per calendar year. The Act also provides that the person is considered resident from the day of their arrival in Estonia (TuMS § 6 lg 1) [1].

A diplomat or administrative officer on a long-term posting abroad, and the family member and support person accompanying them, are also residents (TuMS § 6 lg 1) [1].

A legal person, other than a trust fund, is resident if it has been founded under Estonian law (TuMS § 6 lg 2) [1]. A non-resident is a person who does not meet the conditions of a resident (TuMS § 6 lg 3) [1].

If their residency changes, an individual informs the tax authority of the related circumstances and fills in the residency determination form (TuMS § 6 lg 6) [1].

How is a non-resident taxed?

A non-resident pays income tax only on income from an Estonian source as set out in TuMS § 29 (TuMS § 6 lg 3) [1]. Taxable income includes, for example:

• Pay for work in Estonia, if the employer is an Estonian state or local government agency, a resident, a non-resident acting as an employer in Estonia, or a non-resident through or at the expense of a permanent establishment in Estonia, or if the person has stayed in Estonia for the purpose of work for at least 183 days over 12 consecutive calendar months (TuMS § 29 lg 1) [3].
• Fees of a management or supervisory board member received by a non-resident as a member of a management or supervisory body of a resident legal person (TuMS § 29 lg 2) [3].
• Business income from business carried on in Estonia (TuMS § 29 lg 3) [3].
• Gains from the disposal of property, for example where the immovable sold or exchanged is located in Estonia (TuMS § 29 lg 4 p 1) [3].

Income tax is withheld, among other things, from wages and other remuneration paid to a non-resident (TuMS § 41 p 2) [4] and from fees paid for services provided by a non-resident in Estonia (TuMS § 41 p 10) [4]. Tax on wages is withheld at the general rate of 22% (TuMS § 43 lg 1 p 1; TuMS § 4 lg 1) [5] [6]; on fees for services provided in Estonia, licence fees and fees of artists and sportspersons at 10% (TuMS § 43 lg 1 p 2) [5]. If a non-resident individual is paid for work in Estonia under a contract for work, an authorisation agreement or another contract under the law of obligations, 22% is withheld (TuMS § 41 p 3; TuMS § 43 lg 1 p 1) [4] [5]; if they are entered in the Estonian commercial register as a sole proprietor and the fee is their business income, it is taxed as business income (TuMS § 29 lg 1) [3]. Tax withheld in this way is final for the non-resident in respect of that income, unless the income was received through a permanent establishment in Estonia (TuMS § 43 lg 4) [5].

A permanent establishment is a business unit through which a non-resident carries on permanent business activity in Estonia (TuMS § 7 lg 1) [7]. Income received through it is calculated as if the permanent establishment were an independent taxpayer (TuMS § 7 lg 3) [7]. According to the Supreme Court (Riigikohus), transactions between a non-resident and its permanent establishment in Estonia are taxed in the same way as if an independent subsidiary had been founded in Estonia instead of the branch (RK 3-3-1-20-14) [8].

Does a non-resident get the tax-free allowance and deductions?

Unemployment insurance contributions withheld under the Unemployment Insurance Act are deducted from a non-resident's income (TuMS § 31¹ lg 1) [9]. An individual resident in a contracting state, meaning another state party to the European Economic Area agreement (TuMS § 11 lg 3) [10], may make the deductions provided in Chapter 4 of the Act from their income taxable in Estonia (TuMS § 31¹ lg 2) [9]. On their written application, no more than one twelfth of the tax-free income amount is deducted from the payment each calendar month before the withholding tax is calculated (TuMS § 42 lg 1) [11].

How is double taxation avoided?

The international agreement prevails. If the residency determined under an international agreement differs from that under the Act, or the agreement provides more favourable conditions, the agreement applies (TuMS § 6 lg 5) [1].

Credit for tax paid abroad. If a resident receives income from abroad, it is added to their taxable income, and the income tax paid or withheld abroad is deducted from the income tax payable in Estonia (TuMS § 45 lg 1) [2]. If the Estonian tax is higher, the difference is paid in Estonia (TuMS § 45 lg 2) [2]; if the foreign tax is higher, the overpaid foreign tax is not refunded in Estonia (TuMS § 45 lg 3) [2]. The deduction requires a certificate from the foreign tax authority or the withholding agent (TuMS § 45 lg 5) [2], and only the part of the foreign tax whose payment was mandatory may be deducted (TuMS § 45 lg 6) [2].

Income from work abroad. Pay for work in a foreign state is not taxed in Estonia if the person has stayed in that state for the purpose of work for at least 183 days over 12 consecutive calendar months, and the income was taxable there and this is proven by a document showing the amount of income tax, even if the amount is zero (TuMS § 13 lg 4) [12]. A resident must still declare such income (TuMS § 44 lg 1³) [13].

A lower rate for a non-resident. If an international agreement provides a lower rate for a payment to a non-resident, it applies when the withholding agent submits to the Tax and Customs Board (Maksu- ja Tolliamet) a document proving the recipient of the income and their residency (TuMS § 43 lg 2) [5]. The document need not be submitted if the data on the recipient and their residency have been entered in the register of taxable persons (TuMS § 43 lg 2) [5]. Under the regulation "Residentsuse ja tulu saaja tõendamine välislepingu rakendamiseks" (the residency proof regulation), residency is proven by the confirmation of a competent official of the foreign state on form TM3 (residency proof regulation § 2 lg 1) [14]; a certificate issued by a competent official of the foreign state containing the data of parts I and III of form TM3 also proves residency (residency proof regulation § 2 lg 2) [14].

What the law says

• „Füüsiline isik on resident, kui tema elukoht on Eestis või kui ta viibib Eestis 12 järjestikuse kalendrikuu jooksul vähemalt 183 päeval.“ [1] (translation: an individual is resident if their place of residence is in Estonia or if they stay in Estonia for at least 183 days over 12 consecutive calendar months; TuMS § 6 lg 1) – one of the two conditions is enough.
• „Isik loetakse residendiks alates tema Eestisse saabumise päevast.“ [1] (translation: the person is considered resident from the day of their arrival in Estonia; TuMS § 6 lg 1).
• „Mitteresident maksab tulumaksu ainult Eesti tuluallikast saadud tulult §-s 29 sätestatu kohaselt.“ [1] (translation: a non-resident pays income tax only on income from an Estonian source as set out in § 29; TuMS § 6 lg 3) – a non-resident is taxed in Estonia only on the income listed in § 29.
• „Eestis mittemaksustatavalt tulult välisriigis tasutud tulumaksu Eestis arvesse ei võeta.“ [2] (translation: income tax paid abroad on income that is not taxable in Estonia is not taken into account in Estonia; TuMS § 45 lg 1) – the credit only concerns income that is also taxable in Estonia.
• „Füüsiline isik teavitab maksuhaldurit oma residentsuse muutumisega seotud asjaoludest ning täidab residentsuse määramise vormi.“ [1] (translation: an individual informs the tax authority of the circumstances related to a change in their residency and fills in the residency determination form; TuMS § 6 lg 6) – you have to report a change of residency yourself.

What to do

1. Check whether your place of residence is in Estonia and how many days you spent in Estonia over 12 consecutive calendar months (TuMS § 6 lg 1) [1].
2. If your residency changes, inform the tax authority and fill in the residency determination form (TuMS § 6 lg 6) [1].
3. If you are also treated as resident in another state, check what the international agreement between Estonia and that state says (TuMS § 6 lg 5) [1].
4. As a resident, declare income received abroad by 30 April of the year following the taxation period (TuMS § 44 lg 1) [13], and obtain a certificate from the foreign tax authority or withholding agent on the tax paid (TuMS § 45 lg 5) [2].
5. As a non-resident, give the payer a document proving your residency if you want a lower rate under an international agreement (TuMS § 43 lg 2) [5]. An individual's certificate is valid for no longer than 12 months from its issue (residency proof regulation § 3) [15].

Frequently asked questions

Do the 183 days have to fall within one calendar year?

The Act counts the days over 12 consecutive calendar months (TuMS § 6 lg 1) [1]. In addition, a person whose place of residence is in Estonia is resident regardless of the number of days (TuMS § 6 lg 1) [1].

What if I was resident for only part of the year?

A person who was not resident for the whole taxation period declares only the income received while resident and may make deductions for the same period; the tax-free income is taken into account in proportion to the number of months during which the person was resident (TuMS § 44 lg 1²) [13].

Does a non-resident have to file a tax return in Estonia?

A non-resident must file an income tax return only for income from which income tax has not been withheld under TuMS § 41 (TuMS § 44 lg 1) [13]. A resident of a contracting state who wants to make the deductions allowed by TuMS § 31¹ lg 2 files a resident individual's tax return for that purpose (TuMS § 44 lg 5²) [13].

Must my Estonian employer withhold tax if I work abroad?

No tax is withheld from wages if the employee performs their duties in a foreign state and the payment is made through or at the expense of a resident legal person's permanent establishment abroad, or if the withholding agent holds a certificate from the foreign tax authority that the employee is liable to tax in that state on this income (TuMS § 40 lg 3¹) [16].

How long is a foreign residency certificate valid?

A certificate of residency and recipient of income is valid for no longer than 12 months from its issue for an individual and no longer than 36 months for a legal person (residency proof regulation § 3) [15].