As an e-resident, you’re probably already familiar with Estonia’s reputation as one of the world’s most digitally advanced and business-friendly countries. However, once your company is up and running, learning how the Estonian tax system works is inevitable. Don’t worry—we’re here to guide you through the essentials of paying taxes in Estonia as an e-resident founder.
First off, good news! Estonia’s tax system is incredibly straightforward and designed to support entrepreneurs like you. The most important thing to remember is that until 2026, you only pay corporate income tax in Estonia when you distribute profits. You read that right: Estonia doesn’t tax your company’s earnings until you pay dividends. Here’s what you need to know.
Registering for Tax
In Estonia, you don’t need to go through a separate process to register as an employer or corporate taxpayer. Once your company is established, simply login to the e-Tax with your digital ID to manage all your tax-related obligations. There’s no need to apply for a separate tax number for your company, as all tax activities are handled through the e-Tax platform. If you don’t have an Estonian bank account, the most convenient way to pay taxes is by credit card online through the e-Tax.
VAT: When and How to Register
If your company’s annual turnover in the EU exceeds €40 000, you must register for VAT (Value-Added Tax). But here’s the thing: you can also register voluntarily, which is wise if you deal with VAT-registered businesses in the EU. If your clients are Estonian individuals or companies not registered for VAT, you can keep your turnover below 40 000 euros for not taxing your clients with VAT. Intra-EU long-distance selling has its own rules, which can lead to mandatory VAT registration in other EU countries.
The Standard VAT rate is 20%, and VAT reports must be submitted by the 20th of each month.
Registering for VAT can be beneficial, even if you haven’t hit the €40 000 threshold, especially when it allows you to reclaim VAT on your expenses.
Corporate Income Tax
Estonia’s corporate tax system is unique. There is no corporate income tax on profits that are reinvested or accumulated into the business. You’ll only pay taxes when you take the dividends. This means your company can grow faster since you don’t need to worry about paying taxes every year. You only pay when the money leaves the company. The corporate income tax rate is 20% of the distributed gross dividend amount.
It is essential to know that Estonia’s corporate income tax system applies to profits earned by companies registered as tax residents in Estonia. If your company has operations, a permanent establishment, or its place of effective management abroad, it may also be subject to taxation in another country. This can occur even if your company is registered to an address in Estonia. For e-resident founders operating internationally, it’s crucial to understand the tax implications of having a presence or management board in other countries. More information can be found in our detailed guide on permanent establishments and dual tax residency.
Employment Taxes
What if you want to pay yourself a salary or director’s fee from your company? Here’s where Estonian personal income tax and social tax come in. If you’re working for your company based on an employment contract (or have other employees), you must pay the social tax of 33% of the gross salary. Unemployment insurance tax is 0.8% from the employee and 0.5% from the employer. Directors working for director’s fees pay no unemployment insurance as they have no unemployment insurance.
After paying out salaries or director’s fees, you must submit a monthly Tax and Social Tax Declaration (TSD) the following month. This form is essential for reporting your Estonian company’s income tax and social tax liabilities.
The personal income tax rate paid on salaries and director’s fees is the same as the corporate income tax rate. The 20% tax is deducted from the gross wage, just as with gross dividends, where 100 euros of gross dividend equals 80 euros of net dividend received by the shareholder.
Are you paying yourself only dividends instead of a salary or director’s fee? In that case, the social tax won’t apply, but it is still expected to pay some salary or director’s fee for active work in your company.
TSD deadlines
Estonia has streamlined the process of submitting social and income taxes into a single declaration known as the TSD (Income Tax and Social Tax Declaration). This declaration covers corporate and personal income tax, social tax, and other contributions, such as pension contributions, ensuring that all dividend and payroll-related taxes are handled through a single system.
The declaration must be submitted by the 10th of each month following the payment. For example, if you pay yourself a salary in October, you must file the TSD and make tax payments by November 10th.
You can submit the TSD through the e-Tax online platform, which is user-friendly and accessible from anywhere worldwide. Log in using your e-resident digital ID or Smart-ID and complete the form for your company.
After inserting the input figures in the TSD form, the system automatically calculates the taxes owed based on the declared salaries and payments. This is efficient and helps keep you compliant without the hassle of manually calculating tax obligations.
Why the Estonian System Benefits You as an E-Resident Founder
One of the best things about being an e-resident and running your business in Estonia is the flexibility it gives you. You can focus on growing your business and reinvesting profits without the stress of having to pay taxes on those profits until you’re ready to take them out.
When you do take profits, Estonia’s digital infrastructure makes it easy to handle everything remotely, from filing taxes to managing compliance. You do not need to be physically present—use your e-resident digital ID. At Unicount, we strongly advise hiring a qualified accountant even if you can submit all the tax information online with your e-resident digital ID.
Estonia’s tax system is built to empower entrepreneurs like you. Zero tax on reinvested profits means you have more freedom to grow your business without worrying about yearly tax bills. Plus, with the fully digital system, managing your company’s taxes is as easy as checking your email.
If this sounds complicated, don’t worry! That’s where services like Unicount come in. We help you every step of the way, from setting up your Estonian company to ensuring you stay compliant with Estonia’s tax regulations.
Thanks for reading!
If you have more questions, check out Unicount extensive support articles or contact us directly for personalized advice.
