On 7 May, Unicount held its first webinar for its e-resident clients. Our Managing Director, Ivar Veskioja, and our accounting team member, Malle, shared valuable information related to e-residency, Estonian company formation with Unicount, accounting, and taxes. We received questions about various topics, including dividend payments, taxes and accounting in Estonia for non-residents, setting up a bank account in Estonia, and more. In this blog post, we will highlight some of our in-depth answers.
e-Residency is an Estonian government program introduced in 2014 that offers digital identity for non-residents to access Estonia’s business environment, including online services such as company formation, business licensing, and taxation. So far, more than 112,000 applicants have embraced the program, and over 25,000 companies have been established as a solid testament to this concept. The Estonian e-Residency program is a pioneering initiative that empowers non-residents to register and manage companies online from anywhere in the world.
How can Estonian companies pay dividends to e-resident shareholders?
Estonia is one of the few EU countries where you pay no annual corporate income tax on retained profit. Dividends paid in Estonia are taxed with corporate income tax which does not reduce your personal income tax liability in your country of tax residency. For the 2024 tax year, there is a 20% tax deducted from gross dividends. Therefore, to receive 800 euros as a net dividend, 200 euros are paid the next month as Estonian withheld corporate income tax, resulting in an effective tax rate of 25%.
Paying dividends as a company owner outside of Estonia involves adherence to practical considerations. In theory, dividends should only be distributed after shareholders approve annual accounts, which is particularly relevant for companies with multiple shareholders. However, this process may be more straightforward for sole-shareholder companies, with the shareholder likely being the sole decision-maker.
Practically, the availability of funds in the company’s bank account plays a crucial role in the dividend distribution. While annual accounts may allocate dividends on paper, ensuring the company possesses the necessary funds to make the payment to shareholders is crucial. Moreover, tax liability on paid dividends must be considered, with Estonia currently imposing a withholding tax rate of 20%, increasing to 22% from 1 January 2025. It’s important to note that received dividends are not taxed with personal income tax for Estonian residents. However, they may be subject to personal income tax in the shareholder’s country of residence, depending on applicable tax laws and treaties.
This blog post provides more information about paying dividends. We advise you to consult an accountant or tax expert before distributing dividends from your e-resident company.
What documents do you need to prepare throughout the year to provide to your accountants for filing the annual accounts?
Documents you need to prepare throughout the year to provide to your accountants for filling the annual accounts:
Purchase documents: This includes purchase invoices, voice purchase documents, and any purchase receipts.
Bank account statements: These are necessary to track all financial transactions made through the company’s bank accounts.
Contracts: Any contracts related to the company’s operations, including employment contracts and rental agreements, must be provided.
Other transaction-related documents: This encompasses any other contracts or documents related to transactions that the accountant must record.
The specific documents needed may vary depending on international treaties and tax agreements, especially in cross-border business. Ensuring compliance with tax laws and regulations is crucial to avoid potential issues such as double taxation.
As an e-resident and perpetual traveller with “no tax residency,” am I obligated to inform the Estonian tax authority and file a tax return when withdrawing my salaries and dividends?
A perpetual traveller may still have a tax residency somewhere in the eyes of the tax authority because he/she still has social security, real estate, or any other connection to make them tax residents even if they spend less than 183 days in the country. In some countries, getting rid of your tax residency is an excruciating process where you must liquidate all your real estate and even your securities to prove that you’re leaving the country. In Estonia, a company cannot make payments to private persons without withholding tax, so if they are not tax residents of Estonia and reside in another country, employment taxes should be paid in that country. We have highlighted tax differences between employment and director’s fees in our article.
E-residents and perpetual travellers should seek professional tax advice to understand their obligations accurately. While the specifics may vary based on individual circumstances and relevant tax treaties, ensuring compliance with Estonian tax laws and international regulations is essential to avoid potential legal and financial repercussions
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