e-Residency and taxation in Estonia
The main purpose of the e-Residency program is to make life and business easier for freelancers, business owners, and international partners, as well as any other non-residents who are related to Estonia. E-Residency in Estonia makes it possible to start a business, expand your business, make investments or study in the European Union.
Established as a nationwide initiative, the e-Residency program is led by many government ministries and institutions whose efforts aim to improve Estonia’s digital infrastructure and business environment. But most importantly, thanks to Estonia’s EU membership, e-Residents have the right to use electronic services not only in the business environment of Estonia but in the entire European Union.
e-Residency provides a digital ID to users, which allows them to log into different online services in Estonia, such as online banks and government portals. The primary motivation to apply is to create and run an EU-based company 100% online. This gives entrepreneurs from all over the world the opportunity to run a business remotely.
In that way, it allows every willing foreigner to set up a company in Estonia remotely by applying online. e-Residency will help those who are not Estonian citizens but want to enter or invest in the Estonian market.
So far, nearly 80,000 entrepreneurs have already joined the digital nation, many of whom successfully develop their businesses in Estonia with e-Residency.
e-Residency is a crucial thing when speaking of the country’s attractiveness to foreign entrepreneurs. Being the first digital nations for the world’s citizens, e-Residency helped thousands of entrepreneurs, therefore, contributed to the development of the Estonian business environment by attracting minds and talents worldwide.
A resident in Estonian tax law is a non-resident taxed in Estonia only on income received in Estonia. If a resident in Estonia is not and does not receive income in Estonia. All activities occur outside Estonia; taxation occurs in the State where the resident resides or receives income. Estonia’s e-residency does not automatically exempt other foreign states from taxation.
To avoid double taxation, the non-resident may avail himself of the income tax reductions, and concessions from the double taxation treaties concluded with Estonia. The Tax and Customs Department of Estonia should issue a residence certificate approved by the tax administrator of a foreign state.
An Estonian commercial association founded by a resident is a resident of Estonia. If a commercial association founded in Estonia receives profits through a permanent place of activity in a foreign country, dividends in Estonia are exempt from income tax, paid out of profits levied in a foreign country.
In such a case, a commercial association established in Estonia would have a tax obligation primarily in a foreign State, and e-residence in Estonia does not automatically exempt a foreign State from a tax obligation.
Although an Estonian-resident business may have no tax obligation in Estonia, it may have an obligation to file tax returns in Estonia. The TSD form is a declaration on income and social taxes, the payment of the compulsory contributory pension and the payment of unemployment insurance, granted by the 10th day of the next calendar month after the month of the payable. In the same form, various annexes declare both the tax obligation of the business association and the withholding and payment of taxes on the income of the payee.
The gross per business year should be submitted to the business register once a year. The Tax and Customs Department has electronic access to the information from the reports of business associations submitted to the Business Register.
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