Becoming an Estonian e-Resident can have many tax benefits. You will likely be able to pay a lower rate of income tax than you would do in your home country, while enjoying more generous allowances in terms of corporation tax too.
In fact, Estonia currently ranks first in the International Tax Competitiveness Index, while the Washington-based think tank, Tax Foundation, found that for the seventh year in a row Estonia has the best tax code among Organisation for Economic Co-operation and Development (OECD) countries.
Estonia has the world’s best tax system
Estonia’s top score is driven by the following four positive features of its tax system:
- It has a 20% tax rate on corporate income that is only applied to distributed profits (i.e. the profits taken out of the business as dividends or staff bonuses etc.). There is no corporation tax charged on retained and/or reinvested profits;
- It has a flat 20% tax on individual income that does not apply to personal dividend income;
- Entrepreneurs can pay their Estonian taxes entirely online with minimal hassle - no matter where in the world they are - thereby saving a substantial amount of time, energy, and admin costs;
- While e-residency does not entirely exempt individuals and companies from dual tax residency or foreign tax liabilities, Estonia has signed treaties with many countries to avoid double taxation.
Estonian Corporation Tax Benefits
The generous corporation tax benefits in Estonia are another reason why the country has become the perfect home for many entrepreneurs.
As mentioned, while there is a corporation tax operating in Estonia, it only applies once profits start being paid out of the business; corporation tax is not payable when profits are reinvested back in the company or left to sit idle in its accounts.
This allows entrepreneurs to grow their business by reinvesting vital funds back into it without being taxed unnecessarily.
Estonia’s e-Residency program also allows companies to access their accounts and important financial documents exclusively via digital means, without the need to attend in-person meetings or complete tiresome admin.
This is, of course, invaluable to e-Residents not based within the country itself.
As each and every e-Resident has different circumstances, it is important to speak to a tax specialist as well as check whether you are exempt from dual tax residency or foreign tax liabilities.
The Estonian VAT Rate
In Estonia the VAT rate is 20%.
And while you may not need a company VAT number immediately, once your company turnover goes above €40,000 per annum, you will be required to register for VAT.
At Nomad Business Solutions, we can advise on all matters relating to this and provide you with expert guidance and support on all other matters relating to Estonia’s e-residency program.
