How Do Salaries and Dividends Work for an Estonian Resident?
This article is about how salaries and dividends function for people who live in Estonia, not for those who have e-Residency. If you are thinking about living in Estonia and becoming a resident, keep reading.
Estonian residents who receive dividends do not need to pay personal taxes on those dividends. The company paying the dividends is subject to corporate tax (20% of the gross amount), but the individual receiving the dividends does not have to pay additional taxes.
As an Estonian tax resident, you are responsible for paying taxes on your entire salary, including income tax, social tax, and ensuring that the social tax covers the minimum required by authorities each month. Additionally, there may be other minor taxes to consider. It's important to note that Estonian tax residents are required to pay taxes on their worldwide income.
For a gross salary of 1,000€ in 2021, the breakdown is as follows:
Gross Salary/Wage: 1,000€
Social Tax (paid by the employer): 330.00€
Unemployment insurance (paid by the employer): 8.00€
Total Cost for the employer (Wage Fund): 1,338.00€
Funded pension (paid by the employee): 20.00€
Unemployment insurance (paid by the employee): 16.00€
Income Tax: 62.00 €
Net Salary/Wage: 902.00 €
So the total cost for the employer (the company) will be 1,338€, and the employee will receive 871,20€ in their account. The employee will not need to pay any extra tax for that income afterward.
The income tax in Estonia is a flat 20%. However, there is a tax exemption applied to the taxable income based on total income and residency status. The exemption for a monthly salary of 1,000€ is 654€. Any income above that amount is subject to the 20% income tax rate.
The choice between receiving salaries or dividends depends on several factors, including timing and social coverage needs.
If a steady monthly income is required, becoming an employee of the company and receiving a salary is advisable. Dividends are typically distributed once a year. Social coverage, such as access to social security, is tied to receiving a salary. Finding a balance between a small salary for social security needs and supplementing with dividends may be a practical solution.
What are the tax implications for dividends received by Estonian residents?
Estonian residents who receive dividends do not need to pay personal taxes on those dividends. The company paying the dividends is subject to corporate tax (20% of the gross amount), but the individual receiving the dividends does not have to pay additional taxes.
How are salaries and income taxed for Estonian residents?
As an Estonian tax resident, you are responsible for paying taxes on your entire salary, including income tax, social tax, and ensuring that the social tax covers the minimum required by authorities each month. Additionally, there may be other minor taxes to consider. It's important to note that Estonian tax residents are required to pay taxes on their worldwide income.
Can you provide an example of how salaries are taxed for Estonian residents?
For a gross salary of 1,000€ in 2021, the breakdown is as follows:
Gross Salary/Wage: 1,000€
Social Tax (paid by the employer): 330.00€
Unemployment insurance (paid by the employer): 8.00€
Total Cost for the employer (Wage Fund): 1,338.00€
Funded pension (paid by the employee): 20.00€
Unemployment insurance (paid by the employee): 16.00€
Income Tax: 62.00 €
Net Salary/Wage: 902.00 €
So the total cost for the employer (the company) will be 1,338€, and the employee will receive 871,20€ in their account. The employee will not need to pay any extra tax for that income afterward.
How is the income tax calculated for Estonian residents?
The income tax in Estonia is a flat 20%. However, there is a tax exemption applied to the taxable income based on total income and residency status. The exemption for a monthly salary of 1,000€ is 654€. Any income above that amount is subject to the 20% income tax rate.
Is it better to receive salaries or dividends for Estonian residents?
The choice between receiving salaries or dividends depends on several factors, including timing and social coverage needs.
If a steady monthly income is required, becoming an employee of the company and receiving a salary is advisable. Dividends are typically distributed once a year. Social coverage, such as access to social security, is tied to receiving a salary. Finding a balance between a small salary for social security needs and supplementing with dividends may be a practical solution.
Updated on: 13/10/2023
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