How Do Taxes Work for Estonian Companies?
In Estonia, the tax system is designed to promote entrepreneurship and business growth. One of the major benefits is that there are no taxes on income generated by your company as long as it stays within the business or is used for justified expenses. This means that unlike in some other countries, you won't face immediate tax obligations when you start your operations.
So, in Estonia, you'll only pay taxes when you decide to withdraw money from your company and transfer it to your personal accounts or when you pay salaries.
When it comes to VAT (Value Added Tax), we've got a more detailed explanation available here. But for now, let's shift our attention to different taxes.
In Estonia, if your business generates profits, you have the option to distribute dividends annually. The process typically starts with the preparation of the annual report in January of the following year and can be submitted until June 30th of that year.
If you're considering hiring employees in Estonia, it's essential to understand the distinctions between employees and contractors. Additionally, there's a unique category for individuals with geographical flexibility, like digital nomads.
A) Employees
Salaries are paid to employees of the company or to yourself if you opt for a salary. In such cases, you are responsible for covering all taxes related to these salaries, including income taxes and social benefits.
B) Contractors or Freelancers
If your company collaborates with freelancers or you decide to allocate a monthly amount to yourself as a freelancer, your company is not liable for taxes on these payments. They are considered reinvested profits in the business and are exempt from taxes.
C) Location-Independent Individuals
In exceptional circumstances, such as for digital nomads without a fixed tax residence, the company can make payments in the form of collaboration or freelance fees instead of salaries. However, it's crucial to adhere to the tax obligations in the country of residence, and seeking advice from a local tax advisor is recommended.
Given the intricacies of tax laws and the uniqueness of individual situations, we recommend reaching out to a local tax advisor. They can provide precise guidance on the exact tax percentages applicable in your specific situation and ensure compliance with all relevant tax regulations
So, in Estonia, you'll only pay taxes when you decide to withdraw money from your company and transfer it to your personal accounts or when you pay salaries.
When it comes to VAT (Value Added Tax), we've got a more detailed explanation available here. But for now, let's shift our attention to different taxes.
Annual Dividends
In Estonia, if your business generates profits, you have the option to distribute dividends annually. The process typically starts with the preparation of the annual report in January of the following year and can be submitted until June 30th of that year.
Salaries
If you're considering hiring employees in Estonia, it's essential to understand the distinctions between employees and contractors. Additionally, there's a unique category for individuals with geographical flexibility, like digital nomads.
A) Employees
Salaries are paid to employees of the company or to yourself if you opt for a salary. In such cases, you are responsible for covering all taxes related to these salaries, including income taxes and social benefits.
B) Contractors or Freelancers
If your company collaborates with freelancers or you decide to allocate a monthly amount to yourself as a freelancer, your company is not liable for taxes on these payments. They are considered reinvested profits in the business and are exempt from taxes.
C) Location-Independent Individuals
In exceptional circumstances, such as for digital nomads without a fixed tax residence, the company can make payments in the form of collaboration or freelance fees instead of salaries. However, it's crucial to adhere to the tax obligations in the country of residence, and seeking advice from a local tax advisor is recommended.
Given the intricacies of tax laws and the uniqueness of individual situations, we recommend reaching out to a local tax advisor. They can provide precise guidance on the exact tax percentages applicable in your specific situation and ensure compliance with all relevant tax regulations
Updated on: 25/01/2024
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