Need help understanding your tax obligations? There’s a guide for that!
E-Residency publishes new Business Guide on taxation for e-residents
This week, e-Residency published its new Business Guide for e-residents. The comprehensive Business Guide was put together by the e-Residency project team in cooperation with PriceWaterhouseCoopers Estonia. The guide covers all relevant business topics for an e-resident, from setting up a company to corporate taxation, employment matters, treatment of expenses, international tax rules, and trade in goods.
This short article introduces you to the guide and who can make use of it. It also provides you with an overview of the topics you will find inside the guide.
But first, for those of you new here, what is e-Residency?
E-Residency is a government-issued digital identity and status that provides access to Estonia’s open and transparent digital business environment and e-governance services. There are now over 62,000 e-residents from 165 countries with a digital identity card that allows them to start an EU company online, digitally sign and encrypt documents, and run their business from anywhere in the world at low cost and hassle-free.
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Who is the e-Residency Business Guide for?
The e-Residency Business Guide was produced in response to a real need for focused, useful information about international taxation for e-residents. The e-Residency team has heard from e-residents near and far that one of the biggest challenges they face is understanding their tax obligations.
This is unsurprising. For years, multinational corporations have struggled with the same complex international tax rules and varying domestic tax laws that affect your crossborder businesses. With the recent rise of small to medium enterprises operating across borders, digital nomads, and other location-independent entrepreneurs, these complicated topics have hit the mainstream. Now solopreneurs are grappling with issues such as double tax avoidance treaties, permanent establishment, and dual residence, as much as any Chief Financial Officer at the world’s biggest companies.
Of course, the difference is that these multinational corporations have entire in-house teams and access to external tax experts across multiple jurisdictions to support their tax compliance.
While e-Residency may not be able to offer you this level of resources (we are a small team in a Government agency after all), we have done the next best thing and put together this helpful guide for e-residents on all things tax-related in cooperation with our trusted partner PriceWaterhouseCoopers Estonia.
The guide is useful for all e-residents of Estonia, whether you have already established your business or are still thinking about it. It covers topics related to your personal taxes as well as taxes you will encounter when running your business internationally.
However, the guide is not meant to be exhaustive.
One of the best things about e-Residency is that it allows for flexibility and variation in how you use it, including where you live, the type of company you can establish, and the type of business you operate. As a result, our growing community of e-residents is diverse and innovative, something that the e-Residency team celebrates as a major achievement of the programme.
With such diversity and innovation though also comes a lot of variation in the factors that affect each individual e-resident’s specific tax obligations. These factors include where you are resident, the type of company you run, whether you deal in goods or services, whether you are a solopreneur or employ others, and the location(s) where your business operates.
It would be a very long and complicated task to put together a guide that covered every single one of our e-resident’s individual circumstances. Instead, the guide has been specifically designed to address the circumstances of the large majority of e-residents, who meet the following preconditions:
- You established an Estonian limited liability company, the so-called osaühing (“OÜ”);
- You provide services to your clients and not sell any goods;
- You mainly work for the company yourself, but might also have employees; and
- You do not live or work in Estonia on a permanent basis.
But even if you fall outside of these preconditions, you may still find the guide useful in highlighting the major tax-related topics to be aware of when starting an international business.
It is also important to note that the guide is intended as general guidance only. It should not be taken as specific advice with respect to your individual circumstances. As always, we recommend that you conduct your own independent investigations and consult with taxation experts for advice specific to your situation. We particularly recommend taking a look at the e-Residency Marketplace and contacting one of the trusted tax and legal consulting service providers to assist you with your taxation inquiries.
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What is in the e-Residency Business Guide?
The guide is divided into seven chapters covering all relevant topics for an e-resident from a tax perspective, starting from what to consider when establishing an Estonian company and then moving on to an in depth look into the different taxes you will inevitably come across: Value-Added Tax (“VAT”), Corporate Income Tax (“CIT”) and Personal Income Tax (“PIT”).
The main topics covered in the guide include:
- Setting up a company in Estonia: accounting and taxation basics;
- Taxation of an Estonian company and payments from an Estonian company: how to treat your profits;
- Employment matters: a primer on personal tax residency and Estonian labour relations;
- Taxable payments: in Estonia, non-business-related company expenses trigger a corporate income tax charge (and in some cases also a social charge if the payment is considered a fringe benefit); and
- Permanent Establishments and Dual Residence: explanation of two separate issues that arise most often in cross-border situations where a company is managed from abroad.
The final chapter of the guide deviates slightly from the four main assumptions of the Business Guide (see above) and provides a general overview of trading in goods. Rather than e-residents providing services, this part of the guide is intended for the growing number of e-resident e-commerce entrepreneurs selling goods to customers located within the EU.
Where can I find the Guide?
E-Residency has published the Business Guide on a dedicated web portal connected to our website: https://e-resident.gov.ee/business-guide/
Once again, the e-Residency team strongly advises that you consider this guide a detailed introduction rather than having specific application to your own circumstances. You should always consult with tax experts in relation to your individual and business tax obligations.
Happy reading! We hope you find the Business Guide useful and welcome your comments and feedback below.