If you operate outside of Estonia on a permanent basis and are not a tax resident in Estonia, the following principles apply to you regarding board member remuneration payments.
When and how much to pay
You can receive a board member remuneration for both management/administrative tasks and for your contribution in the core business activities, regularly per month, or as a once-off performance bonus. It is up to you how you decide to do it. It is reasonable to argue that when a business is still in its infancy, the company cannot afford to pay out anything. So you can start operating your company without receiving any remuneration. There is no maximum for the remuneration either, and you can change the sums you pay and the frequency of payments whenever you like in the future - it is your agreement with your company (you are sitting in both chairs).
Process of paying board member remuneration
- Let us know your tax residence country and provide an A1 certificate* (if available) before you make the first payout.
- We will register your board member status with the official Employment Registry in Estonia.
- Please make a transfer mentioning 'Board member remuneration' in the description.
- We will declare the relevant taxes in Estonia, and let you know how much and when to pay. The deadline is the 10th of the month following the actual payment, and the tax payment is due by the same date. In Estonia, taxes are declared and paid on a monthly basis.
- You should make the tax payments in time to avoid penalties (the interest for late payments is 0.06% per day, and corporate income tax is charged on the interest amount).
- It is suggested to have a board member agreement (between you and your company) signed digitally, and we can share the relevant draft if needed.
Board member remuneration taxes
- Personal income tax 22% - paid to Estonia, independent of your actual location.
- Social tax 33% -
- If your Estonian company pays a board member's remuneration to you, and you have provided the A1 certificate* (available before declaring deadline and validity period starting before the payout date), the relevant social tax is not paid in Estonia. Instead, social contributions are due in the country that has issued you the A1 certificate*. Foreign rules and regulations are applicable, and granting social benefits there as well. As a limitation, currently, Xolo cannot assist you with social tax declarations or payments outside of Estonia, and they should be handled by you.
- If an A1 certificate* cannot be provided, the social tax is paid to Estonia.
- Other obligations - It is your obligation to make sure the amounts received have been reported in your tax residence country according to local rules and regulations.
To avoid double taxation, it is possible to obtain a certificate from the Estonian Tax and Customs Board for board member remuneration declared in Estonia. This certificate confirms the amount of income tax withheld in Estonia and can likely be used in the board member’s tax residency country to reduce their tax liability when declaring the remuneration locally.
The certificate can be requested after the remuneration has been declared, and Xolo offers this as an additional service. You can order the 'Certificate of payments, withholdings and taxes made to a non-resident' service from Xolo self-service under Add-on services.
While you are not required to pay a board member remuneration, we recommend paying a reasonable one. This helps prevent Estonian tax authorities from reclassifying your employment salary as board member remuneration, which could result in retroactive taxes and interest charges. It could also strengthen the connection and relationship with Estonia, which aligns with the government’s expectation of becoming an e-Resident.
*A1 form is a standard document in the European Union, which can be obtained from your local Social Security Office. Please ask your Social Security Office for further information in order to receive the A1 form (formerly E 101).