If you operate outside Estonia on a permanent basis and are not a tax resident in Estonia, the following principles apply to you regarding salary payments.
- If you pay yourself a salary from your Estonian company for your contribution in the core business activities (e.g., providing a service, building a software product, marketing your services, etc.), these salary payments are generally classified as an employee salary.
- You can receive a salary any time, regularly per month, or as once-off performance bonuses, depending on the regulations of your tax residency country. It is up to you how you decide to do it.
- The salary is not taxed in Estonia. There is no official registration needed for this salary in Estonia. However, you should collect and store some written evidence to prove you actually delivered value to the company as a professional, should tax authorities ask for it later on. We also suggest signing an employment agreement between you and your company, which is in accordance with your tax residency country regulations, should you be required to provide it to the authorities. Unfortunately, we do not have a template to share, and a local tax advisor should assist you with this.
- Even though salary payments are not declared in Estonia, they are not tax-free. It is your own responsibility to learn whether and where you have a tax obligation regarding the received salary, and report and pay the relevant taxes. Here, you need to take into account your actual legal status of tax residency and the country where you actually perform your duties. Unfortunately, we cannot assist you with this. However, please be ready to provide tangible evidence about the actual tax declarations and payments in your location upon a request by Estonian tax authorities or Xolo.
A board member may simultaneously receive board member remuneration (for management duties) and an employee salary under an employment contract (for operational duties). You should assess how much of your time is spent performing operational/employee tasks versus management/board member tasks.
The principles described above apply to employee salary payments if the majority of time and effort is spent on tasks that directly contribute to the company’s core business (e.g., delivering a service, developing a product, promoting the business).
If the opposite is true, that is, most of the work involves management or administrative responsibilities (e.g., if the core business functions are mainly or fully outsourced), then the board member remuneration payments might be a more suitable option.
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.
See also Xolo FAQ articles ‘How can I pay myself a salary (operating in Estonia)?’ and ‘How can I pay myself a board member remuneration (operating outside Estonia)?’
The principles listed above regarding employee salary payments apply only if the terms below have been agreed in advance and the proportion between employee and management board member duties has been properly assessed, including whether a split ratio should be applied to the payments:
- You agree to report your current actual location of operations and personal tax residency to Xolo, and update it in a timely manner in case of any changes (e.g., if you relocate to a new permanent location).
- You understand and accept that it is your own responsibility to report all your salary payments to the tax authorities in your actual location of operations (and/or country where you perform your duties), and pay the relevant taxes.
- You accept your responsibility to prove that the employee salary payments have been reported to the tax authorities in your actual location of operations (and/or the country of your tax residency), and the applicable taxes have been paid. If Xolo requests, you will submit the relevant tangible proof in a timely manner.
- As an exception, if you can reasonably prove you are a so-called digital nomad without a personal tax residency in any particular location.
- You grant permission to Xolo to share the data about the salary payments you have received with the public authorities (e.g., tax authorities in Estonia and in your actual location of operations or the country of your tax residency ) upon their request OR if Xolo itself finds it appropriate.
Please inform us about your personal tax residency country and make a transfer mentioning 'Employee salary' or 'Board member remuneration', in the description, as we can then see all the necessary information on your bank statement.