If you own and run an Estonian company, Xolo assumes the company is an Estonian tax resident that does not have any foreign permanent establishment. If correct, please follow the principles below. If this is not correct (anymore), Xolo cannot provide support for your company, and you need to find an alternative service provider.
If you operate outside Estonia, the following taxes apply:
- If you do not take any money out of your company, you do not need to pay corporate income tax in Estonia. You can keep the earned money on your company's account indefinitely, and you will not have to pay income tax on it. You only need to start paying the relevant taxes when you start taking money out of the company, meaning paying yourself an employee salary, board member remuneration, or taking out dividends, etc.
- If you receive an employee salary from your company, no personal income tax or social tax is paid on the salary in Estonia. Whilst the salary payments are not declared in Estonia, they are not tax-free. You are responsible for declaring and paying taxes in the country where you are a tax resident as an individual person and/or where you perform your duties. Please contact the local authorities in the country to learn about the relevant tax rules and the procedures for declaring and making payments properly. However, please be ready to provide tangible evidence about the actual tax declarations and payments in your location upon request by Estonian tax authorities or Xolo.
- If you receive a board member remuneration from your company, Xolo will declare the relevant taxes in Estonia, and let you know how much and when to pay to Estonia’s Tax Authority. It is your obligation to make sure the amounts received have been reported in your tax residence country as well, according to local rules and regulations.
- If you receive dividends from your company, the corporate income tax is paid in Estonia. The rate is 22%, calculated as 22/78 from the net payment you receive. For example, if you receive €800 net as dividends, the corporate income tax of €225.64 has to be paid in Estonia. No personal income tax is added in Estonia. However, the personal income tax is likely to be declared and paid in the country where you are a tax resident. Please contact the local authorities in your tax residency country to learn about the income tax rules and the procedures for declaring dividends received and making the payments properly. Unfortunately, we cannot assist you with this.
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.
Based on this assessment, it should be decided which option and in which proportion would be suitable to use from the following options:
- keep all the money in the company and reinvest it to boost your business, or
- receive employee salary and/or board member remuneration only (exact rules on minimum employee salary may depend on the regulation of the country of your tax residency, which you should investigate yourself) or
- receive employee salary and/or board member remuneration, and dividends.
While you are not required to pay 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.