A key element for all your taxation issues is to work out whether you are an Estonian resident or non-resident for tax purposes. Residency rules can be quite complicated so please read with care. Before coming to Estonia, we advise to ask from your local tax authority a certificate proving your previous status as tax payer. This comes handy especially in case your home country has a bilateral tax treaty with Estonia and you are subject to certain benefits.
It is important to remember that your status of residence must be certified by the Estonian Tax and Customs Board. The decision will be made upon your application that you should file after arriving Estonia.
Determining the place of residence is based on a number of conditions.
Firstly, it is of importance, whether your home country has an effective bilateral tax treaty with Estonia. If yes, then it is considered whether:
- You stay in Estonia less than 183 days within 12 month period; and
- You receive income from sources outside of Estonia; and
- Your employer does not have a permanent establishment here to conduct business in Estonia
If the answer to these questions is yes, then you will probably be considered resident of the other contracting country, your income will be taxable only in you home country and you do not have to pay taxes in Estonia. Treaties may also prescribe other conditions for the determination of residency. To prove that prior to arriving in Estonia you have been a tax resident of the other contracting country, you need a certificate issued by your local tax authority.
Even if one condition is not fulfilled – for example, if you are employed by an Estonian organisation Estonia has the right to tax your income. Usually the employer withholds income tax according to Estonian legislation already while making payments. In case the employer does not withhold income tax, it is your obligation to declare your income.
In the event that your home country does not have an effective bilateral tax treaty with Estonia, the decision concerning your residency is based upon the number of days spent (or planned to be spent) in Estonia.
If you stay in Estonia less than 183 days within 12-month period and the income is paid by Estonian state, local government, resident, non-resident employer in Estonia or permanent establishment of non-resident legal person registered in Estonia, you are considered a non-resident of Estonia and Estonia has the right to tax your income arising from Estonia.
If you stay in Estonia for more than 183 days within 12-month period you will become an Estonian resident and you are obliged to declare your worldwide income (wherever arising). Estonia has the right to tax all your income wherever arising and you will be treated as Estonian resident for tax purposes.