Due to different criteria for determining residency in different countries, in some cases a person must be resident for tax purposes in multiple countries at same time. Typically this kind of double residency is avoidable with tax treaties signed between the countries. The information about of tax treaties are available on the website of the Estonian Tax and Customs Board. Unfortunately, Estonia does not have a contract with our biggest near neighbour Russia.
In Estonia non-resident pays tax only on the income which is clearly set out in the Chapter No 5 of the Income Tax Act (ITA); therefore, Estonia does not tax non-residents on its worldwide income.
Income Tax Law also sets out the conditions under which non-resident of Estonia’s income is exempt from tax (ITA § 29 – the taxable income, ITA § 31 – income which is non-taxable notwithstanding of ITA § 29).
A non-resident taxpayer shall pay income tax only on the following profit:
- income derived from work or from the provision of services with work location in Estonia (ITA § 29 (1));
- remuneration paid to a non-resident member of a management or controlling body; the place of work is not important (ITA § 29 (2));
- Estonian business income (ITA § 29 (3));
- gains derived from a transfer of Estonian property (ITA § 29 (4), (5) and (6));
- income derived from a commercial lease or royalties of Estonian property (ITA § 29 (6));
- interest from contractual investment fund, which holds immovable property in Estonia (ITA § 29 (7));
- Estonian pension (ITA § 29 (9));
- scholarships and grants, cultural, sports and scientific awards, benefits (ITA § 29 (9));
- gambling winnings if there is no operational license (ITA § 29 (9));
- benefits paid on the basis of the Parental Benefit Act (ITA § 29 (9));
- insurance indemnities, payments made from Estonian pension funds (ITA § 29 (9));
- remuneration paid to an artist or sportsperson in connection with his or her performance or competition in Estonia. (ITA § 29 (10)).
The specific conditions in which the above-mentioned type of income is taxed in Estonia are findable the Income Tax Act.
In case a natural person’s resident country have entered into agreement for the avoidance of double taxation the tax benefits and reductions should be taken into consideration.
A non-resident has an obligation to file income tax return in case of:
- he or she can benefit from the transfer of property in Estonia;
- he or she gains from business income;
- he or she has received taxable income on which no income tax has been withheld.
For further information, please contact our office!
