Note: e-residency is not the same as Estonian tax residency. However, if an e-resident establishes a company in Estonia, this company becomes a tax resident of Estonia from the moment it is created.
A legal entity is considered resident in Estonia for tax purposes if it is established and duly registered under Estonian law. If you have registered an Estonian Co. (OÜ), your company is an Estonian tax resident and subject to tax in Estonia.
There is no management and control test for the purpose of determining corporate residency in Estonia. However, most tax treaty tiebreakers for legal entities are based on competent authority procedures. This is where it becomes tricky, as international taxation kicks in, and careful planning is required.
According to international tax rules and practices, and OECD tax treaty models, it is the place of effective management that triggers tax residency.
If you run your company from a foreign country outside Estonia, your company might end up having a tax residency in that foreign country. In this case your Estonian company has dual tax residency – this happens when two states believe that the company is tax resident in their jurisdiction, and both will want to tax your company’s profits, and profit distributions. If your aim is to take full advantage of the Estonian corporate tax system, this is a situation you may want to avoid.
You should, therefore, make sure that your Estonian company has enough substance in Estonia to back up your Estonian corporate tax residency. This ensures that you fully enjoy all Estonian tax privileges.
Pay attention that your Estonian company is and remains a tax resident in Estonia to benefit from the tax treaty network and domestic tax laws. For example, foreign qualified dividends are not taxed in Estonia. If your Estonian company receives foreign dividends, those may be tax exempt, or your company may get a tax credit on such dividends. To achieve this, you may need to present a tax residency certificate to a foreign company paying dividends. Proof of corporate tax residency in Estonia may eliminate or substantially reduce a foreign withholding tax, saving you your hard-earned money.
If your Estonian company receives dividends from the US, the withholding tax rate in the US is 30%. However, if you prove your company’s tax residency in Estonia by presenting a tax residency certificate, the withholding tax rate is reduced to just 15%. This is the beauty of tax treaties: they never create any tax; their purpose is to avoid double taxation and often reduce or substantially eliminate taxes in a foreign country.
The same goes for the taxation of interests and royalties your Estonian company may receive from abroad. You may achieve very tax efficient results using and presenting a corporate tax residency certificate. Knowing how and where to use it may produce amazing results and save you tons of money.
We are happy to assist you to navigate the complexities of international taxation and advise you on corporate tax planning matters. We help you to establish minimum substance requirements in Estonia maintaining and sustaining Estonian corporate tax residency for your company. An example of Estonian corporate tax residency certificate is attached.
Why InCorpora?
International tax planning requires knowledge of local and international laws and regulations. This is a competence that we have curated over many years in business. InCorpora’s expert team has many years of combined experience — understanding the specifics, local and international laws, and regulations. Estonia has a wonderful, simple, and unique corporate tax system. We know how Estonia works best for you, and how it can be best utilized for efficient corporate structuring to your benefit.
For more information please contact us info@incorpora.eu and we would be happy to consult you.
