Does e-Residency make me tax-resident in Estonia?

What e-Residency is, and what it isn’t

e-Residency is a government-issued digital identity for people who aren’t resident in Estonia. With the digital ID card you can sign documents and use Estonian e-services, including registering and running a company online. It is not citizenship, a residence permit or a visa, and it is not tax residency.

The e-Residency programme makes the same point: where you and your company pay tax depends on your individual situation, and e-Residency does not exempt a company from dual tax residency or from tax liabilities in other countries. The Estonian Tax and Customs Board (EMTA) describes an e-resident as a non-resident who pays Estonian income tax only on income received in Estonia.

How Estonia decides who is tax-resident

Estonia uses different tests for people and for companies, and e-Residency is not part of either.

So a registered OÜ is resident in Estonia from the day it is registered, whoever owns it. You, the owner, usually are not, unless you actually live in Estonia or spend enough time there.

Your own country decides your tax residency too

Every country has its own tax residency rules, and e-Residency plays no part in them. Common tests look at where you have a permanent home, how many days you spend in the country, and where your personal and economic ties are. Some countries also look at citizenship.

Because each country applies its own test, you can be resident in more than one country at the same time. Tax treaties usually include tie-breaker rules that decide which country’s claim comes first. The OECD publishes a summary of residency rules supplied by many jurisdictions, which is a useful starting point before you read your own tax authority’s guidance.

Your company can be taxed where it is run

An Estonian company is resident in Estonia, but that doesn’t stop other countries taxing it. EMTA says an Estonian company formed by an e-resident pays income tax on its worldwide income, deferred until profits are distributed. It adds that Estonian tax residency does not automatically exempt a company from tax elsewhere in the world where business is carried on.

Two concepts decide whether that happens:

• Place of effective management. If the company’s key management decisions are made in another country, that country may treat the company as resident there too. What is “place of effective management”? explains how this is usually assessed.
• Permanent establishment. If the company carries on business through a fixed place in another country, such as the home office you work from, that country may tax the profits linked to it. What is a permanent establishment? covers the tests.

Your own country may also have controlled foreign company rules that look at profits kept in a company you control abroad.

How to work out where you stand

This site can’t tell you where you or your company owe tax. These steps help you collect the facts a tax adviser or your tax authority will ask for.

1. Confirm your personal tax residency using your own country’s rules. Start with your tax authority’s website or the OECD summary.
2. Write down where the work and decisions will happen. Note where you will work, where contracts will be signed and where strategic decisions will be made.
3. Run the fit check. It turns your answers into a list of concepts to raise, each with a plain explanation and an official source.
4. Take the list to a professional in your country before you register the company, or before you change how you run it.

If you are weighing an Estonian company against one at home, Estonian company or a company in your own country lists the questions to compare.