Before becoming an e-Residentowning a company in Estonia, one of my main concerns was what kind of taxes would I need to pay and how to pay them. In this article, I want to explain VAT and Taxes for e-Residents owning a company in Estonia.

One of the main reasons that encouraged me to start my business in Estonia was how easy it is to understand their tax system, as opposed to Spain.

Don’t be fooled, though, Estonia is not a Tax Heaven. It is a remote management heaven for entrepreneurs and freelancers like me.

This means that you, of course, are going to pay taxes. Only, you will be paying a fair amount of taxes. Furthermore, the system is designed so you can focus on your business and forget about the administrative, tedious tasks.

VAT For e-Residents Owning A Estonian Company

When you open your company, using any Business Service Provider, you can opt to register for a VAT number.

Do I need A VAT Number?

Your business will need a VAT number if some of these conditions apply:

  • First, if some of your customers require it for their sales invoices. This is usually the case with European companies.
  • Next, if you sell services like software development or design to European customers, and you make more than 16k € per year (Edit: this limit was raised to 40k in 2018).
  • Also, if you sell digital services or products (software or digital content) to B2C customers in the European Union.
  • Finally, if you sell digital services or products (software or digital content) to B2B customers only if your sales exceed 16k € per year (Edit: this limit was raised to 40k in 2018).

What’s a digital service? Any good or added value that’s not physical. This includes software development, web design, marketing and SEO services, etc.

Should I Bother?

Even though you don’t need a VAT number, it’s always interesting having one.

For starters, it allows you to operate more easily within the EU. Additionally, a VAT number always adds trust in your company for your customers, suppliers, and providers. Lastly, a European VAT number will help you to avoid dealing with different VATs and regulations when doing operations within the EU.

When To Add VAT To Your Invoices

Ok, so you have registered your company in Estonia, and have a VAT number. When should you add VAT in your invoices, and when not?

Overall, it depends on the type of services you offer:

If your services need your direct intervention (i.e: consultancy, software development), then:

  • If your customer is a B2B from the European Union, with a valid VAT number, you don’t add VAT (0%). Instead, you add a clause to your invoice: “The purchase is liable to Intra-Community supply 0%, Reverse charge”. There’s a website here where you can check if a customer VAT number a is valid.
  • On the contrary, if your customer doesn’t have a valid VAT number, you need to add the Estonian VAT (20%). This applies to B2C and B2B customers.
  • Finally, if the customer is outside of Europe (i.e: an American customer), you don’t add any VAT (0%).

Most freelancing activities fall into this category.

Conversely, if your services are automated (i.e: cloud hosting, SaaS), then:

  • If your customer is a B2B from Europe with a valid VAT number, similarly to the previous situation, you add the same clause and add no VAT (0%).
  • Conversely, if your customer does not have a valid VAT number, you apply the VAT from their home country. This applies for B2B and B2C customers. Thus, if your customer is from Spain, you will add the Spanish VAT (21%).
  • Finally, if your customer is outside of Europe, you don’t apply VAT (0%).

Most SaaS will fall into this category. As you can see, Europe is still a mess when it comes to entrepreneurs and startups with a subscription model or an automated online software product.

As an exception, if you are selling your services to an Estonian company, you need to add Estonian VAT to your invoice.

Taxes For e-Residents Owning A Estonian Company

Ok, now that you know how to build your invoices and what VAT to apply, let’s talk about taxes.

There’s no taxation whatsoever for the revenue of your company, or if you reinvest this money in your company. Thus, if you just work, deliver invoices to your customers, earn money and use it for valid company expenses, you don’t need to pay a cent.

This is actually pretty cool. I have owned companies in the past in Spain and the UK, and you pay taxes for the money your company earns. I think the Estonian way encourages you to reinvest and grow your company.

Then, when do you pay taxes? When you get the money out to your personal account. If you are unclear about the distinction between you and your business, read: “You are not your company” from my post Demystifying Digital Nomad Taxes.

There are two ways of earning money from your Estonian company: salaries, and a yearly dividends payment.

Yearly Dividends Payment

At the beginning of every standard financial year, you can pay dividends to yourself. Distributed profits are generally subject to a flat 20% income tax at 20/80 of the net amount of profit distribution.

The tax subject -the person to be taxed for dividends- is the company, and not you (as an individual). This distinction is important. You don’t have to pay additional personal income taxes in Estonia for just being a shareholder of your Estonian company.

This means that if you pay yourself 10.000€ in dividends at the beginning of the year, your company will pay an extra 2.500 € in taxes (10000 x 20/80).

Assigning Yourself A Salary

As the owner of a micro-company in Estonia, you are supposed to perform two very different types of tasks:

First, you are the only board member of the company. Thus, you are supposed to take care of administrative tasks, contacting customers, accountancy, etc. Additionally, you will perform some technical or specific tasks related to your area of business and professional expertise -programming, design, consulting-.

As a result, you need to divide the salary into two parts, your board member salary, and the employee salary.

Your employee salary is not taxed at all in Estonia, as long as you are living and working outside of the country. However, for the board member salary, you are supposed to pay two taxes: the Income Tax (20% of the gross amount) and the Social Tax (33%) of the salary plus the income tax.

Furthermore, the social tax can be ignored if you can provide some evidence that you are already paying social contributions in another EU country (i.e: the freelancer’s fee in Spain).

On most occasions, however, you will have to pay both.

The distribution of both salaries is up to you, but a recommended division is 70% (employee) / 30 % (board member). You are free to assign a 100% to your employee salary, but then you’ll have to justify why are you performing your board member duties for free.

If you are a freelancer selling your time in a technical area (i.e: a programmer), it makes sense that your employee salary is slightly higher. In my case, I use a 20/80 distribution.

Thus, from your salary, you need to pay the board member salary taxes in Estonia (when you assign yourself the salary) and the employee salary taxes in your residence/home country (when doing your tax statement, if applicable).

Let’s see how this works with a concrete example:

Salary Example

Let’s say your company earns around 3000 € from your customers a month (around 36k a year). To test the waters, you decide to start with a salary of 1000€ a month.

You decide that the initial 30/70 distribution of your salaries is OK for now, so you pay yourself 300€ as “board member salary” and 700€ as “employee salary”.

Your employee salary doesn’t have to pay any taxes in Estonia. Therefore, only your board member salary (300€) is taxed there. Then, the calculations are:

  • Income tax (20% of gross): 300 x 20 / 80 = 75€
  • Social tax (33% of your salary + income tax): (300 + 75) x 0,33 = 123,75 €

As a result, we have a total amount of 198,75€, which is slightly below 20%. At the end of the year, you will end up with a surplus of 21650€ in your company’s account.

Easy, right? Of course, if you apply a 20/80 salary distribution, you will have to pay 132,50€ in taxes, which is around 13%. This could be the case if you are a freelance developer and most of your time is not spent on administrative tasks.

Important reminder: You need to pay personal taxes in your home country/residence country if applicable for your employee salary. Thus, if you are a tax resident in, say, France, you will need to pay taxes for those 700€ when doing your tax statement. Thanks to Vinko for helping me clarify this!

VAT and Taxes for e-Residents Owning a Company in Estonia.

Smart Expenses And Reducing Taxes for e-Residents

The concept of tax-free reinvestment in your company is certainly one of the main appeals of the Estonian business system. Let’s dig a little deeper in expenses and how your company can grow by making use of this smart system.

What’s a valid company expense?

Basically, everything that costs you money and it’s directly related to your activity. The e-Residency program has been thought for digital nomads and traveling entrepreneurs. Thus, with that in mind, these are usually valid expenses for your Estonian Company:

  • Hosting, domains, cloud services, and other software services with a recurrent subscription. From the LeapIn fee itself to legal advice from a lawyer or hosting your servers online.
  • Consumables or expendable equipment for your professional activity.
  • Software and tools you buy for work.
  • Travel expenses, including flights, car rental, services like Uber or Taxify, accommodation and apartments. This includes trips to Estonia (i.e: to open your bank account).
  • Payment fees (i.e: gateways for your e-commerce site) and bank fees.
  • Lunch meals, but only the part of your customer. You cannot declare your own lunch as business expenditure.

However, due to the special nature of the e-Residency program, there are some caveats you must be aware of:

  • Fuel/gas invoices from domestic trips within a country are generally not included. I.E: if you travel from Madrid to Barcelona (both in Spain) by car, that’s not included. Curiously enough, public transport trips are allowed as long as you are visiting a customer or going to a work meeting. I.E: if you take the underground in Paris to visit one of your customers at their offices in the city center.
  • Vacation and holiday trips. They are especially wary about trips to your home country, especially during the holiday seasons. You will need to justify that this was, in fact, a business trip.
  • Permanent offices. As you are supposed to be a digital nomad and travel the world, the maximum time that you can declare a concrete office or rental as a business expense is 6 months.

The Daily Allowance

Additionally, there’s a very interesting concept called Daily Allowance. When we travel, there are many extra expenses, like lunches, coffee, taxies and public transport to name a few. The daily allowance allows you to get some tax-free money from your business account to pay those justified expenses.

In order to be able to do that, you have to add some documents that justify your trip, like flight invoices or AirBnB reservations. Of course, daily allowance is only available for trips between two countries with a clearly predefined duration.

For example, traveling from Italy to Germany to attend a conference there and back in a week. It doesn’t work for changing your location on a semi-permanent basis.

The daily allowance allows you to expend 50 EUR per day for the first 15 days (max) in a calendar month, following 32 EUR per day for the rest of the month if the trip (or a combination of multiple trips) is that long. Tax-free.

Out Of Pocket Expenses

The Estonian business system is very flexible and gives you plenty of possibilities. One perfect example is “Out of pocket expenses”. Say you find yourself without your business card or a way of paying a business expense with your business account. In that case, you can just pay this expense with your own personal money (either with cash, bank transfer from your personal account, or your personal card).

Then, by uploading the invoice, it will be marked as an “Out of pocket expense”, so you can reimburse your money back to your personal account later.

Thinking About Opening Your Company In Estonia?

If you have decided to open your company in Estonia, and found this post useful, you can use the “DigitalLeaves” code when signing up with LeapIn, so both you and I will get a 100€ discount. I would be really grateful if you showed me your appreciation by using my referral code when signing up.

You can enter this code in the “Referral Code” field of the Personal Details section during the Sign Up process. Thanks a lot in advance! 😍

Conclusion

In this article, I described how VAT and taxes for e-Residents work when you own a company in Estonia. The Estonian system is pretty straightforward and easy to understand.

Even if you are a geeky developer like me, a designer with no idea of financial matters, or a newcomer to the whole entrepreneurship world, you will probably be able to know how to generate invoices for your customers, charge VAT and pay taxes.

However, the idea is that you don’t need to bother with any of these. I use LeapIn, one of the Business Service Providers recommended by the e-Residency program. They take care of everything, and I only need to upload the PDFs containing my invoices and expenses. That’s all.

Isn’t it beautiful when you can just take care of working and growing your business?

I hope this post was helpful. Do you have a concrete doubt? Let me know in the comments below.

I would like to thank the guys at LeapIn for the information about VAT and taxes for the different cases that I mentioned.

 

Let's talk!

Years ago, I quit my 9 to 5 job and became a freelancer first, then a solopreneur, and finally a digital nomad. Managing my company back in Spain was a nightmare until I discovered the e-Residency program and opened my company in Estonia. That changed my life.

After some years managing my business, I know the tricks of the trade. I can offer you advice on how to become location independent, found an European company you can manage online while traveling, and avoid unnecessary costs. If you are ready to take the leap, but have some doubts or don't know where to start, let's get in touch.

Let's do this!

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114 Comments

  1. Eduardo November 20, 2017 at 6:13 pm

    Gracias por la información. Me viene de perlas. A ver si me admiten y nos convertimos en e-vecinos 😉

    Reply
    1. nacho November 21, 2017 at 8:15 am

      De nada Eduardo. Muchas gracias a tí por tu comentario. Por supuesto que si, será un placer ser e-vecinos 😃.

      Reply
  2. Vinko November 21, 2017 at 12:02 am

    Great read, ty
    If I’m not mistaken, you still have to pay personal income tax on that 700€ (from example above) earned as salary in the country where you have residency, right?

    Reply
    1. Damir January 2, 2018 at 6:33 pm

      Pozdrav Vinko,
      Imas li jos koja saznanja vezano uz poslovanje u Estoniji.

      Reply
    2. nacho February 2, 2018 at 2:38 pm

      Hello Vinko,
      Yes, definitely you are right, you need to pay for just the employee salary, as the board member salary taxes have already been paid in Estonia.
      Thanks for sharing your question, really helped clarify some things.

      Reply
  3. Pingback: Demystifying Digital Nomad Taxes - Micropreneur Life

  4. Sam Marquette December 5, 2017 at 11:27 pm

    I am resident in Spain, and looking to open one of these estonian companies. I can pay social security only in Estonia, correct? (It seems to be much cheaper there). In Spain you only need to declare if you make over 22000€ I believe, so in the case of making 1000€ a month you would not pay anything in Spain in taxes, correct?

    Reply
    1. nacho December 6, 2017 at 12:19 pm

      Hello there Sam,
      You have to differentiate between you and your company. Your company will pay VAT and taxes in Estonia. As it’s a company, it doesn’t pay social security. However, when you assign yourself a salary, your company in Estonia pays the social security tax and other taxes associated to that salary, as explained in the article, like any other company will do.

      Then, in Spain, you should pay your IRPF as a Spanish resident. You don’t need to pay social security, your company did it for you, unless you work as a freelancer (in which case you should pay the “Cuota de autónomo”, but it doesn’t make sense if you own a company in Estonia).

      Regarding the threshold, I suggest you to double-check that. If the limit was 22000€, most Spaniards would not pay a cent to the Tax Office, so I kind of thing that number may not be accurate. I think it was more like between 7k and 14k, but I might be wrong.

      Reply
  5. Silvain December 13, 2017 at 4:09 pm

    Very useful read, thanks a lot for posting it.

    Reply
  6. Denise December 17, 2017 at 8:28 pm

    Hello.

    If you buy supplies for your business in your country, Lets say buying materials for making jewellery, can you submit the invoices as expense?

    If so how should be your invoice? Being in a different language won’t cause a problem? Thanks.

    Reply
    1. nacho December 18, 2017 at 10:28 am

      Hi there Denise,
      Yes, certainly you can. Everything that is a justified business expense can be declared as an expense. In that case, it’s best if you buy it with your business debit card or bank account but, even if you don’t, you can upload the invoice and it will be marked as “out of pocket” expense.

      The invoice will be from another company to yours, so they should be in charge of giving you the invoice. If they have a VAT number, and are outside of Estonia (i.e: any other EU country), they should charge 0% VAT.

      The language difference is not a problem at all, especially if the concepts are clearly specified. I have uploaded some invoices in Spanish. However, in case of doubt, you can talk to the LeapIn (or your service provider) staff and indicate them the meaning of the different concepts.

      Reply
  7. Glad filur December 31, 2017 at 8:46 am

    Well, life is not that easy. Actually this article is misleading. I have my Estonian company (with VAT) and sell to somebody in Spain (who does not have VAT). Two ways: if I am small (sales to Spain less that 20-100000 €/year, depending on the country), then I invoice the Spaniard with Estonian VAT. If I am big, then I have to register my company to the Spanish VAT office. Then I charge (and later pay) the Spanish VAT.
    Of course, registering for VAT in 25 EU countries is expensive….

    Reply
    1. nacho December 31, 2017 at 10:23 am

      Dear Glad,
      If you take the time to re-read it again, you will notice the article is not misleading. Please, re-read the sentence:

      …On the contrary, if your customer doesn’t have a valid VAT number, you need to add the Estonian VAT (20%). This applies to B2C and B2B customers.

      Of course, you don’t need to register in 25 countries at all. With an Estonian VAT, you can operate with as many customers from Spain as you want, earning as much money as you want. As an example, Google operates with an Irish (IE) VAT for Spanish customers and they certainly earn more than 100k a year.

      If you find a exact sentence in the article that is misleading, and can point to a reference that proves the contrary, I will appreciate you to specify it so I can correct it, but as far as I know, the information here is correct, cheers! 🙂

      Reply
  8. Glad filur December 31, 2017 at 9:00 am

    An other mistake: in order for the seller to sell you the material with VAT 0 %, the goods must be exported (to Estonia or other country). If you live in Spain (with your Estonia VAT), and buys the jewellery stuff in Spain, the Spanish seller must charge the Spanish VAT.

    Reply
    1. nacho December 31, 2017 at 10:26 am

      Hi there Glad. I don’t know if the jewelry business is subject to an specific regulation, but what you are stating doesn’t sound right to me. If you buy goods in Spain or any other place, and it’s a business expense, and you can justify it, then you ask your provider for an invoice without VAT (given that both of you have a VAT number).

      However, it seems to me you are just trying to resell jewelry you just bought at a higher price or something? That’s probably not a justifiable expense, but I don’t know your specific case.

      I have certainly bought goods for my business in Spain (as I am Spaniard) that are justifiable expenses with 0% VAT without any problem.

      Reply
  9. Jack R. December 31, 2017 at 6:02 pm

    Hey Nacho, Happy New Year! (today is 31/12 you know) … thank you for putting together this valuable information. I wanted to start with LeapIn but unfortunately they don’t work with businesses that sell physical products, so I was referred to 1Office. Long story short, 2007 its’ been tough for me, I have started on march with my online store but I didn’t even reach the 16000 euros on sales, more over, since most of my customers are from USA, my gross sales to european customers is less than 40% of those 16000, that is why I didn’t bother to get a VAT, Maybe I am already in trouble because I didn’t file taxes so far…. but my question is, It is require to file taxes without VAT number?…. Can you/or anyone else recommend me a freelance accountant in Estonia?… The 1Office company I mentioned is great but it is a little price to me right now, for instance, just to be able to talk to an accountant they charge 100 euros + the hourly fee that the actual accountant charges (almost 75 euros I believe). I would appreciate any info regarding this and again thank you for sharing the article. Cheers!

    Reply
    1. nacho December 31, 2017 at 8:10 pm

      Hello there Jack, thanks for your comment, and happy new year too!
      Congratulations on your new business. I know from my own experience that beginnings are always hard. However, don’t give up just yet!

      Regarding your question, yes, you need to file taxes even if you don’t have a VAT number. The VAT number in your case is a convenience if/when you consider your sales to EU customers are important enough.

      I personally work with the staff at LeapIn, so I don’t know an independent accountant myself, but I can certainly ask some of my contacts if you want me to.

      Best regards and best of lucks for you and your business in 2018! 🎉

      Reply
      1. Jack R. January 1, 2018 at 4:07 pm

        Nacho thanks for the prompt response. Based on your answer, I absolutely need an accountant asap. Please, ask your contacts, you can reach me at the email added to this form, I believe is hidden but you as the blog’s admin can see it. Thanks man!

        Reply
      2. CRVCR January 15, 2018 at 4:19 am

        Hello Nacho, I am too looking for a freelance accountant! Please let me know if you or your contacts know anyone!
        Please reach out to me via email.

        Thank you!!!

        Reply
  10. Ed January 29, 2018 at 8:24 pm

    Great article but I have a question. Let`s say you have a bank account in Estonia and just keep all your personal money in there after paying all income tax and social tax. Then can you just use it in your own country for a living without paying income tax in your resident country? I know there might be some bank fee but still, it can be much cheaper than to declare another 20% income tax.
    In general, the whole capitalist world is hilarious in a way people have to pay so many taxes to get their hard working earnings

    Reply
    1. nacho January 30, 2018 at 7:55 am

      Hello there Ed,

      If by “bank account in Estonia” you mean your company’s bank account, you cannot do that. Even if you are a solopreneur, or a one-man company, your company and you are separate things, legally and fiscally. You cannot simply just use the money of your company for personal affairs or viceversa.

      I agree with you about the capitalist world, and it’s getting greedy. If you really want to avoid personal taxes and do it right -legally-, then, there are two options. a) becoming a resident in a country that doesn’t apply personal taxes or at least doesn’t do that outside of the country -like Panama- , or b) becoming a digital nomad and avoiding staying in any country for more than 6 months.

      Hope it helps!

      Reply
  11. Nicolas January 30, 2018 at 7:31 am

    Thanks for this informative article !

    Did you get all these informations through the services provided by Leapin ?
    Leapin is obviously great, but for small businesses 60€ per month can represent a steep fee.

    Considering micropreneurs having knowledge in accounting and business administration in general, it is possible for them to set up a company and manage everything by themselves. Main thing to know/study would be the related law in place in Estonia about how to manage a company. Hence getting a full view of what is meant in Estonia regarding company expenses, daily allowances, pocket expenses, and so on.

    Any link online on where to find the Estonian law ?

    Reply
    1. nacho January 30, 2018 at 7:59 am

      Hello there Nicolas!

      Well, the initial source was LeapIn, but I have verified that by paying my VAT and taxes since I have my company. Everything that’s been said in the article is true and confirmed by my bank account personally 🙂

      Do you really thing 60€ per month is a steep fee? Consider this: In Spain you would pay that for an accountant to pay your taxes as a freelancer. If you have a company (even if it’s a one-man company), the cheapest price I could get in Spain was 120€/month.

      But not only it’s cheaper -in my case, anyways- but also more convenient. Do you know what I do to manage my company? I just upload my invoices and bills to the dashboard, and I forget about it until I get a notification to pay my taxes. Then I just open an app on my phone and bam! taxes and VAT paid.

      Seriously, if you have a business, that’s a no brainer. Just one or two hours of my time is worth more than what I pay for LeapIn, and in Spain, paying taxes and VAT, even with an accountant, usually required me 1-2 days of my time straight.

      Reply
      1. Nicolas February 2, 2018 at 9:43 am

        Hi Nacho, thanks for your reply.

        Well, let’s say you are a freelance creative starting your activity, working on projects with 2 customers for a start, billing monthly. Then you only have 2 invoices (sales) per month … Imagine that you turnover is quite low for a start, with some months without work because you are freelancing part-time. Then 60€ is a steep fee for sure, and you’ll be better manage everything yourself regarding accounting and tax declaration.

        In case of a generating a normal turnover, then for sure having the peace of mind provided by a service provider is quite interesting, I agree.

        Reply
        1. nacho February 2, 2018 at 9:53 am

          Hello there Nicolas, thanks for the follow-up.

          Yes, you are 100% right. If you have a casual activity and don’t generate a “steady” income, 60€ a month can be definitely steep, especially the months you don’t earn anything.

          However, if your income from your activity is that low, depending on the country, you are not even required to pay taxes at all. In Spain, I think the threshold is close to 7k euros a year.

          Reply
          1. Nicolas February 3, 2018 at 5:26 am

            Sure Nacho, always great to exchange.
            Please do keep up the good work on your blog !
            Cheers

  12. Nicolas February 3, 2018 at 5:25 am

    Sure Nacho, always great to exchange.
    Please do keep up the good work on your blog !
    Cheers

    Reply
  13. Nick February 6, 2018 at 7:47 pm

    Hi Nacho,

    great post.
    can I do a 80/20 or 90/10 split of the distribution of salaries? Is it acceptable? I won’t be spending lots of time as a “board member”.

    Reply
    1. nacho February 6, 2018 at 7:53 pm

      Hello there Nick (no need to use a mailinator address, by the way, I don’t add anybody to a mailing list unless they want me to ;).

      Thanks. The short answer is: Yes, but be ready to justify it.

      The long answer: if you -like me- can justify it, a 80/20 distribution is certainly easy to be accepted. That’s the one I am using currently. As I am a micropreneur with a technical/developer background, and most of my activity involves building software products and SaaS, I can easily justify it. If that’s your case, I can recommend you to do that.

      A 90/10 distribution is harder to justify. While it’s perfectly possible (in my case, actually, I would say it’s less than that, thanks to LeapIn), the accountants get uncomfortable with it. That said, I know at least one person that is applying that distribution successfully (he is a web developer).

      Hope it helps!

      Reply
  14. Muhammad February 7, 2018 at 12:25 pm

    Hi Nacho,

    Thanks for the very informative post. Could you please shed some more light on the following:

    “Permanent offices. As you are supposed to be a digital nomad and travel the world, the maximum time that you can declare a concrete office or rental as a business expense is 6 months.”

    – Does that mean, that I cannot register an office, lets say in Germany or Pakistan, for more than 6 months? If I use LeapIn which I suppose offers a business address in Estonia, and work from my home in Germany and using my Estonia business address for more than 6 months on my invoives, would there be a problem?

    Thanks,
    Muhammad

    Reply
    1. nacho February 8, 2018 at 8:48 am

      Hi Muhammad. While there’s no problem in registering any office, or using your Estonian business address, you can only declare an office as business expense for six months or less. Otherwise, it will be considered your “permanent office”, and has to be considered differently. Hope it helps!

      Reply
  15. Alex February 9, 2018 at 2:07 am

    Hi Nacho,

    This is the best article I have read with cool example calculations. Thanks!

    My business case is a bit different. I am from Central Asia. I want to open an online shop to sell products in EU countires, let’s say in Austria. At the same time I will be buying these products cheaper from other wholesale sellers/dropshipping providers in EU, ex. from Germany. So no importing. Whenever I get an €150 order at my shop for product X, I ask my provider to send it to my customer and I pay €100 by bank transfer (from e-Residency account). Meaning my earning is €50 before taxes and expenses.

    Q1: I need to accept credit cards, paypal, sepa bank transfer. I can get these with e-Residency and I will be provided IBAN. Do I need VAT registration?

    Q2: If I sell 100 pcs of product X in a month as given in example what taxes I must pay in Estonia? How much?

    Q3: Do I buy from my supplier without VAT(0%) and sell with VAT(%20)? If so where these %20 goes?

    Q4: I pay income tax in my home country on salary portion 70 (of 30/70) right?

    Q5: At the end of year if I want to transfer my €20k earning to my home personal bank account how much tax will I pay?

    Sorry if I put many questions. But I belive there are other readers with same business cases and queations. Your support is really valuable.

    Once again Thanks!
    Cheers

    Reply
    1. nacho February 9, 2018 at 11:39 am

      Hello there Alex. Thanks for your comment.
      Well, let me try to answer to your questions the best I can. Of course I am no accountant, so if in doubt, you should ask one. Fortunately, the Estonian VAT/taxes system is transparent enough.
      A1: Yes, most probably you need one, because you will be operating in multiple EU countries and will be selling goods you bought in one country (EU supplier) to another (EU customer) while your company is in Estonia (3rd EU country in this scenario).
      A2. You don’t pay any taxes for the revenue your company generates, so the answer in that case would be zero.
      A3. If your suppliers have a VAT number, they apply 0% VAT to the invoice they issue you to buy the goods. Similarly, if your customers have VAT number, you apply 0% VAT to the invoices you issue to them. You only need to apply VAT to any of these operations if they aren’t companies or, being companies, don’t have a VAT number.
      A4. If you assign a 30/70 distribution yes, you will only have to pay taxes in your home country to your employee salary, corresponding to the 70%.
      A5. Depends on the way you do it: salary or dividends. That is actually explained with an example in the article, you just need to do the calculations.

      Hope that helped!
      Best regards and best of lucks with your company. Have you already applied for e-Residency or for the Estonian company? 🙂

      Reply
      1. Alex February 13, 2018 at 7:28 pm

        Hi Nacho,

        Thanks a lot. No I am researching and if my research results are good enough then I apply.

        Regarding Q&A3 If I get product with 0% VAT and sell to end customer with %20 VAT where should this %20 should go? Obviously it is not my revenue?

        Cheers,

        Reply
        1. nacho February 15, 2018 at 9:58 am

          Hi there Alex,
          VAT is just a money you collect for the appropriate government. So in a way, you are being forced to act as a taxman for the government. If you collect it, you have to declare (and pay) it afterwards.

          Thus, it’s much better to try not to be involved in this monetary exchange for several reasons: paperwork, possible tax office mistakes (that has happened to me), reports and statements, etc…

          The scenario you describe would work like this: you buy your goods for 0% VAT, so you only charge for their value. When you sell it to your customers with 20% VAT, you charge this extra 20% in your invoice to them.

          You upload these invoices with the extra VAT and then, on your monthly VAT payment, you will need to pay for the “Total VAT received – Total VAT paid”. As you didn’t pay VAT (when you bought the goods), you will have to pay all VAT received.

          TL; DR. You basically won’t keep the VAT.

          Hope it helps 🙂

          Reply
  16. nicola February 15, 2018 at 7:41 pm

    Hi Nacho,
    I’d like to dig more on this point:
    (DIVIDENDS)
    “….This means that if you pay yourself 10.000€ in dividends at the beginning of the year, your company will pay an extra 2.500 € in taxes (10000 x 20/80).”

    Total taxes:
    Your Company: 20%
    You as a person: x % in your resident country
    Then, total amount of taxes on dividends = 20 % + x %

    right?

    Reply
    1. nacho February 16, 2018 at 6:28 pm

      Hello there Nicola,

      Well, generally speaking, and here “generally speaking” is in bold because there are quite a number of exceptions, you will pay less personal taxes on dividends, and only if they get past certain amount.

      It depends on your country of residence. As an example, in the UK I think you don’t need to pay taxes if dividends are less than 5K british pounds a year. In Spain, starting from 2016, I think they all pay taxes at 21%.

      So as you can see, it depends a lot of your country of residence.

      Reply
      1. nicola February 16, 2018 at 9:43 pm

        Hello Nacho, thanks for replying!
        Today I spoke with an accountant and it seems that here in Belgium the money you get as dividends has to be summed to the rest of your incomes and then the taxes are payed based on this final taxable income base.

        Reply
        1. nacho February 17, 2018 at 2:16 pm

          Interesting, thanks for sharing!

          Reply
  17. John jonh February 17, 2018 at 4:34 am

    Can this card be used for activation PayPal
    because PayPal tell my want registration of business

    Reply
    1. nacho February 17, 2018 at 2:15 pm

      Emmmm… what?

      Reply
  18. pablo February 23, 2018 at 1:44 pm

    If you live in Spain, and run the company from Spain (or anywhere that´s not Estonia, for that matter) then the company is a fiscal resident in Spain and taxable according to Spanish laws and not Estonian ones.

    The result is an company where two countries are trying to get taxes from, subject to the business laws of Estonia but the taxation laws of Spain. A situation which I assume most people would like to avoid.

    I still cannot see how this makes sense fro anybody living in another EU country, and these articles are misleading.

    Reply
    1. nacho February 23, 2018 at 1:51 pm

      Hello there Pablo. It’s important to understand that your company and you are separate entities. You can live as a person (resident) in Spain, but your company is in Estonia. It’s registered there, and let me assure you that your company pays taxes in Estonia.

      Then there are your personal taxes. If you live in Spain -and run your company from there-, you are a Spanish resident and, as such, you pay your taxes there, of course.

      I can affirm this with confidence, because I have had my company while being resident and living more than 6 months a year both in Spain, and my company has still paid taxes in Estonia, as it should.

      If you don’t have permanent premises in your home country and try not to spend the whole year there, you should be fine.

      Best regards and thanks for your comment.

      Reply
      1. Alex March 27, 2018 at 2:23 pm

        Hi Nacho, thanks for the detailed and useful article. It educates people on a very complex subject, which hopefully will lead to better business legislation and harmonisation at the EU level.

        As far as I understand, what Pablo is saying is quite factual. Of course, nothing is black and white but in general most EU countries may consider a company a local tax resident if it’s effective management is done from that country or if most value is created in that country. In your particular case, since you are the sole employee and owner of your company it is fair to say that you are creating all the value and do the management from Spain. You can read more about it here: http://taxsummaries.pwc.com/ID/Spain-Corporate-Corporate-residence , or just google for “corporate tax residence” in your country of choice.

        I don’t know how meticulous the tax authorities are in the various EU countries, so I suppose that they rarely look into the details of small companies, but I can assure you they regularly go after big fish where the potential tax income is substantial.

        Also, in the hypothetical situation that the Spanish tax authorities consider your company a tax resident of Spain, they would have to go through a negotiation process with the Estonian authorities.

        Reply
        1. nacho March 28, 2018 at 11:54 am

          Hi Alex, thanks for commenting!

          While that might be true if you spend your whole life in your country, generating all value there, being a resident of a country does not imply that your company gets considered tax resident in that country. There’s a difference between having a company that’s operating and generating all value in Spain vs having a company in Estonia that offers digital services and happens to have most/all customers in Spain. You clearly need to differentiate both cases.

          The case you are specifying are companies that are founded in, say, Ireland but have their HQ in Madrid, all their employees live in Spain and all their customers live in Spain. Probably their website is only in Spanish. They are clearly trying to “fake the books”.

          However, if you have a global, Estonian company, if your website in English, clearly targeting customers from all around the globe, you don’t have employees or they are all not from Spain, you don’t spend the whole year in Spain without ever leaving the country, and you don’t have a permanent HQ/office in Spain, the Tax Office cannot consider your company a “tax resident” in Spain. That’s a myth I have heard repeated over and over again in Spain, probably to make you stay there and pay the “cuota de autonomo”.

          As an example, both my partner and a friend have companies in Estonia offering digital services (web development and design), and 100% of their customers are from Spain, and they haven’t had any problem so far.

          My recommendation is to stop being afraid of the Spanish Tax Office and start taking advantage of the fact that you live in Europe, in a global economy. Don’t stay in Spain, afraid and paying the “cuota de autonomo”, make use of your Estonian company to build a global business. Of course, if you have a restaurant in Spain, with employees there, and you live 100% of your time (except holidays 😉 in Spain, your company is Spanish.

          Reply
          1. Tanit March 28, 2018 at 6:12 pm

            hello Nacho, just FYI, I found this in the Estonian’s government FAQ section of their website (https://e-resident.gov.ee/faqs/taxation/#example-cases-of-taxation)

            I currently work in Germany as a freiberufler (self employed), providing writing services in the IT and possibly travel industry. I travel a lot while providing these services, mostly to non German companies. I’d like to look at the possibility of running through an Estonian company, and would like to make sure the total gross income would not be considered German income, but only the “salary” I take out of the company.

            In this case, Germany’s taxation rules apply to your company’s profits if the work is completed in a permanent establishment in Germany. If a company is managed from Germany by a tax resident of Germany, the company becomes tax resident in Germany.

            So, it seems to me like if you are a tax resident of Spain and work in Spain, your company will have to pay taxes also in Spain.

          2. nacho March 29, 2018 at 12:43 pm

            Hello there Tanit, thanks again for commenting! 🙂

            Here, the devil is in the details. As I mentioned before, that legislation is thought for companies that want to “evade” taxes by founding the company in any other European (or even foreign) country with possibly better taxes/conditions, but effectively, all your business is in Germany.

            Especially relevant is the “if the work is completed in a permanent establishment in Germany“. Obviously, if you have a permanent office or HQ in Germany, always live in Germany, and all your employees and customers are in Germany, the German tax office can consider your company a tax resident there.

            The solution is simple: avoid being a German company! :). How do I do that?

            Easy:
            – don’t have a permanent office or headquarters in Germany (never have the same office more than 6 months/year)
            – don’t hire all your employees in Germany and put them to work at a German office.
            – don’t have your website only in German and all your customers from Germany.
            – don’t have all your commercial interests in Germany and never, ever leave Germany. Conduct your business some months a year from another country, even if you keep on being a German resident.
            – be able to prove that you are an international company: have your website in multiple languages, or hire a VA from another country, or have international customers. Travel regularly, or at least from time to time, spend some months in another country, possibly becoming a resident there sometimes…

            Take into account that the e-Residency program’s not been thought to evade taxes. Estonian companies are thought for solopreneurs, freelancers, digital nomads… not for big German companies -following the example- completely based in German, doing all their business there.

            If your business requires your company to have the previously mentioned requirements (HQ in Germany, employees and customers there, you living 100% of your time in Germany) you should definitely open your company in Germany. 😉

            I wrote a post precisely about this topic, you can read it here, so thank you very much to all you for commenting on this topic!!!

          3. Nicolas August 16, 2018 at 11:26 pm

            Hi Nacho,
            Thanks a lot for this informative discussions.
            What Alex is speaking about is basically called CFC rules (Controlled Foreign Corporation), and many countries have them, including Spain, France, Germany …
            It basically means: you are a resident of Spain (you live there more than 6 months a year, then you are considered so), you own a foreign company (an Estonian company) that you control and operate from Spain (which is the case), then your company falls under the CFC rules of that country, and might have to pay some corporate taxes there (according to the CFC rules in place).
            It does not matter if the company has an English website, if it’s in the EU, if you travel around to justify your international activity … : if you are resident of a country having CFC rules, then any foreign company that you own has to comply to these rules (that is might have to pay corporate taxes in your country of residence).
            You gave the examples of your company, or your friends owning foreign companies billing local customers in Spain. I believe nobody has had problem so far with Spanish tax office, because Spanish tax office simply does not know that you guys are owning these companies abroad. As Alex stated, most probably tax office rarely look into the details of small companies, thus they don’t bother investigate further the revenu/dividende you are receiving from these foreign companies. This situation could last for ages without nobody having any problem whatsoever. Only thing is if one day your tax office becomes a bit more meticulous, then it might raise questions about the purpose of these “hidden” foreign companies, and might think you set them up to avoid Spanish corporate taxations …

          4. nacho August 17, 2018 at 7:32 am

            Hello there Nicolas. Thanks for your comment. You are right that if you have a permanent establishment in a country with CFC rules and 100% of your activity is performed there, your country will ask your company to pay taxes there. However, CFC rules don’t prevent you from having a company abroad.

            In my case, I am a digital nomad. But even if you are a resident in a country, say, Spain, if your activity is not performed in the country in a permanent establishment (i.e: you can prove that your activity is not tied to the country because you travel regularly), your country cannot require your company to pay taxes there. That as you mention vary from country to country, but in most European countries with a non-double taxation treaty is similar.

            I wrote about that in detail here: “https://micropreneur.life/will-my-estonian-company-have-to-pay-taxes-in-my-home-country/”

  19. Victoria February 27, 2018 at 3:08 pm

    Hello,

    Many thanks for this informative article.

    However, I have a doubt …

    Let’s say I have a company in Estonia. I’m the board member and the employee. This means that I also have to register as a self-employed in the country of residence? Or my status is an employee of the Estonian online business?

    Reply
    1. nacho February 27, 2018 at 7:35 pm

      Hello Victoria, thanks for your comment. Regarding your question, generally speaking, in your country of residence, you are an employee hired by another company that is in a different country. So you don’t need to register as a self-employer.

      That’s at least the situation in most EU countries I know of. However, if still in doubt, or you suspect your country may have a specially picky legislation, it might be wise asking an accountant.

      Reply
      1. Victoria March 19, 2018 at 4:55 pm

        Dear Nacho,

        Many thanks for your kind reply. 🙂

        Reply
  20. Paula March 9, 2018 at 1:15 am

    Hi Nacho. Great article very useful, Thanks so much for sharing!.
    For what I understood with e-residence I can set up a company that can be used for drop shipping .
    There is a need to have a business service to help set up a company but the one you mentioned you use LeapIn has in the roadmap but does not yet support this type of business.
    Is another company you can suggest /recommend for the drop shipping business?
    Thanks!

    Reply
    1. nacho March 9, 2018 at 6:54 pm

      Hello Paula. Thanks for your words. Yes, there are other providers like 1Office, Rödl & Partner or Profia. I haven’t used any of them so cannot really recommend you one. However, you may find this page worth visiting: https://e-resident.gov.ee/run-a-company/#Business_services

      Hope it helps!

      Reply
  21. Manish March 16, 2018 at 5:30 pm

    Hi Nacho,

    Thanks for a detailed article. I’m glad to stumble upon your article in a very early phase of my research, must say you saved many of my hours. However, I was hoping to get an answer to one question which I didn’t find in the article or in the comments.

    It’s regarding the tax payments. How often should one report the taxes? There are three different cases:
    1) You have no VAT number
    2) You have a VAT number but no seels using it so far (i.e. all sell are from the US)
    3) You have a VAT number and also have sales in EU where your invoices use the number.

    There are two more gaps that I would like to point out. Perhaps it’s only my limited understating due to which I couldn’t understand it.

    a) I noticed that in “Do I need A VAT Number?” section, it explicitly talks about needing a VAT number while dealing with digital services or when an EU company requires it. So are the physical good intentionally left out? How does it work in case of physical good like merchandise sell or Swag from a blog or even a dropshipping store?

    b) The other area was “the two ways of earning money from your Estonian company”. Is one liable to have both of these options? Or it is okay to have none or either one of these two options?

    I’ll appreciate if you can share your thoughts on these but either way, keep up the good work. You deserve some cryptos specially for this section “Smart Expenses And Reducing Taxes for e-Residents” 😀 😉

    Reply
    1. nacho March 17, 2018 at 12:41 pm

      Hello there Manish. Wow, that’s a lot of question. Let me try to address them up to my knowledge.

      You pay taxes monthly and VAT monthly, but only if you have relevant taxes to pay (i.e: you assigned yourself a salary) or relevant VAT payments to do. As far as I know, the three different cases you mention doesn’t affect this. But I might be wrong.

      I am afraid I am no expert in drop-shipping, but the general rule would apply, I guess. If your sales exceed 16k/y (Edit: this limit was raised to 40k in 2018), or you are dealing with European companies needing that for invoicing/accountancy.

      Yes, actually you can use either, both or none. That’s the great thing about the Estonian system in my opinion.

      I hope I helped somehow with your doubts.
      Thanks for commenting, and don’t hesitate to donate some cryptos, hahahaha 😉

      Reply
  22. Vasili March 17, 2018 at 3:18 pm

    Nacho, yr helping people with this blog, I trust you have an affiliate link attached to any vendor links on here so at least you can get a few bucks for writing this blog.

    BANK ACCOUNT Qs

    Anyway, Re: opening bank account. I’ve done some research. Since I literally only expect about 10 transactions per year from my proposed Estonian company, I don’t want to open a bank account which will mostly be dormant and end up paying monthly fees.

    Q1: Do you know of a bank that plays nice with e-residence program, by nice I mean (a) no monthly fees, I don’t care about other fees but if its dormant, I don’t want to pay anything and (b) a bank that plays ‘nice’ re: paying being able to offer you a certificate of having paid the ‘Share Capital’ should my new company succeed and I want to add capital to show stability and trust and if I no longer want to defer it.

    Q2: If you have a company bank account, and are just pulling money out of the ATM, are you effectively paying your self ‘Dividends’ each time you do this? Is this even possible? Or must Dividends be paid in chunks directly to a personal account. I’d rather just leave the money in company account and just pull out $ when I need it bit by bit. It would be nice if you can do that and just add up all the money you pulled out at the end of year and pay tax accordingly.

    Q3. Do you think a bank account can be in any EU country even (a) your resident country or (b) a country that’s outside the EU.

    Q4. Is sales tax reported monthly? If you collected no sales tax for one or more months, do you even need to lodge a sales tax return thingee on their Estonian website?

    Thanks. Budee. Sorry for long text.

    Reply
    1. nacho March 17, 2018 at 6:50 pm

      Hello there Vasili. Thanks for your comment and your words, I feel flattered! ☺️.

      Let me try to answer your questions, if I can.

      A1. Yes, actually I can recommend you LHV. If you don’t ask for a debit card, you have literally NO monthly fees. As far as I know, you shouldn’t have problems with the share capital either. That requires you to go to Tallinn and open the bank account. Alternative: use Transferwise if you don’t really need a “real” bank account.

      A2. You cannot just “pull money out the ATM”. You need to justify the money you get out of your company’s bank account. This includes invoices, business expenses, etc. Those are easy to justify if they are related to your activity, but to get money out of the ATM, say, 200€, you need to add an invoice that justifies that you spent those 200 euros in something related to your business. You need to assign yourself a salary or dividends to a personal account to do that.

      A3. I didn’t quite understood this question. Most probably you will need an Estonian bank account to operate your company.

      A4. Yes, and No 🙂

      No problem, really glad to help. I hope my answers were useful. A wordpress comment is not usually a very good place for that, however. Anyway, I can do a consultancy of your specific case if you want me to. In that case, just contact me.

      Reply
  23. blue March 20, 2018 at 11:21 pm

    This is a bit confusing. Let’s say my company earns €10k a month. I want to distribute the €10k to myself. Can I do this purely as a dividend and not as salaries?

    If so, do I pay 20% on the €10k and I’m done? (Assuming my Country of residency has a tax agreement with Estonia). Or am I missing something?

    Reply
    1. nacho March 21, 2018 at 9:25 am

      Hi there blue, thanks for your comment. Let me try to clarify your doubts.

      First, if you read the article, you will notice that dividends can only be paid once a year:

      At the beginning of every standard financial year, you can pay dividends to yourself.

      Thus, you cannot distribute them on a monthly basis to yourself.

      Secondly, if your company earns 10k, you cannot distribute them entirely to yourself, because you need to pay taxes for that money when you assign yourself a salary or dividends. If you assign yourself those 10k, what money will you use to pay the taxes?

      Finally, you need to understand the difference between you and your company. Again, if you read the article:

      Thus, from your salary, you need to pay the board member salary taxes in Estonia (when you assign yourself the salary) and the employee salary taxes in your residence/home country (when doing your tax statement, if applicable).

      There’s an example in the article for more in-depth information, but if you think it’s presented in a confusing way, I would really appreciate some hint as to how to make it more easy to understand 🙂

      Hope it helped!

      Reply
      1. John Youden August 30, 2018 at 10:00 am

        Nacho,
        First, thanks for the excellent article and responding to all these comments – you are valuable source of great information and I (we) really appreciate it. Have a question regarding paying yourself – do you understand it that if you want to you can decide not pay a board member or employee salary, but just pay out dividends at the end of the year (or quarterly if I filed my accounting reports properly?)?
        On LeapIN’s website they have this:
        “According to the existing law in Estonia, there’s no obligation to pay any management board member salary, employee salary or take dividends. It’s up to you how you combine them, taking into account your actual contribution to the business activities.”
        My concern is with regards to the word “combine” and how it is used here. What if I don’t want to combine (have a salary and dividends) but just want to take out dividends? (Note, my reasoning for this is because in my country of residence dividends are taxed much more favorably.)

        Thanks in advance,
        John

        Reply
        1. nacho August 31, 2018 at 1:18 pm

          Dear John,

          Thanks for your message. Yes, it’s not mandatory to assign yourself salary, or even dividends. It’s up to you to decide when and how much.

          Best regards
          Ignacio

          Reply
  24. Ricardo March 27, 2018 at 4:30 am

    That was a very helpful post, thanks for that.

    I have one specific qustion for the Spanish situation. Seems like you dont have to pay for “gestoria” nor the “autonomo” fees in this case right? For my income taxes will Leapin provide the necessary documents? How that worked for you?

    Reply
    1. nacho March 28, 2018 at 11:42 am

      Yes, Ricardo, you are right, you won’t have to pay the accountant or the freelancer fee (cuota de autonomo). Regarding income taxes, you are actually the one that assigns yourself a salary, so you can sign a document specifying that you are paying X amount as your employee salary. You also have the bank statements to support your claims, and that’s what you would declare as an employee in your country of residence.

      Reply
      1. Tanit March 28, 2018 at 5:16 pm

        Hi Nacho,

        first of all thank you so very much for this helpful article. I am a Spaniard at the early stage of setting up my own company in Estonia. My question, like Ricardo’s, is in regards to Spain. About the social tax, which you mention would just be the IRPF — how do you approach this? Did you just go to an accountant and ask to pay this tax, given what you earn from the board member salary? My main concern is to do this legally and – if possible- be paying a pension, but I’m not sure where to start.

        You mention you are working on an article in Spanish, so I can wait for that too, of course 🙂

        many many thanks in any case!
        Tanit

        Reply
        1. nacho March 29, 2018 at 12:33 pm

          Hello there Tanit, thanks to you for your comment! 😊

          Generally speaking, your board member salary is not taxed in your country of residence if you live and work outside Estonia, only your employee salary. Then, you should approach your employee salary as if you were working for any other foreign company. You declare your earnings (employee salary), with all the corresponding taxes, and do your IRPF/taxes report like any other employee. Imagine the situation as if you worked for an Estonian company (i.e: Skype).

          Hope it helps.

          Reply
          1. Tanit March 30, 2018 at 3:19 am

            It does help! I’ll check that out with a lot of interest 🙂 gracias Nacho!!

  25. Juliya April 3, 2018 at 10:16 pm

    Hi Nacho,
    Thank you so much for the article. It’s very useful.
    I was wondering if you can provide me with info/links about how much (if any) vat/tax I should charge for my services.
    For example, if I sell a packaged translatation service online for €50, do I need to add tax/VAT to that? If so, how much?

    Thank you,
    Juliya

    Reply
    1. nacho April 4, 2018 at 1:10 pm

      Hello there Juliya, thanks to you for your comment.
      I’m kind of confused by your question, what you are asking is actually answered in the article. Can you elaborate on your question?

      Reply
  26. Alex Garcia April 5, 2018 at 3:03 am

    Hi Nacho,

    Thanks for this helpful article. I have a few questions regarding to it:

    – Is it necessary to have an Estonian bank account if you have an Estonian company? Or would it be possible to use other services such as Revolut as your main bank to manage multi-currency accounts in a mobile friendly environment?

    – Is it necessary to generate a payroll slip for the employee when you pay him the monthly salary so that there is proof of payment or a bank transfer would be enough?

    – Could the bank account where you receive the board member salary be the same as the one where you receive the employee salary?

    – In respect to the taxes that needed to be paid as a board member (salary tax and social tax), how do you pay those to the Estonian government? Is it like a tax annual report?

    – In a question above you say that, usually, above certain limits, it’s more tax efficient to be paid as an individual via dividends than via salary. In this scenario, taking into account that the individual is a tax resident in Spain:

    For taking out 22.000€/year, as dividends, that will be taxed with 4.400€ (20%) (paid by the company) + 4.620€ (21%) (paid by the individual = 9.020€ (paid in taxes).

    On the other hand, for taking out 22.000€/year, as a salary, assigning 20/80 distribution between board member salary and employee salary, that will be taxed with (880€) 20% of total 20% (income tax of board member), (1.742,40€) 33% (of salary + income tax of board member) and then the corresponding salary tax for 17.600€ (remaining 80% for employee salary), which in the case of Spain, below 22.000€/year, there is no need to pay taxes. In total, being paid via salary, 880€ + 1.742,40€ = 2.622,40€ (paid in taxes).

    I don’t see in which situation, being paid via dividends will be better than being paid via salary. 9.020€ > 2.622,40€

    Reply
    1. nacho April 5, 2018 at 7:28 am

      Hello there Alex, thanks for commenting. For your specific questions, I would be able to better help you if you send me a request here.

      Best!

      Reply
  27. Zidanne April 7, 2018 at 7:59 pm

    Hello and thank you for this article and for your time. I would be glad if you can help on the following questions:
    1) When you pay the employee salary to non-resident (me) don’t you even pay %20 of it as you are taking the money from the company’s account? So the total cost to employer (the company) is just exactly the salary itsef?

    2) Can we pay non-resident salary to our personal bank account in Estonia with %0 tax? (assume that I will manage to get a personal account too)

    3) To be able to deduct %14 (2018) dividend payments in my home country, is there a way to get an official approval from Estonian government? (my country tells that I need to get those documents approved in my countrie’s embassy located in Estonia, which I cannot normally do that physically obviously…)

    4) Is there a difference between reinvesting dividends AND keeping them in a back-up record (delayed/rolled over/retained divisends)?

    5) Does the undistributed dividends of each year rollover (accumulate) in every case to be counted in (for example) 2022’s gross income too? (as passive income) (this question is a bit related to certain CFC rules)

    Reply
    1. nacho April 8, 2018 at 9:33 am

      Hello there Zidane! Thanks for your comment. For such specific questions, I might be able to better help you here.

      Best regards!

      Reply
  28. Lili April 17, 2018 at 11:11 pm

    Hi
    First of all, thanks for all the content you put here – it’s extremely helpful! I have a question which, surprisingly, uncle Google is not very helfpful with (or maybe my Google-fu has gone down today!)
    If you have a company with very small revenue (definitely well under 40k) you don’t have to register for VAT, therefore you don’t need to submit VAT returns. What about other accounting? What is the frequency when you need to submit anything – would it be just once a year return, or is it more frequent? (assumption: no salary or dividends paid)

    I know that once my company grows I’ll definitely get an accountant as I don’t want the hassle, but until then, I wonder if it’s worth it. If I need to process one or two invoices per month (or maybe not even that), with nothing sophisticated in it, with no dividends or salary payments, perhaps doing a single tax return at the end of the year myself would be an option? Is this even legally allowed?

    I’ve run a business in UK for a number of years, and quite frankly sometimes I think a well trained monkey could do what my accountants do for my company (and certainly I could, if I wasn’t that lazy and kind of gotten used to it). By no means I am suggesting accounting is always that simple, as said, once we grow I don’t think I’d want the hassle – but it is not rocket science, and if it allows me to save close to 1000euros in the first year, before proper revenue starts flowing in, then perhaps it’s worth it.

    What do you think?

    Reply
    1. nacho April 18, 2018 at 9:51 am

      Hello there Lili, thanks for your comment.

      Well, that’s actually a pretty personal decision. In my mind, it’s a no brainer. Two hours of my time are worth more than I get charged a month, and I would spend much more than that trying to do it myself.

      However, as I mentioned that’s a personal preference. As micropreneurs, we sometimes find it hard to delegate tasks, but in this case, I think it’s well worth it.

      Best!

      Reply
  29. Dave April 23, 2018 at 5:01 am

    Hello,

    Looking to setup as a digital nomad with LeapIN.

    Is it ok to claim 2 – 3 month airbnb accomodation as my office and business expense?

    According to https://www.leapin.eu/faq/business-expenses this is it not allowed?

    Reply
    1. nacho April 23, 2018 at 9:26 am

      Hello there David,
      You can as long as it’s a temporary office. You cannot have permanent premises in another country, but you can rent a coworking space or a temporary office up to 6 months.
      That’s to avoid this other country considering your company a tax resident there. Please, have a look at this article, where I explain it in depth: Will My Estonian Company Have To Pay Taxes In My Home Country?

      By the way, if you use the code DigitalLeaves, you will get 100€ discount signing up for Leap In 🙂

      Reply
  30. Adrienn Guhr April 28, 2018 at 7:44 pm

    Hello! Thanks for the great article!
    I have 2 questions, i hope you can give me some advice.
    Can I pay myself a salary 100% as a board member salary? And thus pay tax after this in Estonia? (20%)
    As taxation of foreign salary in Hungary is complicated and has to be converted to HUF, but I want to keep my earning in Euro.
    I won’t spend longer time in none of the countries i will work, would that mean that i can be extemp of paying income tax? My first question is connected to this question as well? If assigning myself a salary, I couldn’t determine my respective country for income tax due to spending only 2-3 months in every location.

    Thanks so much! Cheers,

    Adrienn

    Reply
    1. nacho April 29, 2018 at 12:25 am

      Hi there Adrienn! Maybe for your situation I can help you better here. Cheers!

      Reply
  31. Philip CARBERRY April 30, 2018 at 6:38 pm

    Great article. Thank you Nacho.

    Reply
    1. nacho April 30, 2018 at 8:21 pm

      Thank you Philip, glad to know you liked it.

      Reply
  32. Pat May 3, 2018 at 4:16 pm

    Hi Nacho!
    Wow…this is a great article! And it has a lot of comments 🙂
    I have a question concerning the employee salary (700€ in your example).
    Where do you (or your company) have to pay the social security tax? In Estonia or in Spain? How does this work?
    Many thanks!
    Pat

    Reply
    1. nacho May 3, 2018 at 5:40 pm

      Hello there Pat! Thanks for your comment. The “employee” salary is not taxed at all in Estonia. It will add to your tax base/taxable income. Depending on the country, it will be taxed accordingly. In the case of Spain, generally speaking, it’s considered as “income from a foreign company”. However, there’s a lot of small details to have into account in the case of Spain, specially when it comes to social security, pensions, etc. In case you need it, I know someone who can help you in Spain, just send me a message.

      Reply
  33. Tomás May 15, 2018 at 4:33 am

    Muchas gracias por el post Nacho, es realmente útil y resuelve muchas dudas.

    Tenga la sensación de que mucha gente del mundo digital se interesa por Estonia por la minima burocracia, legislación más flexible y la posibilidad de pagar menos impuestos.

    Centrandome en el último punto y considerando el infierno fiscal que existe para pequeños emprendedores en España y otros países Europeos, sobre todo querría saber sin tapujos basado en tu experiencia si realmente se sale ganando montando un empresa personal en Estonia a medio/largo plazo cuando se miran las cuentas netas y acabas teniendo más dinero en tu bolsillo sin que el estado te expolie deliberadamente durante el proceso. ¿Cuál es tu experiencia? ¿Se sale ganando? ¿Porcentualmente hablando, cuando más se puede ganar?

    Mi intención es montar una empresa SaaS que para el mercado Europeo principalmente y trabajar desde varios paises sin residencia fija más allá de unos meses y no tengo intención de pagar tasas en otro país que no sea Estonia.

    Muchas gracias.

    Reply
    1. nacho May 15, 2018 at 10:08 am

      Hola Tomás, gracias a ti por tu comentario.

      En una palabra, la respuesta es SI. Es otro mundo. Para empezar, mi pareja y yo teníamos nuestras empresas en España. Al ser administradores de nuestra empresa, la cuota de autónomo eran 340 euros cada uno, total, casi 700 euros. Eso es casi un alquiler en España. Suma a eso gastos de asesoría, contabilidad, impuestos, etcétera, y la cifra era devastadora.

      Ahora tenemos, literalmente, un tercio de los gastos o menos, lo que nos permite vivir por todo el mundo como nómadas digitales. De hecho, cobrando mucho menos (a cambio de tener más tiempo libre voluntariamente), tenemos mejor nivel de vida que antes.

      La diferencia más importante sin embargo es a nivel de transparencia del sistema de impuestos y de obligaciones fiscales de Estonia comparado con el Español. La tranquilidad de saber que estás haciendo las cosas bien, y que no vas a tener una sorpresa desagradable.

      Con tu permiso te envío un email con más información, pero la repsuesta es si.
      Un abrazo y gracias.

      Reply
      1. Pedro June 12, 2018 at 1:47 pm

        Hola Nacho,

        Es lo mejor que he encontrado sobre Estonia, de verdad.

        Por lo que leo, las ventajas son sobre todo burocráticas, porque entiendo que la mayor parte del ahorro es por ser nómada, ¿no?

        Si yo sigo en España me podría ahorrar alguna cuota de la Seguridad Social, pero gastos corrientes de por aquí (como la gasolina) no podría desgravármelos, por ejemplo (las gallinas que entran por las que salen XD). Y con la tarjeta de crédito de Holvi entiendo que si uso no es justificado es como si sacaras dividendos.

        Y ya para disfrutar del dinero en “cash” generado sí que tengo un lío, jajajaja: si podría emitir facturas a mi propia empresa de Estonia, si con dividendos, si con salario… ¿cómo lo sueles hacer tú?

        Yo soy arquitecto autónomo, e intento montármelo por mi cuenta, pero no veo la luz (ya sabes que aquí si emito una factura de 1.000€ se me quedan en 575€. Un atraco). Además mis facturas son espaciadas y mientras tanto sigue pagando la SS… 🙁

        Si el correo que le enviaste a Tomás crees que me puede servir te lo agradecería mucho.

        ¡Un abrazo y gracias de nuevo por la info!

        Reply
        1. nacho June 15, 2018 at 12:56 pm

          Hola Pedro,

          Muchas gracias. Si, la principal ventaja es desde luego burocrática, y la tranquilidad de saber que estás haciendo lo correcto si haces lo correcto 🙂 (esto no se puede dar por sobreentendido en España desgraciadamente).

          Tienes razón, la gasolina en el mismo país no es gasto justificado, pero a menos que gastes más de 300 euros de gasolina al mes, es algo a considerar. Transporte público es totalmente justificable como gasto de negocio, incluso dentro de tu mismo país.

          Te mando un email para comentarte más en detalle. ¡Un saludo!

          Reply
  34. Ran May 17, 2018 at 3:29 am

    Hola Nacho,
    This article is truly amazing, thank you so much for sharing your knowledge. And the extra effort you put in answering the comments is admirable!

    I will use your promo code in the next week when I start the process , so thanks a lot for the bonus as well 😉

    I have two questions , for which I could not find any answers online , and I hoped you could share your opinion as it might concern others :

    1. Does the salary need to comply with the minimum salary rules (€470 In Estonia according to google, as of 2018) of either country for that matter ? If not – is there any guideline / thumb rule ?

    2. This question is quite specific to your case , and might be relevant to me (as I’m considering becoming a Spanish residence) – In previous comments from Alex and Pablo , you wrote –
    “There’s a difference between having a company that’s operating and generating all value in Spain vs having a company in Estonia that offers digital services and happens to have most/all customers in Spain. You clearly need to differentiate both cases.”

    As far as I know , what you say MIGHT not correct in SOME countries – It depends on the interpretation of the term ‘tax residence of a company’ by the local tax authorities.. That will be different from country to country and is also related to whether CFC rules exist in that country or not and even by some custom definitions or caveats in a double tax treaties between countries …
    **For the sake of example- I can share my experience in two different places, which are almost opposites** – (Only because I paid for a legal opinion, I feel confident enough to share)
    A. Israel – If you are the only owner and the only employee , and you (as individual) are considered as tax resident then the company will also be a tax resident. This means the company will be treated as Israeli. I did not check the double taxation agreement I can say that most will contain a paragraph that’ll enforce this. Specifically the distinction you made in the comment when referring to Spain-Estonia would not hold the same if it’ll be Israel-Estonia .

    B. Bulgaria- Does not have CFC rules , and the specific point you mentioned will have the same effect .

    I tried to dig in the double taxation treaty EE-ES (http://www.minhafp.gob.es/Documentacion/Publico/NormativaDoctrina/Tributaria/CDI/BOEIN_Estonia.pdf)
    But that was a mistake … now my head hurts 😉

    So my question actually boils down to this – have you checked with a certified Spanish Accountant or Tax Attorney that there is indeed a distinction between ” having a company that’s operating and generating all value in Spain vs having a company in Estonia that offers digital services and happens to have most/all customers in Spain” ?
    Are there any tips you can share ?
    e,g – is the location of the servers or language of the main site makes any difference?

    Thanks and best regards

    Reply
    1. nacho May 17, 2018 at 10:44 pm

      Hello there Ran!
      Thanks for your comment. Regarding your first question, the answer is no. You are not even required to assign yourself a salary if you don’t want to.

      Regarding your second question, I was not aware of this special situation in Israel, but I will delve into it. However, when asking some accountants specialized in European legislation and taxation, they all agree that the requisite still applies. The tax residence needs to be generally speaking proved with a permanent residency, office or something that ties your business to a country on a permanent basis.

      Thanks again!

      Reply
      1. Ran May 29, 2018 at 3:38 pm

        Thanks! I really appreciate the answers!!
        I started the process with leapin , so also thanks for the coupon ! 😉

        Reply
        1. ran July 4, 2018 at 3:16 pm

          Hola nacho!

          I had completed all the procedures, got my e-residency ,had setup my company with Leapin and opened banking – all was clear and too easy to believe 🙂
          I had been following the idea for a while, but this clear post and your thoughtful answers help me to decide to jump on the wagon , So I felt compelled to visit here again and thank you one more time!

          Best regards ,
          Ran

          Reply
          1. nacho July 4, 2018 at 3:33 pm

            Hello Ran! Thanks for your follow-up and for your kind words! ☺️ Great to know you have your company set up and everything ready! Welcome to the digital nation.

  35. Even Tobiesen May 29, 2018 at 1:45 am

    This article is not correct, due to the fact that E-residency doesn’t give you fiscal residency in Estonia, and due to CFC rules in many countries.

    Even though you may say that you and you’re company are two separate entities, *you* are still controlling the company from a foreign country.

    You can ask any accountant in Spain about CFC rules, but generally it applies if you control 50 % of more of the voting rights, capital, assets or profits of the company. Spain changed their CFC rules in 2015 to also include IP and some other changes, so the only place to get a good answer is from a qualified accountant.

    Most countries will make you tax resident when you move there, even if you move around, it’s a minefield, and even if you travel around doing the whole “digital nomad thing” you may still be tax resident in your home country for years.

    You may think it makes sense that your company can be tax resident anywhere, because you are not your company. OK, but think about this, a proof of contradiction of sorts:

    – If you were free to live anywhere and incorporate your business in any country, with such ease, we’d all just live anywhere we wanted with a company in some tax haven and not pay tax at all. Not to mention no transparency and little regulation.

    – Naturally, no country would make it that easy … because countries run on tax money …. Why do you think “golden visas”, investor visas or obtaining tax residency in certain countries is such a big deal?

    – When big companies like Apple, Google etc. do “this stuff”, they pay some very smart guys a lot of money to bend the rules just enough but not too much, and it’s beyond Leapin or some other 1-2-3 online solution.

    Sure you can always get away with things, live in some country for years and just invoice through whatever on a tourist visa, but it shouldn’t be part of a guide like this when it’s in most cases not legal.

    LeapIn are not clear on this, as they want to sell incorporation packages, and simply stating that they’re not responsible for your personal taxes. So if you get screwed over by your local tax authority, they couldn’t care less. It’s a high volume packaged solution.

    I’ve had, and have, several Spanish S.L. (ltd) companies, and I live in Spain.
    In general the internet is a terrible place to get advice on this stuff, so don’t listen to this article, or me, talk to an accountant.

    Reply
    1. nacho May 29, 2018 at 10:33 am

      Dear Even, Thanks for your comment.

      With due respect, I think you are quite confused about the whole thing.

      First of all, you need to understand what CFC rules are. CFC rules are there to prevent people from avoiding taxes by establishing companies in tax heavens. However, CFC rules are not there to forbid the establishment of companies abroad. In fact, no country can prevent a person -regardless of nationality/residence- from setting up a company in another country.

      Thus, the second thing you need to understand is that Estonia is no tax heaven. It’s a reputable European country. It’s not Seychelles or the Cayman Islands, it’s not even Luxemburg or Andorra. However, it’s certainly an “entrepreneurship heaven” due to its entrepreneur friendly system, digital administration, and fair, transparent tax system.

      That means that Estonia is not the target of CFC rules, on the contrary, Estonia has its own CFC rules to prevent its citizens from opening off-shore companies in tax heavens.

      The tax on corporate earnings on Estonia is 20% gross (that’s 20/80 = 25%) income tax plus 33% social tax. That’s far from tax heaven. If you actually take some time to read about CFC rules in Spain, you will know that they apply if the foreign country assesses for tax at less than 75% of the sum demanded in Spain.

      So, in your case, as you can see, unless taxes in Spain get A LOT higher (that might be the case soon, who knows ;), I doubt any Spanish e-Resident needs to worry about it.

      The same applies to other European countries. Perhaps you need to be more careful in Germany, but then again, they need to prove that your company is generating all its value in Germany, which is not the case if you don’t have permanent premises and your services are digital/online. I know quite a bunch of German e-Residents that operate their companies without any problem.

      You say you have/had several companies in Spain. I’ve been there, so I can only say: I’m sorry for you. Really. We live in a different world now. We are part of Europe, the largest single market on the planet. That didn’t only mean an increase of 66% in all prices when the Euro came to Spain ;), it also means we are free to choose which country in this global market serves our needs better. And that’s perfectly legal.

      So I recommend everybody (including you) to follow your advice 🙂 . Talk to an accountant. Hopefully, you may discover that there are better options for you than founding a company in your country just because you were born there.

      Reply
  36. Biljana June 8, 2018 at 12:52 am

    Hi Nacho,

    There is more useful information here than in the official e-residence sites 🙂
    I still have one not very clear point for me – the input VAT.
    If I am an e-resident and having an IT company in Estonia, then for my work apart from the software I also need a good notebook, some small server, phone etc.
    The tax office told me that to be eligible for input VAT refund the assets I buy have to be transported to Estonia (as someone mentioned that above) so that I can get the VAT back. It is kind of weird to transfer the goods needed for my work to Estonia while the being a virtual resident there.
    Do you know more about this, or have experience?

    Thanks

    Reply
    1. nacho June 8, 2018 at 10:53 am

      Thank you Biljana! ☺️

      I honestly don’t know who told you that, but every day, lots of people buy goods for their companies outside of their countries without needing any proof that they took them to their home countries. If you buy a notebook and it’s a justified business expense, you can, in fact, ask for an invoice without VAT if both your company and the selling company have VAT numbers (which is usually the case), so you effectively don’t pay VAT in the first place.

      Hope this helps!
      Best regards.

      Reply
  37. Orsan July 3, 2018 at 1:00 pm

    Dear Nacho,

    First of all thanks for all the information you have provided. They are very helpful indeed.

    I would like to ask you whether the e-residency system may also be useful for a translation business We are a translation company based in Turkey providing services to local companies but also many international companies. We want to have more contact in the schengen zone and use the payment methods such as paypal which is restricted in Turkey recently. I am asking this because i realised that mostly people from IT sector are interested in the e-residency.

    thanks for your comments.
    b.rgds
    Orsan

    Reply
    1. nacho July 6, 2018 at 11:04 pm

      Sure, that sounds like something e-Residency would be perfect for.

      Reply
  38. Alexandra July 4, 2018 at 10:55 pm

    Hi, thanks for the very useful article. However, there is one thing I still don’t understand. You said “from your salary, you need to pay the board member salary taxes in Estonia and the employee salary taxes in your residence/home country”. In order to be able to pay the latter in Spain, don’t you still have to be an autonomo and therefore still pay that painful EUR 300 / month as a minimum? And aren’t you still being exposed to all the difficult rules of what to deduct what not, what is the retention, what is left as tax base etc etc…? Thank you!

    Reply
  39. Kevin July 9, 2018 at 3:19 pm

    Hi Nacho,

    Amazing articles, full of solid information!

    I just have a question regarding VAT. If I have a company in Estonia and dropship products from China to EU countries (not Estonia), do I have to pay the 20% VAT taxes on all the sales I make? So if I sell a product for €100, then do I have to pay €20 to the Estonian government?

    Thanks!

    Reply
    1. nacho July 10, 2018 at 9:18 pm

      Hello there Kevin, thanks for your comment!

      If your customers are in Europe, the VAT rules apply. Anyway, don’t think of VAT as something “you can avoid”. When you collect VAT or pay VAT, you are only acting as a middleman between a government and the consumer. If you have a VAT number, the difference will balance out eventually. So that’s not something you can “avoid” or “collect” for your own sake.

      In your case, as you are doing drop shipping, which is automated e-Commerce, you apply the VAT of the final user to every invoice, i.e: for a customer in France, you will add the French VAT.

      Reply
  40. Jonathan July 14, 2018 at 5:13 pm

    Hola Ignacio/Nacho,

    Well thanks for this article, this is eye-opening and very helpful! I have just gotten my e-residency card and am looking at either starting my small company in Luxembourg or in Estonia related to my personal Finance blog as I started to receive affiliate links commissions. I am now awaiting news from some companies helping to establish businesses here and then once done I ll check the pros and cons of Lux or Estonia and if I chose for Estonia I will definitely use your LeapIn code!
    How do you deal with affiliate links by the way? Do you send an invoice to the company supposed to send you the commission or do they pay you straight in your bank account?

    Reply
    1. nacho July 16, 2018 at 6:41 pm

      Hello there Jonathan. Thanks for your comment. Congratulations on your e-Residency. Well, for your customers or companies you work as an affiliate, you should always ask for an invoice. Hope it helps! 🙂

      Reply
      1. Jonathan August 1, 2018 at 5:02 pm

        Awesome thanks! And I have now registered my company and will go to Estonia for the bank account in August, I chose for the simplicity and the philosophy of being part of the digital nation 🙂 (PS : I used your code for Leapin)

        Reply
  41. gabri July 19, 2018 at 12:00 am

    Excuse me Nacho About what you wrote here:
    “The solution is simple: avoid being a German company! :). How do I do that?

    Easy:
    – don’t have a permanent office or headquarters in Germany (never have the same office more than 6 months/year)
    – don’t hire all your employees in Germany and put them to work at a German office.
    – don’t have your website only in German and all your customers from Germany.
    – don’t have all your commercial interests in Germany and never, ever leave Germany. Conduct your business some months a year from another country, even if you keep on being a German resident.
    – be able to prove that you are an international company: have your website in multiple languages, or hire a VA from another country, or have international customers. Travel regularly, or at least from time to time, spend some months in another country, possibly becoming a resident there sometimes…”

    If you want live in germany and administrate the estonian company, Your company will be considered as German, no matter what. If you register in another country like spain the problem is the same: Spain will claim that is a Spanish company and will ask you to pay the corporate taxes.

    To avoid ANY type of doubt or boarderline situation the estoanian government states:

    “If I create a one-person company in Estonia and use it to invoice my clients in the UK for consultancy and I stay tax resident in the UK, wouldn’t UK claim corporate tax from my Estonian company because of the Controlled foreign corporation rules?
    Yes, they may make that claim because of the presence in UK. Estonian tax residency may be disputed in this case.”

    https://e-resident.gov.ee/faqs/taxation/#example-cases-of-taxation

    So what is your plan? You wrote “stay possibly some months in another country and being resident there” if you are resident in another country the problem persists.

    So you want to run every three month in a new country trying to be no- resident nowhere? Too hard, no ?

    Reply
    1. nacho July 19, 2018 at 3:45 pm

      Hello there Gabri, thanks for such an interesting comment.

      Unfortunately, the law is not clear in any European country about this grey area. Your statement of Spain is not actually “officially” true. According to the Tax Office in Spain (https://www.agenciatributaria.es/AEAT.internet/en_gb/Inicio/_Segmentos_/Empresas_y_profesionales/Empresas/Impuesto_sobre_Sociedades/Periodos_impositivos_iniciados_hasta_31_12_2014/No_residentes_con_establecimiento_permanente/Cuestiones_basicas_sobre_tributacion/Definicion_de_establecimiento_permanente__ep_.shtml):

      a person operates through permanent establishment in Spanish territory when he or she holds in any way installations or work premises of any kind, in which he or she carries out all or part of his or her activity, or acts in it through an agent authorised to hire, in the name and on account of the non-resident, using these powers regularly.

      More specifically, the premises that constitute a permanent establishment are: executive headquarters, branch offices, offices, factories, workshops, warehouses, shops or other establishments, mines, petroleum or gas wells, quarries, farm, forest, livestock or other holdings or any other place used for the survey or extraction of natural resources, as well as construction, installation or assembly work with a duration of more than 6 months.

      So as you can see, here the emphasis is only on a physical office. However, there’s a grey area in most of Europe about this. Generally speaking, if your company own premises outside Estonia, where you perform your work habitually, you will have to pay taxes in this other country… But what if you don’t? That’s not clearly regulated. Actually, I know quite a number of German, Spanish, French and Greek e-residents that live in their countries 100% of the time, managing their Estonian companies, and never had a problem.

      Definitely a grey area that needs to be better addressed by both the Estonian authorities and the European ones. I wrote about it here: https://micropreneur.life/challenges-for-the-e-residency-program/

      As of me, I am a digital nomad 🙂

      Reply
  42. Ludovic August 26, 2018 at 3:52 pm

    Muchas gracias por este artículo, que es uno de los más claros que he leído sobre este tema. Un gran agradecimiento.
    Tengo un par de preguntas al respecto.
    ¿Qué sentido tiene tomar dividendos en lugar de salarios?
    ¿Es posible pagarse un salario en el primer mes sin esperar al final de un año contable?
    El salario del empleado debe declararse en su declaración de la renta en su país (para mí Francia). ¿También la parte retribución como membro del Board ?
    Gracias por esa aclaración.
    Ludovic

    Reply
    1. nacho August 26, 2018 at 9:17 pm

      Hola Ludovic. Gracias a ti por tu comentario. La verdad que la respuesta a esas preguntas depende en gran medida de tu situación particular. Cada persona es un mundo, y depende de muchos factores, como tu país de residencia, etcétera.
      Un saludo

      Reply
  43. Daniel September 3, 2018 at 9:39 pm

    Dear Nacho
    thabk you for your information.
    there are some questions I want to ask :

    1- Can we open the bank account for company and personal in estonia without going to estonia ?
    2- If our company in estonia sell some products to the customer out of the EU do we have to pay tax on it ? ( for example we have a company in china and from that store we will ship the products to australia just we receive the money in estonia company’s account).
    3- If our company in estonia is the shareholder of another company in germany, then the benefit of german company come to our company’s account in estonia which kind of the tax we have to pay in estonia ?
    4- Always I read foreign income has no tax in estonian company . can you please explain it with example .
    5- About the social security tax when I am not EU citizen and dont want to live in estonia do I have to pay that ?

    Thanks in advance for your timr

    Reply
    1. nacho September 6, 2018 at 6:54 pm

      Hello there Daniel, please send me a message so we can see the best way of answering all your questions 🙂

      Reply
  44. Alberto September 4, 2018 at 1:12 pm

    Hello Nacho,

    Thank you for that great article. I just have one question. What is considered a valid reinvestment of a company’s profits? For example, if my company takes part of the profits and reinvests them in the stock market or in cryptocurrencies, does the company need to pay taxes on it? Or only once dividends are distributed?

    Best regards,
    Alberto

    Reply
    1. nacho September 6, 2018 at 6:55 pm

      Hello there Alberto. Anything that’s a justifiable business expense is a valid reinvestment.

      Reply
      1. David September 13, 2018 at 6:28 am

        Hola Nacho,

        Gracias por compartir todas tus experiencias. Son muy valiosas para quienes estamos iniciando esta faceta de nómada digital.

        Mi pregunta va en la misma línea que la de Alberto: ¿Es justificable como “gasto de reinversión” la compra de criptomonedas a través de una empresa en Estonia? En caso contrario, se pudiera comprar criptomonedas con la tarjeta de débito de la empresa, aún asumiendo el 20% de impuesto?

        Le eché un vistazo a Leapin y definitivamente es la agencia más profesional de las que me he topado. Por cierto, ¿Cuánto tiempo tardó en llegarte el e-residency? Estoy un poco ansioso de empezar cuanto antes los trámites.

        Un saludo.

        Reply
        1. nacho September 14, 2018 at 5:49 pm

          Hola David,

          Gracias por tu comentario.

          Tu empresa puede adquirir criptodivisas y trabajar con ellas, incluso recibir pagos en criptomonedas y pagar a proveedores en criptomonedas. Sin embargo, existen unas licencias específicas para criptodivisas en Estonia. En ese caso, quizás debas considerar otros proveedores de servicio que te den ese servicio, ya que el que comentas no trabaja con licencias de ese tipo. Si quieres contáctame en el formulario de contacto (https://micropreneur.life/about-me/) y te cuento más en detalle.

          Reply

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