In one of my previous posts, I described how VAT taxes work for e-Residents owning a company in Estonia. There, I talked about the most common rules for earnings and dividends. However, there are lots of details and nuisances to know about your pay as the owner of your business. In this post, I offer a more in-depth discussion about salaries for e-Residents.

While I do not represent or talk in the name of the Estonian Tax Office, all the information contained in this post comes from the knowledge from my business “Companio”, and has been verified by my accountants and the Estonian Tax Office. If in doubt, ask your accountant.

The Devil Is In The Details

Accountancy and taxes are difficult topics, especially, when it comes to companies. If your home country is anything like mine, there are lots of weird rules -some of them contradicting other rules- and grey areas regarding what you can and can’t do. Salaries are no exception, but also what you can deduct as a business expense, or how to apply taxes to different types of earnings.

Luckily, Estonia is famous for its clear, fair and transparent business system. It’s simply years ahead of the game. Nevertheless, it still has some subtleties to take into account when it comes to e-Residents. Especially, on how the owners of an Estonian company pay salaries to themselves or other employees.

Estonian law is also strongly based on common sense in lots of different areas. Even though it adds a subtle level of subjectivity to the mix, it makes the system very flexible and -in my opinion- quite fair.

One of the areas where this applies is your salary payments. Being such a delicate topic, emoluments are a common subject of questions. Let’s try to shed some light here…

The Basic Stuff

Ok, so first let’s review the basic stuff. As I mentioned on my previous article, as the owner of your company in Estonia, you are supposed to be doing two different kinds of tasks.

On one hand, you are the board member of your company. If you are a sole proprietor, you are the one and only director of your business. You are supposed to take care of appointing shareholder meetings, concluding contracts in the name of the company… yes, all the boring stuff.

On the other hand, you are supposedly performing a “professional” work in your company. It may be design, development, customer support, or managing the accountancy and keeping the books.

You then receive a “Board member salary” for the former and an “Employee salary” for the latter. The board member salary is taxed in Estonia, while the employee salary is not.

The de-facto accepted rule is that you do a distribution of 20%/80% of your salary. That means that if you, say, assign one month 2000€ in salary, you pay yourself 400€ as “Board member salary”, and 1600€ in “Employee salary”. Note: after 2019, if you are a digital nomad doing consultancy/freelancing work, it’s now common to assign yourself 100% employee salary only (which is not taxed in Estonia) and not assign any board member salary. See the section “2019 Update: You Can Now Pay Yourself Employee Salary Only”,

Your company is supposed to pay, for your board member salary, an income tax of 25%, and a social tax of 33% (applied to both the gross board member salary plus the income tax). You can avoid the social tax if you have proof of contribution to social tax in any other European country (form A1).

So of those 600€ of your board member salary, your company will pay 150€ in income tax, and 247,5€ in social tax, for a total of 397,5. That’s roughly 20% of your total salary. Next, if you are resident in a country with residence-based personal taxation, you will pay taxes for your overall earnings in your annual tax report.

Salaries for e-Residents, The Ultimate Guide

The Distribution Between Your Salaries

Note: things have changed from 2019. Please, see next section.

So the brilliant first question we all do when we understand the larger our board member salary gets the more taxes we pay is: “can I set my board member salary percentage to 0%?”

Then the answer is usually: “well, you can, but then someone -the Estonian Tax Office- may wonder who’s performing your board member tasks… And why this person isn’t being paid”. So common advice is you can play a little if, for example, you are a professional whose work mostly fails in the “Employee” category -such as a web developer- you can assign yourself a 20%/80% distribution and that’s ok. But also there’s a remark: “of course, that depends on the gross amount of salary paid”.

Then the next brilliant question is: “ok, so if I do something super-technical and earn a lot of money, can I reduce the percentage to almost zero?”

Here’s when the Estonian “common sense” application of the law kicks in. The idea is that, in the beginning, when your company’s profit is low, you don’t even need to care about assigning a board member salary at all. However, when you are starting to earn good money and you assign yourself a proper salary, you should add “decent” or “common sense” board member salary to the mix.

How much is that? Well, if your emoluments are 1000€ a month, 20%-30% is a good number. If you are on the 5000-10000€ payment range -you lucky bastard- you can probably go for a much lower percentage. 

Here, the amount is the key, not the percentage. 10% of 10.000€ is 1000€ which is absolutely fine for a board member salary, and more than a 30% of 1000€. Make it proportional, and use your common sense. 

2019 Update: You Can Now Pay Yourself Employee Salary Only

It has been determined by the Estonian Tax Office that you can actually pay yourself Employee Salary only. This only applies if your activity is performed outside of Estonia, meaning, you are not a tax resident in Estonia.

This has some implications. First and foremost, you are obviously responsible for reporting and paying your taxes in your country of residence. If you are a digital nomad, and don’t spend more than 183 days a year in any specific country, you can however avoid paying personal taxes.

The second important point to have in mind is that, if you assign yourself only the Employee Salary, you won’t be able to enjoy the Daily Allowance. Obviously, your business trips will still be justifiable expenses that your company can pay, but you won’t be able to benefit from the Daily Allowance.

It’s important to note that this change is mostly applicable to freelancers or sole proprietors. If your company has several shareholders or board members, or any of the members of the board operates from Estonia, this scenario does not really apply to you. 

Does Your Salary Need To Be Constant?

Short answer: No. Long answer: No, but use your common sense (again). So what do I mean by that?

For context, I usually assign myself different salaries throughout the month, and rarely they sum up the same amounts month after month. Plus, I never pay myself on a fixed day of the month. So as far as I know, there’s a lot of flexibility here. That said…

Now imagine this situation: you are a micropreneur with your OÜ company in Estonia. You assign yourself a salary between 800€ and 1100€. Then, one month, your company actually loses money while you decide to sky-rocket your bonus to 10.000€, Standard & Poor’s style.

According to the law, you don’t even need to assign yourself a salary at all. Theoretically, you are totally free to pay yourself the amount of money that you consider appropriate, but situations like the one depicted above will certainly raise some eyebrows.

Obviously, if your activity is perfectly legal, and your books are in order, you have nothing to worry about, but it’s always better to use the proportionality rule when assigning salaries. They don’t need to be the same amount, or be paid regularly, or even on a fixed date, but it’s better not to play the rollercoaster game with your payrolls.

Salaries for e-Residents, The Ultimate Guide

What About The Double Taxation?

The e-Residency program’s been specially designed for digital nomads. One of the reasons is obviously because it gives you geographical independence, and allows you to start and manage your business completely online

However, another important reason is avoiding clashes with other tax offices. There are lots of potential problems if you are the sole proprietor of your business and run it from a different European country (like France, or Germany, or Spain). One of them is your company being declared tax resident -and thus having to pay taxes- in that other country.

This problem has yet to be properly addressed by the e-Residency program. Related to that one, double taxation is always mentioned as another concern for non-nomad entrepreneurs considering a company in Estonia. 

Theoretically, there are double taxation treaties between most European countries and Estonia. These agreements prevent precisely the situation where you will pay taxes twice, both in Estonia and in your country of residence. In that sense, you need to understand that you and your company are different entities. Ideally, your company pays taxes in Estonia, while you pay taxes on your personal income (distributed dividends and salaries from all over the globe) in the country where you are tax resident.

Double Taxation On Salaries For Non-Digital Nomads

However, if you are not a digital nomad, you will, unfortunately, be subject to a small percentage of double taxation on your salary.

From your board member salary, you pay two different taxes: income tax and social tax. The former is a tax that is applied to your company. That means that it’s the company, not you, who pays it.

That means that once this salary gets to your personal bank account (alongside the Employee salary), you are liable for paying taxes for it. In my experience, it’s very hard to claim back the income tax that you paid for your board member salary back.

Regarding the latter, unless you can provide proof of paying social security anywhere else (form A1), you will have to pay social tax for your board member salary while you may not benefit from it, meaning, you won’t have access to health insurance or a pension (this is not always the case, more on this below).

Conversely, your Employee salary is not taxed at all in Estonia, so there’s no double taxation here. You will pay personal taxes for it on your annual tax report.

IMPORTANT: Please, have a look at the “legal considerations” below if you are a not a location independent entrepreneur (meaning, you are a tax resident in any country) before assigning yourself a salary.

Hiring And Paying Employees

Another very obscure topic, there’s no information whatsoever on the e-Residency website or any official page from the Estonian tax office in English.

The question is: “Can you hire employees for your Estonian company?

And the answer is “Yes“. The details are different depending on where they are tax residents, though. The taxes to be paid, and payroll calculations are completely different from the salary of members of the board.

Salaries for e-Residents, The Ultimate Guide

Hiring And Paying Employees Outside Of Estonia

If your employees are outside of Estonia, the good news is: you don’t pay a dime in taxes. Zero, rian, niente, nada.

Why? These employees, regardless of whether they are tax resident in a “foreign” country -to Estonia, anyway- or they are digital nomads, have no obligations with the Estonian government or tax office.

However, there are two important things to consider here.

First, you are not contributing to their social security or pension. That means that, unless they have private health insurance of some kind and a private pension plan, they may not have access to public healthcare of retirement annuity.

Secondly, these employees are responsible for paying their taxes. Most probably your employees will… but just in case, it’s always a good practice to include a clause in your employment contract specifying that the employee is liable for paying his or her taxes in the corresponding residence country, if any.

Legal Considerations

When hiring employees from outside of Estonia, both internal (members of the company) or external, you need to be careful with some important aspects.

As we discussed before, the Board Member Salary pays taxes in Estonia, because it is considered that the job is taking place in Estonia. However, the employee salary does not pay taxes in Estonia if you live and work outside of Estonia. Here, the emphasis “In Estonia” is important.

The e-Residency program of Estonia was designed for location independent entrepreneurs. As non-tax residents of any country, they don’t need to submit personal tax reports or bother about local labor laws when their companies pay their salaries.

If you are a tax resident of any country, things are different. Some countries require you to declare the employment status of this employee and pay social taxes for him or her. That is especially true for European countries. If you are employing people from France, Italy, Spain, or Germany, European laws dictate that you need to pay social taxes and the applicable social benefits for this employee.

A similar situation may happen in other countries as well, such as Ukraine, or El Salvador, to name but a few. It is always recommended to consult a local tax advisor or accountant in the country where you are going to hire your employees to know all the legal details beforehand.

So what can you do if you are required to pay social taxes for your employees in another country, or you can’t simply employ them and pay their salaries? Well, there are three main options.

First, your company can register as a social taxpayer in the country where your employees live. This may or may not require your company to be registered or open a branch in the country. In Estonia, for example, a foreign European company can easily become a taxpayer and start paying social taxes for Estonian employees without needing to register as a company or branch in Estonia.

Secondly, your employees could register as freelancers or professionals in their respective countries. In that scenario, you won’t be paying them salaries. They will invoice you for their services every month. This is the most optimal solution for many reasons. They are in charge of submitting their tax reports in their countries, they get access to all social benefits, including healthcare and pension scheme, and your company pays zero taxes for them.

Finally, for European members of the board, you can opt to pay yourselves a full board member salary (100%), that pays taxes in Estonia. Thanks to European double taxation treaties, you are not required to pay social taxes twice, so if your work is considered to happen in Estonia, you will pay Estonian social taxes, and don’t need to pay additional taxes in the country where you live. This may apply to non-European board members as well if their countries have taxation treaties with Estonia.

As mentioned, it is always a good idea to talk to a local tax advisor or accountant to make sure the solution you choose is completely compliant with the laws of that country.

Hiring And Paying Employees From Estonia

If your employees are tax resident in Estonia -meaning, they spend more than 6 months a year there- their employment situation is completely different. As Estonian employees of an Estonian company, they will get all the benefits of working for a national company, including social security and pension.

Hence, you will need to pay not just income tax, but also social tax, and make sure the latter covers the minimum requested by the authorities (around 155€). Besides, there are some other minor taxes added into the mix.

This is an example of the taxes that you need to pay for a standard salary of 1000€ to an Estonian employee, as of 2019.

Gross Salary/Wage:1000€
Social Tax330.00€
Unemployment insurance (paid by the employer)8.00€
Total Cost for employer(Wage Fund)1338.00€
Funded pension20.00€
Unemployment insurance (paid by the employee)16.00
Income Tax92.80
Net Salary/Wage871.20

Where do those 92.80€ come from? The income tax in Estonia is 20% flat, but there is a reduction in the taxable income if you are a tax resident in Estonia. For a monthly salary of 1000€, the first 500€ are tax-free. So from 1000€, -36€ (pension + unemployment benefits) we have 964€, from these, the first 500€ are tax-free, so that leaves us with 464*20%, which is 92.80€ in income tax.

So you pay some taxes, but it’s definitely not that much, and it’s worth it if you want to have employees in Estonia.

Can You Or Your Employees Benefit From Social Security?

Yes, believe it or not, employees living and working abroad can benefit from Estonian social security and use Estonian public healthcare in any of these situations:

  •  A working employee, with an employment contract, working for more than a month, as long as the minimum social tax is paid. 
  • Freelancer or employee with a services contract if the minimum social tax is paid for the whole duration of the service contract.
  • Member of the board -i.e: you- if minimum social tax is paid.

Minimum social taxes are 33% of minimum wage, currently 470 x 0,33 = 155,10€.

Why is this important, you may ask, if you are a digital nomad and/or live outside of Estonia? Because it gives you access to the European Health Insurance Card. With this card, you have free public health insurance all over Europe.


One of the most recurring questions for e-Residents owning a company in Estonia is how salaries work. It’s an obscure topic. Taxes, social security, contracts, how to assign them… In this post, “Salaries for e-Residents”, I try to shed some light on the matter. 

However, if in doubt, it’s always wise to ask for professional advice by your accountant.

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  1. Bruno December 18, 2018 at 10:09 pm

    First of all thank you very much for the precious information. Hopefully, by March I ‘ll be able to start and run my own company through the e-Residency program. However, some questions arise for me:
    -Being the owner of your own company, do you need to make a contract to yourself as an employee?;
    -What happens if you start your own business, earn money (as a company), but for the first few months you don’t want to make a salary to yourself just to let the company grow? How would the tax authorities of the country you are resident in act about it?

    Thank you in advance!

    1. nacho December 18, 2018 at 11:15 pm

      Hi Bruno, thanks for your comment.
      Answering your questions:
      – no, you don’t need to make a contract to yourself, but it’s advisable.
      – you don’t need to assign yourself a salary, it’s up to you when to do it and when not to.

      1. Bruno December 19, 2018 at 11:01 am

        So, basically, until you receive your first salary you are still considered unemployed, right?Thanks again!

        1. nacho December 19, 2018 at 12:33 pm

          Actually not. You can be an employee. In fact, you can be different types of employee (and you may probable want to be). It’s better if you want to know more about that specific subject to ask for a consultancy session. Best regards!

  2. Johnny December 19, 2018 at 8:15 am

    Hi Nacho, great article and informative blog.

    I seem to have my head around most things salary-wise, and if living in Spain paying the quota de autonomous I could leverage the A1 from to not pay social security twice by the sounds. Ideally, I will just pay the Spanish one as there seem to be more benefits.

    Although you explained in another post I am still not 100% clear, and it helps that you are Spanish, as that is where I wish to relocate.

    I pretty much fall into this category:, as I travel in Asia a lot, have no intention of having any Spanish clients, websites in English etc.. but will be there over 6 months a year, potentially buy a house one day. I’m a bit paranoid with Spain trying to claim my Estonian companies residency when I set one up, as I only plan to take out around 1,200 euros a month and leave the rest in the company. Do you have any Spain/Estonia permanent establishment experience.

    1. nacho December 19, 2018 at 8:26 pm

      Hi Johnny, I think it would be better to have the chance of speaking in a consultancy session. Please, don’t hesitate to contact me using the link at the top!

  3. Servin Loefstop June 9, 2019 at 8:22 pm

    Yes awesome article! Love your work. Thank you!

    1. nacho June 11, 2019 at 4:46 am

      Thanks Servin! ????

  4. Marcelo August 16, 2019 at 7:32 pm

    Do you have the link reference for the 2019 change that if you doesnt live in Estonia it doesnt need to pay board member salary?

    1. nacho August 24, 2019 at 2:12 pm

      I’m afraid this is not an official statement as such, but more as a de-facto recognition.

  5. Maurits September 13, 2019 at 11:08 am

    Thanks for clear info!

    Being the owner of a company, do I need to pay myself a salary at all? What if I decide not to pay myself a salary for the first 5 years, is that possible?

    1. nacho September 16, 2019 at 12:13 pm

      Dear Maurits,

      Not at all, but after some time, specially if you show activity, the Estonian authorities may wonder who is doing the board member duties, why this person is not earning money for it, and request some information about it.

      1. Maurits September 19, 2019 at 12:14 pm

        Hello Nacho, thanks for your answer!

  6. Alejandro Alvarez October 3, 2019 at 8:53 pm

    Hi Nacho!
    Awesome article & info! I’ve got a quick question:

    I’m a digital nomad (never more than 180 days anywhere), and I will have a steady income coming from outside Europe.

    What would be the advantage of assigning myself the Employee Salary Only?
    You mentioned that if you don’t have a residency anywhere (check) and your clients are outside of Europe (check) – then which taxes would need to be paid?

    Thaaaanks ????

    1. nacho October 8, 2019 at 6:22 pm

      Hi Alejandro,

      It has actually nothing to do with where your customers live, but more with the type of company that you are and especially where your tax residency is. The advantages, if you are a digital nomad, are clear. 0% taxes, as you don’t pay taxes for your employee salary because you don’t have a tax residence. Take into account that you will lose the Daily Allowance, though.

      Hope it helps!

  7. Marc October 6, 2019 at 4:31 pm

    Thank you very much for this fantastic article!

    Considering that I am a tax resident in Panama, if I decide to be to pay myself only salary money, will I need to pay any taxes in Estonia?
    What would be the best set-up to lower my tax exposure as much as possible?


    1. nacho October 8, 2019 at 6:24 pm

      Hi Marc,
      What do you mean by “salary money”?
      If you are a resident in Panama, check out the CFC rules of your country. Probably a company in Estonia is not a good idea.


      1. Marc October 14, 2019 at 1:45 pm

        You mentioned “you are obviously responsible for reporting and paying your taxes in your country of residence. ”

        if I pay myself salary only, and considering that Panama does not tax foreign income and that there are no provisions regarding CFCs in Panama. Does not mean that I will be able to pay myself a salary tax free?


  8. Nick November 13, 2019 at 11:56 am

    Do you need to use one of the accounting/services providers to run a company in Estonia, or can you do everything yourself? Can everything be done in English?

    1. nacho November 25, 2019 at 7:34 pm

      Hi Nick,
      Well, in theory you can do everything yourself. Obviously the language is a problem. You will eventually need to learn Estonian. But even if you can do everything in English, the question is… would you like to do it yourself? We are talking about VAT reports, TSD reports, annual reports, etc. No serious entrepreneur I know can, or is willing to, sacrifice the time it is needed to do it all by yourself. In my humble opinion, your time is worth more than what you pay to a service provider.

      Also, take into account the professional aspect of what you are going to do? Are you an accountant? If the answer is YES, you can give it a try. Otherwise, is like saying “I am going to do the website of my business myself”. If you have no previous web programming or design experience, the results are going to be… well, terrible and amateurish. The same happens with accountancy. It is a highly technical field, and a mistake can cost you money.

      So overall, is it possible? Yes. Would I advise you to do it? Heck, no!

  9. Pablo September 14, 2020 at 7:33 pm

    Hola Nacho! excelente todos los artículos.
    Me quedó una duda respecto de la diferencia entre el dinero que le pertenece a la empresa, lo que sería mi salario y los gastos.
    Si yo soy digital nomad y voy viajando por el mundo, puedo pagar todos mis gastos con la tarjeta de la empresa? o tengo que pagarme un sueldo y pagarlo con mi tarjeta personal?

    Por otro lado, si a la empresa le empieza a ir bien, y factura mucho dinero anualmente. Hay un límite en el sueldo que me puedo asignar, o puedo ir “empatando” las ganancias de la empresa con mi sueldo?

    1. nacho September 16, 2020 at 12:25 pm

      Hola Pablo, muchas gracias,

      El ser nómada digital no influye en cómo se consideran los gastos. Es decir, tus gastos de negocio (aquellos que sirven a los objetivos de la empresa) se pagan con la tarjeta de empresa, y tus gastos personales se pagan con tu tarjeta personal.

      No hay límite establecido de sueldo, pero sueldos muy elevados se pueden ver con ojos sospechosos desde hacienda. Hablamos de decenas de miles de euros, pero depende de tus ingresos y si han subido o bajado durante los últimos meses. Aquí aplica mucho el sentido común.

  10. Daniel December 25, 2020 at 12:07 am

    Thanks for the amazing post! I have a question. Can I pay 80.000 euro employee salary and 1.000 euro board member salary? Is that make sense? I am a zero-tax country resident and I’m trying to receive my Estonian company profits with minimum tax.

  11. Turik June 6, 2021 at 8:43 pm

    I have a question regarding the annual report and the employee salary. Where do I actually “assign” the employee salary? My best guess would be the “Employee expense” in the income statement. Is that correct? Its my first annual report, any help is highly appreciated.
    Thank you!

    1. nacho June 8, 2021 at 1:59 pm

      Hi Turik. I have no idea, as I’ve never done my annual report myself. My suggestion if you don’t completely understand what you are doing is getting a service provider do it for you. You don’t want to do it incorrectly and risk being fined or something 🙂


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