How to do your taxes as an Estonian e-Resident (when paying yourself with Xolo Leap)

Xolo

We get this question a lot from our customers, and there’s a lot of misinformation floating around on the internet (that shouldn’t surprise you), so we wanted to share some answers.

The first thing to know is that we work very closely with the Estonian tax office — not as close as we once were (we used to be in the same office building, but have since moved to a new location in the heart of Tallinn). 

And despite the new geographic distance between Xolo and the Estonian tax office, we have still enjoy a close relationship with them. Our accountants and tax experts work very hard to stay up-to-date on even the smallest policy changes (so you don't have to!). 

There are two main avenues to get paid by the company that you own as an Estonian e-resident: either salary or dividends. In short, Estonia usually doesn’t tax the salary paid to people living outside the country. There is also no corporate income tax until you pay out the profits as dividends. If your company has retained €100 profit, dividend payment triggers €20 corporate income tax.

However, this article is only discussing Estonian taxes. Your personal income or dividends can be taxed in your country of residence, and you need to consult your local authorities or advisors about taxes that apply to you. You can also read more extensively about taxes in our FAQs.

What you need to know about paying yourself a salary as an e-Resident

You can pay yourself a salary at any time from the available funds of your company (of course, you can’t do this at the expense of your creditors).

If you are a non-resident who performs the duties abroad, no taxes are due in Estonia.

However, if you spend significant time on the administration aspects of your Estonian company as a board member (for example, restructuring it, or if you're involved in a legal dispute, etc.), you may be required to declare part of your salary as a board member fee. These payments are subject to Estonian withholding income tax at a rate of 20%.

With Xolo Leap, Xolo usually takes care of all business admin and the owner is required to spend minimal time on approving their annual report and other similar tasks to manage their Estonian-registered company. In this case, your role as a board member reduces significantly.

Please note that your salary may have to be declared in your country of tax residency, and for example, counted as part of your personal taxable income.

And that’s pretty much it. You just need to pay directly from your business account to your personal account with the description ‘Salary payment’. No payslips necessary.

How to pay dividends as an Estonian e-Resident

You can also declare and pay dividends from the retained profits of your company. You can pay dividends only if your company’s net assets in your last annual report were higher than the share capital limits. In other words, your company must remain solvent and sufficiently financed.

Dividends are typically paid once a year. The payments may also be periodical (e.g. twice a year).

Your company will pay 20% corporate income tax at the moment of paying the dividends (this is calculated as 20/80 on the net amount of dividends paid). Please note this is not a personal income tax but a deferred corporate income tax! If you choose to pay regular dividends, you may be eligible to apply for a reduced corporate income tax rate (14%). However, withholding income tax will be due at the rate of 7%.

You may still need to declare your received dividends in the country of your residence and pay income tax from it. However, in many countries, the tax on dividends is lower than on salary payments.

Still have questions about salaries and dividends? Check out our FAQ on salaries and dividends or drop us a line at hello@xolo.io.

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