Many people believe that an Estonian company protects them from the tax office back home. Estonia itself does not promise this. And it says so publicly.
Estonia does not pretend that your company is run from Estonia. Once the honest picture is clear, the rest of the system can be worked with calmly.
Two questions decide everything
The first question: where is the company registered? If in Estonia, it is an Estonian tax resident and it has an Estonian reporting obligation. The law says this directly. Income Tax Act § 6 subsection 2: "A legal person, except for a limited partnership fund, is a resident if it has been founded on the basis of Estonian law." (riigiteataja.ee)
The second question: where is the company actually run from? If your company is run from Germany or Spain, that country may tax it as well. The Estonian Tax and Customs Board says the same: if an Estonian company is run from outside Estonia, the income is taxed in the foreign country too. An Estonian registry entry does not change this.
Estonia says this itself
This is not our interpretation. The Estonian Tax and Customs Board writes plainly that e-Residency does not automatically release you from taxation elsewhere. The guidance of the e-Residency program itself says the same: e-Residency is not tax residency. If the company operates elsewhere, or is run from outside Estonia, that income is taxed in the foreign country.
Countries exchange tax information with one another. Assume that your company is visible to the tax office back home. This is not unfriendliness on Estonia's part. It is simply an honest country that does not deceive other countries. That very honesty is what made Estonia attractive in the first place.
Three situations
Look honestly at which of them is yours.
- The company has real substance in Estonia. Decisions are made here, there is activity. This works.
- The company is run from your home country and you declare this honestly. This works as well. The company remains an EU company and keeps its advantages. But the income is taxed where the company is run from.
- The company is run from your home country, but this is hidden. That is the one that breaks. Usually years later, when the data is matched up.
The first two are calm. The third is not.
This article was prepared with the help of artificial intelligence.