06.10.2017

News

E-residency – where am I going to pay my taxes?

Did you know, that E-residency can create a situation, where taxes must be paid in several countries?

When a natural person is living in one country but works in another, it often happens that both countries want to impose their income tax on him. And, surprisingly, countries are allowed to do so based on their own income tax legislations. To regulate situations like this, relief can be found in the Double Taxation Treaties for the avoidance of double taxation entered into between countries (hereinafter “DTT“).

When a member of a management board receives income from his own company, does his income tax obligation rise in Estonia, or, in the country where the e-resident actually resides? As the DTTs do not cover any aspects of e-residency, this may create numerous of difficulties due to the fact that E-stonia allows for companies to be managed from another country.

In Estonia, the Estonian Tax and Customs Board follows the principle of source and consequently taxes the income in Estonia. At the same time, the country of residence where the IRL management takes place may follow the principle of residency and impose income tax there. In such situations one must analyse the DTT signed between Estonia and the other country to determine the actual country of residency of the taxpayer.

Even after a successful determination of the actual residency, the joy may be short-lived. A threat remains that the company itself is considered to have a Permanent Establishment (hereinafter “PE”) in the country, where the management resides. It comes as a surprise to many, that a legal entity can also be taxed in another country than where the entity is registered.

In case the Tax Authorities recognise that a PE has been created, it is a possibility that a proportional profit must be allocated to the PE and, subsequently, there will be an obligation to pay company income tax there, too. A PE threat remains also in situations where there is only one employee and/or one member of the management board based in the foreign country.

If you wish to map out possible threats and find solutions, get in touch with NJORD Law Firm partner Anne Veerpalu and associate Anne-Lii Kask.

Latest news

Are compensations for your former employees taxable in Estonia?

What tax liabilities are created, when an employer terminates their work relationship with the employee e.g. due to layoffs?  Often when the working relationship ends, the parties agree that the employer will pay a compensation to the former employee during a certain period. There are several reasons for paying compensations, perhaps most common of them is the restriction of competition clause.

NJORD Estonia explains: Reckless license agreement can wreck your brand!

As Estonia is gaining recognition for its successful increase of creativity, more and more brands are spreading beyond our borders. When noticing Estonian design in foreign airports or department stores, many of us Estonians feel impressed. But, be sure to register your brand as a trademark to ensure legal protection for your idea. Copyrights, trademarks, designs and patents can be registered both domestically and on a more or less global scale, and it gives the registered author the exclusive right to use his or her own creation in any way and to permit or prohibit the use of the work by other persons. In other words, no-one should earn money on your creativity without a license!

Get the latest legal news

We gladly share our knowledge with you. Subscribe to our newsletters.

Subscribe here