Board Member Remuneration and How It Is Taxed

A board member fee (juhatuse liikme tasu), also called a director’s fee, is the payment an Estonian company makes to a member of its management board for performing management duties. It sits in its own tax category — neither salary nor dividend — and it is the payment type most often handled incorrectly in an Estonian OÜ owned by non-residents.

Two features make it distinctive. First, the fee is taxable in Estonia no matter where the board member lives or where the management work is physically done. Second, it carries social tax but no unemployment insurance contributions, which changes both the cost to the company and the social protection the recipient receives. This article sets out the current rules, the numbers, and the decision points that matter before the first payment is made.

What a Board Member Fee Is in Estonian Law

A member of the management board is not an employee of the company. The Employment Contracts Act does not apply to the role, and the relationship rests on the shareholders’ appointment decision and, usually, a separate board member contract governed by the law of obligations.

The consequences for remuneration are direct:

• The fee is optional. Estonian law does not require a company to pay its board members. A board member may serve without any remuneration, and in a dormant or pre-revenue company this is entirely normal.
• There is no statutory minimum. The national minimum wage applies to employment contracts, not to board seats. A fee of €200 per month is as lawful as one of €5,000.
• The shareholders decide. The amount and terms are set by shareholder resolution, not agreed by the board member with themselves. A board member cannot validly sign the contract on both sides.
• Tax arises on payment, not on accrual. A fee that is resolved but not actually paid out triggers no income tax and no social tax in that month. Payroll taxation in Estonia is cash-based.

The wider legal framework of the role — appointment, representation, personal liability — is covered separately in our guide to management board members of an Estonian company.

Taxes on a Board Member Fee

Where a fee is paid, the following applies:

• Income tax: 22%, withheld by the company from the gross fee.
• Social tax: 33%, paid by the company on top of the gross fee.
• Mandatory funded pension: 2% (or 4% or 6% by the person’s own election), withheld where the recipient is an Estonian resident who has joined the second pillar.
• Unemployment insurance: not applicable. Neither the 1.6% employee share nor the 0.8% employer share is charged on a board member fee, because board members are not insured under the unemployment insurance scheme.
• Basic exemption: up to €700 per month (€776 at pensionable age), applied on the recipient’s written application. It is a flat amount that no longer tapers with income, so the same allowance is available whatever the person earns.

Worked Example: €1,000 Gross Board Member Fee

An Estonian-resident board member, second pillar at 2%, basic exemption not applied at this company — the payment founders often loosely call a board member salary, though legally it is a fee, not a wage.

With the €700 basic exemption applied, the income tax falls to €61.60 and the net rises to €918.40 — the company’s cost is unchanged. For a non-resident board member with a valid A1 certificate, the social tax element disappears and the company’s cost is simply the gross fee.

Social Tax on the Amount Actually Paid

This is the point most frequently stated incorrectly, including by otherwise reliable sources.

The minimum monthly social tax obligation — €292.38, or 33% of the €886 monthly rate — is imposed by Section 2(2) of the Social Tax Act on payments to employees and public servants. A board member is neither. Social tax on a board member fee is therefore charged on the sum actually paid, with no top-up to the monthly rate.

In practice this means:

• a fee of €400 attracts €132 of social tax, not €292.38;
• a month with no payment attracts no social tax at all;
• the company is not obliged to generate an artificial monthly payment to stay compliant.

Where the same person also holds an employment contract with the company for genuine work, the minimum obligation applies to that employment relationship in the ordinary way.

Health Insurance and the €886 Threshold

The minimum figure still matters, but for a different reason. Under the Health Insurance Act, a board member obtains Estonian health insurance cover only if social tax declared for them in a month reaches the minimum obligation, which means a gross fee of at least €886. Cover starts from the day after the deadline for submitting the relevant TSD return, and it suspends once a month passes without the threshold being met.

So the €886 figure is a health insurance threshold, not a tax floor. A board member who does not need Estonian health cover — typically a non-resident insured in their own country — has no reason to pay up to it. A founder living in Estonia who does need cover has to reach it every month, without gaps.

Non-Resident Board Members and the Estonian Source Rule

Section 29 of the Income Tax Act treats remuneration paid by an Estonian company to a member of its management or controlling body as Estonian-source income irrespective of where the duties were performed. This is a genuine exception to the ordinary rule that a non-resident’s employment income is taxed where the work happens, and it catches out many e-resident founders who assume that managing an Estonian company from Lisbon or Dubai keeps the director’s fee outside the Estonian tax net. It does not.

Tax treaties rarely help here. The directors’ fees article found in Estonia’s treaty network follows the OECD Model in allowing the country where the company is resident to tax such fees. Relief for double taxation is therefore given by the country of residence, through exemption or credit, rather than by removing the Estonian charge.

Two reliefs are available to non-residents:

• The basic exemption, which may be claimed by a non-resident who is a resident of another EEA state, on written application supported by a certificate of tax residency registered with the Estonian Tax and Customs Board.
• The A1 certificate, which removes the Estonian social tax charge.

The A1 Certificate and Social Security Coordination

A board member covered by the social security system of another EU or EEA member state, or of Switzerland, is not liable to Estonian social tax, provided an A1 certificate issued by the competent authority of that country is submitted. Estonia has also concluded bilateral social security agreements with a small number of non-EU states, among them Ukraine, Canada and Australia. These vary in scope: some determine which country’s contributions are payable, while others coordinate pension rights only. Whether a specific agreement actually removes the Estonian social tax charge has to be checked against that agreement rather than assumed.

The effect is substantial. Without a certificate, a €1,000 fee costs the company €1,330; with one, it costs €1,000 and the only Estonian charge is the 22% income tax. Two mistakes recur in practice: paying Estonian social tax that a certificate would have eliminated, and assuming an exemption applies before the certificate has actually been issued. The certificate is applied for in the board member’s own country of insurance, not in Estonia.

Board Duties and Operational Work Under Separate Contracts

A founder who both manages the company and does its actual work — writing the code, serving the clients, running the sales — is performing two different functions with two different tax treatments.

Remuneration for management duties is Estonian-source income wherever the board member sits. Remuneration for operational work performed physically outside Estonia by a non-resident is generally not taxable in Estonia at all; it falls to the country where the work is done. Splitting the two into separate documented arrangements is legitimate and often materially cheaper — but only where the split reflects reality and the allocation between the roles is defensible. A nominal €100 board fee alongside €8,000 of “consultancy” invoiced from abroad by the same person is the kind of arrangement the Estonian Tax and Customs Board examines closely.

Board Member Fee, Salary or Dividends: Taking Money Out of an Estonian Company

Owner-managers of an Estonian OÜ choose among three routes, and they are not interchangeable.

The arithmetic is worth stating plainly. Delivering €1,000 into an Estonian-resident owner’s hands costs roughly €1,740 through a board member fee with no basic exemption and no A1 certificate, against roughly €1,282 through a dividend. The gap is the social tax. One legacy rule to note: the reduced 14/86 rate for regularly distributed profits was abolished from 2025, but where profits taxed at 14/86 before then are distributed to a natural person, a 7% withholding still applies.

That does not make dividends the automatic answer. A private limited company may distribute only profit shown in an approved annual report: an OÜ has no equivalent of the advance distributions available to a public limited company, so current-year profit cannot be paid out mid-year and a first-year company cannot distribute at all. Dividends also buy no social protection — no health insurance, no pension contributions, no qualifying income for parental or sickness benefits.

In practice, most e-resident founders land on a director’s fee combined with eventual distributions, and keeping the documentation aligned with what actually happens in the company is a standard part of ongoing accounting support for Estonian companies.

Tax-Free Payments Alongside the Fee

Several reimbursements can be made to a board member without tax, and they are available even where no fee is paid at all:

• Use of a private car for company business — up to €0.50 per kilometre and no more than €550 per calendar month per paying company, conditional on a written decision, proof of the right to use the vehicle and a contemporaneous mileage log. The annual INF 14 return is due by 1 February.
• Daily allowance for foreign business trips — up to €75 per day for the first 15 qualifying days in a calendar month and €40 for each day after that. There is no tax-free daily allowance for domestic trips.
• Documented expenses incurred in the company’s interest — travel, accommodation and similar costs, reimbursed against source documents.

Benefits given to a board member that fall outside these rules are fringe benefits, taxed entirely at the company’s expense: income tax at 22/78 of the benefit’s value, plus 33% social tax charged on the value and that income tax combined. Amounts exceeding the limits set out above fall into the same category.

Declaration, Registration and Deadlines

• Employment register (TÖR). A board member who receives remuneration must be entered in the employment register before the first payment. A board member serving without any fee does not need to be registered. The registration type chosen determines whether health insurance data is forwarded.
• Form TSD. Income tax, social tax and funded pension contributions are declared and paid by the 10th day of the month following payment — Annex 1 for residents, Annex 2 for non-residents.
• Form INF 14. Car allowance paid during the year is reported by 1 February of the following year.

Getting the Treatment Right Before the First Payment

The tax cost of a board member fee is easy to calculate and hard to correct retrospectively. The three decisions that shape it — whether an A1 certificate is available, whether Estonian health insurance is needed, and how management duties are separated from operational work — all have to be made before money moves, because each depends on documents that cannot be created after the fact.

How Eesti Firma Can Help

Eesti Firma advises on board member contracts, shareholder resolutions, A1-related questions, payroll calculation and the tax treatment of board remuneration for Estonian companies managed from abroad.

For founders who are still planning their structure, remuneration is best settled alongside setting up a company in Estonia rather than in the first payroll month.

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