Board Member Remuneration and How It Is Taxed

A board member fee, also known as board member remuneration or a director’s fee, is what an Estonian company pays a member of its management board for running the company. It is neither salary nor dividend. Estonian tax law treats it as a payment type of its own, and in companies owned by non-residents it is the payment most often taxed incorrectly.

Two things set it apart. The fee is taxed in Estonia wherever the board member lives and wherever the management work is actually done, and it carries social tax but no unemployment insurance, which changes both the cost to the company and the social protection the board member receives. This article explains the current rules and figures and the decisions to make before the first payment.

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. The relationship rests on the shareholders’ decision to appoint the person and, in most cases, on a board member contract governed by the Law of Obligations Act.

Four consequences follow for remuneration:

• The fee is optional. Estonian law does not require a company to pay its board members. Serving without pay is lawful, and in a dormant or early-stage company it is the norm.
• There is no minimum. The statutory minimum wage applies to employment contracts, not to board seats. A fee of €200 a month is as valid as one of €5,000.
• The shareholders set it. The amount and the terms are fixed by a shareholder resolution. A board member cannot decide their own fee, and a resolution is needed even where the sole shareholder and the sole board member are the same person.
• Tax follows payment, not accrual. Payroll taxation in Estonia is cash-based. A fee that has been approved but not paid out triggers no income tax and no social tax in that month.

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

Taxes on a Board Member Fee

When a fee is paid, the company applies the following:

• Income tax: 22%, withheld by the company from the gross fee.
• Social tax: 33%, paid by the company on top of the gross fee.
• Funded pension contribution: 2% (or 4% or 6% by the person’s own choice), withheld only where the board member is an Estonian resident who has joined the second pension pillar. Nothing is withheld for a non-resident.
• Unemployment insurance: none. Neither the 1.6% employee share nor the 0.8% employer share applies, because board members are not insured under the unemployment insurance scheme.
• Basic exemption: up to €700 a month (€776 at pensionable age), applied on the recipient’s written application. It is a flat amount that does not shrink as income grows; the earlier income-based taper was abolished in 2026.

You may come across websites claiming that an extra 2% surcharge applies to board member fees. No such surcharge exists. The rates published by the Estonian Tax and Customs Board (EMTA) show a withholding rate of 22%, and the increase to 24% that was once planned for 2026 was cancelled before it took effect.

Worked Example: €1,000 Gross Board Member Fee

The example assumes an Estonian-resident board member with a 2% second-pillar contribution and no basic exemption applied at this company. Founders often call this payment a board member salary; legally it is a fee, not wages.

With the €700 basic exemption applied, income tax falls to €61.60 and the net rises to €918.40, while the company’s cost stays the same. For a non-resident board member no pension contribution is withheld, so income tax is €220 and the net is €780. If that non-resident also holds a valid A1 certificate, the social tax disappears and the company’s total cost is simply the €1,000 gross fee.

Social Tax Is Charged on the Amount Actually Paid

This is the rule most often stated wrongly, including by otherwise reliable sources.

The minimum monthly social tax obligation (€292.38 in 2026, or 33% of the €886 monthly rate) is imposed by § 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 calculated 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 does not have to invent a monthly payment to stay compliant.

Where the same person also has 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 is covered by Estonian health insurance only when the social tax declared for them in a month reaches the minimum obligation. In 2026 that means a gross fee of at least €886.

Timing follows the tax return, not the payment. Cover starts the day after the filing deadline of the TSD return in which the qualifying social tax is declared, normally the 11th of the month after payment, and runs until the next filing deadline plus one further month as a buffer. A fee paid on 1 March, for example, produces cover from 11 April. Once a return fails to show the minimum social tax and the buffer month has passed, cover suspends until a qualifying return is filed.

So €886 is a health insurance threshold, not a tax floor. A board member who does not need Estonian cover, typically a non-resident insured at home, has no reason to pay up to it. A founder living in Estonia who relies on it has to reach it every month.

Non-Resident Board Members: Taxed in Estonia Wherever They Work

Under § 29(2) of the Income Tax Act, remuneration paid by an Estonian company to a member of its management or controlling body is Estonian-source income regardless of where the duties are performed. This is an exception to the usual rule that a non-resident’s employment income is taxed where the work physically happens. Many e-resident founders assume that managing an Estonian company from Lisbon or Dubai keeps the fee outside Estonian tax. It does not.

Tax treaties rarely change this. The directors’ fees article in Estonia’s treaties follows the OECD Model: the country where the company is resident may tax the fee. Double taxation is relieved in the board member’s home country, by exemption or credit, rather than by removing the Estonian charge.

Two reliefs are available to non-residents:

• The basic exemption, which a resident of another EEA state can claim monthly by giving the company a written application and having a certificate of tax residency from their home tax authority (form TM3 or equivalent) registered with EMTA. The certificate is valid for 12 months and has to be renewed every year.
• The A1 certificate, which removes the Estonian social tax charge altogether.

One practical point: before the first payment, a non-resident board member needs an Estonian personal identification code (every e-resident has one) or a non-resident code issued by EMTA, and the company reports the fee on Annex 2 of form TSD rather than Annex 1.

The A1 Certificate and Social Security Coordination

A board member who is covered by the social security system of another EU or EEA member state, or of Switzerland, does not pay Estonian social tax, provided an A1 certificate issued by the competent authority of that country is in place. Estonia has also concluded bilateral social security agreements with a few non-EU states, among them Ukraine, Canada and Australia. Their scope differs: some decide in which country contributions are payable, others only coordinate pension rights. Whether a particular agreement removes the Estonian charge has to be checked against its text rather than assumed.

The effect is large. 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 removed, and treating the exemption as applying before the certificate has actually been issued. The certificate is applied for in the board member’s own country of insurance, not in Estonia, and the company keeps a copy with its payroll records. Like the other documents that shape the tax cost of a fee, it has to be in place before the money moves; it cannot be created retrospectively.

Management Duties and Operational Work Under Separate Contracts

A founder who both manages the company and does its actual work, whether writing code, serving clients or running sales, performs 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 belongs to the country where the work is done. Splitting the two into separate documented arrangements is legitimate and often noticeably cheaper, but only where the split reflects reality and the allocation between the roles can be defended. A nominal €100 board fee next to €8,000 of consultancy invoiced from abroad by the same person is the kind of arrangement EMTA examines closely. Our article on hidden employment relationships and tax risks explains how the tax authority reclassifies such structures.

What a Board Member Fee Costs Compared With a Dividend

Owner-managers usually weigh a board member fee against a dividend, so the cost of each is worth knowing. Putting €1,000 into the hands of an Estonian-resident owner costs the company roughly €1,740 through a board member fee (2% pension contribution, no basic exemption, no A1 certificate) and roughly €1,282 through a dividend taxed at 22/78. The gap is the social tax.

A dividend is not a substitute for a fee, though. It can be paid only out of profit shown in an approved annual report, so nothing can be distributed in the first financial year, and it buys no health insurance or pension rights. The full comparison of all three routes, salary included, with step-by-step instructions and founder profiles, is in our guide on how to pay yourself from an Estonian OÜ.

Most e-resident founders end up with a board member fee combined with dividends once there is profit to distribute. Keeping the paperwork 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 paid 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, on the basis of a written decision, proof of the right to use the vehicle and a mileage log kept as the trips happen. Without the log, the payment counts as salary income and is taxed accordingly.
• Daily allowance for business trips abroad: up to €75 per day for the first 15 days of a trip (and no more than 15 such days in a calendar month), then €40 for each further day. There is no tax-free daily allowance for trips within Estonia.
• Documented expenses incurred in the company’s interest: travel, accommodation and similar costs, reimbursed against source documents.

Benefits given to a board member 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 on the value and that income tax together. Amounts above the limits set out above fall into the same category.

Declaration, Registration and Deadlines

• Employment register (TÖR). A board member who receives a fee must be entered in the employment register before the first payment. A board member serving without pay does not need to be registered. The registration type chosen determines whether health insurance data is passed on.
• 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.

All of these dates sit in our Estonian company tax calendar.

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 member 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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