Our specialists often face the question of whether a company registered in Estonia has to pay taxes if it pays salary or other remuneration for work to a natural person who is not an Estonian tax resident?
FREELANCERS’ SALARIES ARE NOT TAXED
If a non-resident performs work while being outside Estonia, the remuneration received by him is not subject to income tax in Estonia. Also, a company that has paid remuneration to a foreigner does not have any obligation to declare such payment to the Tax and Customs Board.
For example, an IT company registered in Estonia enters into an employment contract with a web designer from India, who will perform his duties remotely while being in his home country. In such a case, a tax resident of India, being an employee of an Estonian company, will perform his work duties as an IT specialist exclusively in his home country, and his Estonian company as an employer, will not have any obligation to pay taxes and declare the remuneration paid to the foreign employee in Estonia.
Thus, if an Estonian company makes payments to employees, contractors or freelancers not tax residents of Estonia, reside permanently outside Estonia and perform their work remotely, there is no need to pay any taxes in Estonia.
THE ADVANTAGE OF HIRING FREELANCERS
In connection with this circumstance, the Estonian tax system is particularly attractive to companies operating in the field of innovation and information technologies, as it is typical for the members of this industry to employ foreign workers (for example, programmers, web developers, designers and freelancers of various professions), who will perform their work remotely. Thus, Estonian companies using the services of foreign freelancers can save quite large amounts on taxes, thereby improving the efficiency and profitability level of their business model and increasing the competitiveness of the project in the international market.
However, foreign employees, in case of receiving payments from an Estonian company, should exercise due diligence and check whether they have an obligation to pay taxes in the country of their tax residence. If there is still an obligation to pay tax, the responsibility for the correct fulfilment of this obligation falls entirely on the employee who received the payment.
Contact us
If you have any questions regarding the calculation and payment of salary to foreign workers or freelancers — feel free to contact our accountants and advisers! Together we will find an effective solution for the most complex and unusual situation.
