Withholding agents must withhold income tax from certain payments.
Withholding agents include resident legal entities, resident individuals registered as sole proprietorships or acting as employers, and non-residents having a permanent establishment or acting as employers in Estonia.
The tax must be reported and paid by the 10th day of the month following the payment. Income tax is not withheld from payments to resident companies, registered sole proprietorships and registered permanent establishments of foreign companies.
The following payments are subject to withholding tax:
- There is no withholding tax on interest payments to non-residents provided that the interest charged does not significantly exceed the arm’s length rate at the time the debt is incurred and the interest payments are made. Estonian withholding tax of 21% will thus apply only to the part of interest that significantly exceeds the arm’s length interest amount.
- Royalties (including payments for the use of industrial, commercial, or scientific equipment) paid to non-residents are generally subject to 10% withholding tax under domestic law, but reduced rates may apply under double tax treaties. Certain royalty payments to associated EU and Swiss companies meeting certain conditions are exempt from withholding tax.
- Rental payments to non-residents for the use of immovable property located in Estonia and movable property subject to registration in Estonia (excluding payments for the use of industrial, commercial or scientific equipment) are subject to 21% withholding tax under domestic law, but double tax treaties may exempt payments for the use of movable property from withholding tax.
- Royalties and rental payments to resident individuals are subject to 21% withholding tax.
- Payments to non-resident companies for services provided in Estonia, including management and consultancy fees, are subject to 10% withholding tax under domestic law, but exemptions may apply
under double tax treaties. Service fee payments to “tax haven” entities are always subject to 21% withholding tax.
- Salaries, directors’ fees and service fees paid to individuals are subject to 21% withholding tax under domestic law, but double tax treaties may exempt service fee payments to non-resident individuals from withholding tax.
- Payments for the activities of non-resident artists or sportsmen carried out in Estonia are subject to 10% withholding tax.
- Certain pensions, insurance benefits, scholarships, prizes, lottery winnings, alimony, etc. paid to non-residents and resident individuals are subject to 21% withholding tax.
For non-residents who do not have a permanent establishment in Estonia, the tax withheld from the above payments at domestic or treaty rates constitutes final tax as regards their Estonian source income
and they do not have any tax reporting requirements in Estonia.
For certain types of Estonian source income, non-residents are liable under Estonian domestic law to self-assess Estonian tax and submit a tax return to the Estonian tax authorities. Such types of income include:
- taxable capital gains;
- profits derived from business conducted in Estonia without a registered permanent establishment;
- other items of income from which tax was not withheld but should have been withheld.
Source: PricewaterhouseCoopers - Guide to doing business and investing in Estonia