Estonia is among the countries which have signed many double tax treaties in order to attract foreign investors by avoiding the double taxation of their incomes and capital.
The regulations of the double tax treaties may be applied only if the legal entity can prove his residency in another country. In order to do that a certificate of residency must be issued by the foreign tax authority and deposited at the custom centre of the Estonian Tax and Customs Board. Along with the certificate of residence, the applicant must submit the tax return.
The Estonian tax and Customs Board offers on its website the form available for certifying the foreign residency and the recipient of income. These certificates must be used no longer than three years by corporate bodies and one year by natural persons. After this period, it becomes invalid.
If the retained income tax is higher than what is stipulated by the double taxation treaty, the legal entity may apply for refund at the Estonian tax and Customs Board no longer than three years after discovering this situation. In the application must be stipulated the payer’s bank account and the total amount of the refund.
The withholding taxes on dividends, interests and royalties applied to the treaty countries starts with a rate of 0 % that can grow to 10%.
Usually, a not treaty country has its interests taxed at a rate of 21% and royalties taxed at a rate of 10%.
Here are the signatory states and jurisdictions: Albania, Armenia, Azerbaijan, Austria, Belarus, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, Ireland, Isle of Mann, Israel, Italy, Kazakhstan, Korea, Latvia, Lithuania, Luxembourg, Macedonia, Moldova, Malta, Netherlands, Norway, Poland, Portugal, Romania, Serbia, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom and the United States.
The withholding taxes on dividends, interests and royalties with the Isle of Mann and Georgia are 0% regardless the situation.
The dividends are not taxable in Estonia for both treaty and no treaty countries. The interests are also taxed only if the interest rate is above the market rate. Individual taxpayers are often taxed on personal income revenue. The Estonian controlled foreign corporation (CFC) regulations, by exception, attribute income obtained from foreign tax havens to resident individual taxpayers if those companies are controlled by Estonian citizens. Our Estonian accounting company can advise such companies.
As a particularity of the treaties concluded by Estonia is that the majority of them stipulate that the foreign tax is relived by exemption and rarely through the credit method.
If the legal problems in regards to double taxation are complex and require in-depht knoledge from several legal ares, we advise our clients to rely on our team of lawyers in Estonia. Contact our company formation specialists for a personalized offer.