Doing business between different countries is often complicated and may bring extra tax burdens to the parties involved. The tax burdens may be caused because of the influence of laws of two countries where payments have to be made according to different standards and rates.
To ease those tax burdens, Estonia and 61 nations have developed bilateral Conventions of Avoidance of Double Taxation and Prevention of Fiscal Evasion. These conventions, aka Treaties, help prevent double taxation of income and better monitor persons and entities that are trying to avoid paying their taxes all together.
Requirements and implementing a double tax treaty
To benefit from international agreements, you must be a tax resident of a country that has a treaty with the country from where you receive your income. Also, the income you receive must be taxable in both countries by regular income tax laws in order to apply a treaty.
If you live in another country and receive income from Estonia, you must first determine if your income is taxable in Estonia according to the Income Tax Act. If your income is not taxable in Estonia, there is no need to declare or pay taxes on it in Estonia, only in your country of residence. If your income is subject for taxation in both countries, then you must study the tax agreement and consult a professional tax advisor to be sure of the facts. As the next step, you must ask a certificate of (tax) residence from your local tax office or use the Form TM3 where your local tax authority needs to fill a part of the form and then submit it to the Estonian Tax and Customs Board. A certificate can also be submitted to prove the basis for the discount during monthly/annual tax payments to the Estonian authorities.
Here you must remember that the validity of the (tax) residence certificate you present cannot be older than 12 months if you are a natural person. For legal persons, associations of foreign natural persons and pools of assets, the certificate cannot be older than 36 months.
After you have presented your certificate, your information will be stored, and you can check it from the Estonian tax authority’s database using your personal or your business’ tax number. In case some of your information changes, you must present a new certificate.
In case you have paid more taxes than the tax treaty that applies to you dictates, you can claim a tax return by applying together with your residence certificate and documentation that proves tax payments to the Estonian Tax and Customs Board during the tax return period.
In your country of tax residence, to get the discount, you probably need to prove that you have made payments in Estonia according to the specific tax treaty that applies to you. Therefore, it is important to consult someone in your country of residence, who is up to date with the local requirements and they might change from one country to another. In case you are interested in getting professional advice and help about your Estonian income, please feel free to contact us!
States and jurisdictions
As of the September 2022, Estonia has 62 active Double Tax Avoidance Treaties with different states and jurisdictions around the world. All European Union countries, all EEA countries, and all Schengen Area countries, except Liechtenstein, have a treaty with Estonia. From outside of Europe, there are many big and important international trade partner countries who have signed an agreement with Estonia.
The countries with whom Estonia has an effective bilateral tax agreement are:
- Czech Republic
- Hong Kong
- Isle of Man
- North Macedonia
- Viet Nam
- United Arab Emirates
- United Kingdom
- United States of America
For all these treaties, there is an English PDF file available for download, which you can find on the Finance Ministry’s webpage.
There are 8 other countries, with whom Estonia is preparing an agreement:
- Bosnia and Herzegovina
In the future, hopefully, we will see more countries on the list of in force agreements. Unfortunately, there is no information about when the agreements in preparation will be ready and come into effect, as there are a lot of political factors which directly affect the outcome.
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