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Opening a business and accounts Taxation of Ukrainians in Estonia

Yaroslav Shevel

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shevel@prikhodko.com.ua

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An expert in corporate and international corporate law. He has many years of experience in establishing and reorganizing companies, supporting M&A transactions, as well as providing legal support for opening and running a business in the EU, Asia, and North America.

Taxation of Ukrainians in Estonia

Ukrainians who intend to live and work in other countries, in particular in the countries of the European Union, are often interested in the legal aspects of taxation.

One such country is Estonia, which attracts the attention of foreign citizens with its progressive tax system and favorable conditions for business.

Ukrainians, together with their families, who arrived in Estonia because of the war, have the right to apply for temporary protection, which will give them the right to work in Estonia, as well as oblige them to pay taxes on the income they receive.

However, only refugees who are tax residents of Estonia can take advantage of the deductions.

Determining residency is an important component, as income from both Estonia and abroad is taxed, and the final tax liability is determined in the country of tax residency.

To do this, a resident of Estonia must declare in the tax return his total income, regardless of the country in which it is received, as well as the income tax paid in Estonia and abroad.

The application of certain deductions, benefits, and allowances, as well as the calculation of the basic exemption, also depends on the place of residence.

Thus, a tax resident of Estonia is a person who permanently resides in Estonia or who stays here for at least 183 days during 12 consecutive calendar months.

Regarding double taxation with income tax – Estonia and Ukraine have signed an agreement on the avoidance of double taxation.

Overview of the taxation system in Estonia

The taxation system in Estonia is based on the principle of taxation of profit only when it is withdrawn from the company in the form of dividends.

This means that companies are taxed only on the fact of paying profits to the owners. For residents of Estonia, the income tax is calculated at the rate of 20%.

Taxation of individuals in Estonia

Ukrainians living and working in Estonia are also subject to the taxation system of this country.

However, it is important to consider several key aspects:

Income tax: Individuals in Estonia are taxed on a progressive scale. The minimum tax rate is 20%, and the maximum is 33%. For Ukrainians working in Estonia, this means that their income will be taxed at these rates.
Social contributions: Ukrainians who are registered as employees in Estonia are obliged to pay social contributions, which are calculated from their income. These contributions are intended to provide various social programs and benefits in the country.

Taxation of non-residents in Estonia

Non-residents, including Ukrainians working in Estonia temporarily, may be subject to different taxation rules.

Here are some key aspects:

Tax on dividends: Ukrainians who own shares in Estonian companies and receive dividends may be subject to tax on dividends in Estonia. However, under double taxation, benefits or exemptions from this tax may apply.
Tax credit: Estonia has double taxation agreements with many countries, including Ukraine. This allows you to avoid double taxation and receive tax credits or exemptions from taxation in one country if taxes have already been paid in another country.

Tax benefits for business:

Electronic taxation: All tax declarations and transactions can be done online through the electronic taxation system. This simplifies taxation processes and reduces bureaucratic barriers for business.
Tax incentives for startups: Estonia is known for its support for startups, including tax breaks and exemptions for new technology companies. This makes the country an attractive place for the development of innovative projects.

So, the taxation of Ukrainians in Estonia has its peculiarities and nuances that should be taken into account when moving and working in this country.

Knowing these rules will help avoid unpleasant surprises and ensure proper financial planning for Ukrainian citizens who intend to settle in Estonia.

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1 question

Do you have a business in Estonia?

Yes

2 question

Do you need help in determining tax residency?

Yes

3 question

Do you need tax advice in Estonia?

Yes

Is there really no corporate income tax in Estonia?

Estonia applies a deferred taxation system. This means that while profits remain in the company’s accounts or are reinvested in its development, the corporate income tax rate is exactly 0%. Tax is paid only when funds are distributed in favour of the founders.

What is the current tax rate on dividends? (Does the 14% preferential rate still apply?)

The preferential 14% tax rate on dividends was completely abolished from 1 January 2025. Currently, all distributed profits (dividends) are taxed at a single rate of 22% (calculated using the 22/78 formula on the amount of the distribution).

Can I open an account with a traditional Estonian bank remotely?

No. Traditional Estonian banks require proof of a close economic connection with the country (substance) — the presence of a genuinely leased office in Tallinn and employed resident staff. For remote businesses operating through e-Residency, the optimal and reliable solution is to use licensed payment institutions (EMIs) that provide full IBAN accounts.

Is a company required to pay a salary to its director?

Estonian law does not require a company to pay a mandatory salary to its director. If you are a tax resident of another country and do not live in Estonia, you may also be exempt from paying Estonian social tax (33%) provided that social insurance coverage in your country of actual residence is confirmed.

What are the conditions for obtaining a residence permit through business?

A successfully operating business is a lawful basis for obtaining a residence permit. The legislation requires an investment of at least EUR 65,000 in the company’s share capital for shareholders, or at least EUR 16,000 if the business is registered as a sole proprietorship.

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