The criteria for determining tax residency in Estonia for individuals and entities have largely remained consistent with the principles outlined in the Estonian Income Tax Act (ITA) and the Commercial Code. For an individual, tax residency is established if:
- They spend at least 183 days in Estonia during any consecutive 12-month period, signaling a physical presence test.
- Their stay in Estonia is under circumstances that indicate the intention to reside permanently, such as having a permanent home in Estonia.
For entities (companies, partnerships, etc.), tax residency is primarily determined by the location of their place of management or the place where they are registered according to the Estonian Commercial Code.
While the fundamental criteria for determining tax residency have remained stable, there has been a growing emphasis on clarifying and enforcing compliance with these rules, especially in light of increasing global mobility and remote work trends. Estonia has been updating its guidance and regulations to address these modern challenges, ensuring that individuals and entities accurately establish their tax residency status.
Estonia's network of international tax treaties continues to play a vital role in defining tax residency and preventing double taxation. These agreements, which Estonia has with numerous countries, ensure that tax obligations are clear for individuals and entities that have economic ties to multiple jurisdictions.
Tax treaties may adjust the criteria for determining tax residency to prevent double taxation or unintended non-taxation. This could involve specific provisions regarding the length of stay, the presence of a permanent home, or other factors that could influence tax residency status under Estonian law.
The modifications in tax treaties underscore Estonia's commitment to international cooperation in tax matters, ensuring that its tax policies are in line with global standards and practices. These treaties facilitate cross-border trade and investment by providing clarity and certainty for taxpayers, thereby contributing to Estonia's attractiveness as a business location.
