The founder abroad: tax residency, permanent establishment and CFC rules

This guide is for the owner of an Estonian company who lives, works or moves across borders: an e-resident who runs an OÜ from home, or a founder who moves to or from Estonia. It explains what Estonian law decides about the residency of a person and of a company, and where the law of the other country takes over. Much of the answer depends on the other country and on its tax treaty with Estonia. The country pages under tax treaties give the treaty side for some states.

In short

• You are an Estonian tax resident if you live in Estonia or stay here at least 183 days in 12 months. E-residency does not make you resident. More
• Your OÜ is always resident in Estonia. Your home country can still treat it as resident there if you manage it from there. More
• If you run the OÜ from your home abroad, the company often has a permanent establishment there, and that country taxes the profit of it. More
• A board member fee paid to a non-resident carries Estonian income tax and, without an A1 certificate, 33 percent social tax. More
• Your home country can tax the retained profit of the OÜ under its CFC rules. More
• Estonia has no exit tax for individuals and no gift tax. The country you leave may have them. More
• Banks and advisers report your accounts and arrangements to your home tax authority. More

How does Estonia decide if you are tax resident?

You are an Estonian tax resident if your place of residence is in Estonia, or if you stay in Estonia at least 183 days in any 12 consecutive calendar months (Income Tax Act § 6 (1)). If you meet the 183-day test, you are resident from the day you arrived.

• Place of residence. This is the place where you "permanently or mainly" live (Taxation Act § 9 (1), General Part of the Civil Code Act § 14). You can have a residence in more than one place. The Tax and Customs Board (Maksu- ja Tolliamet, EMTA) says that a dwelling you own but rent out is not your residence (EMTA: tax residency).
• 183 days. Every day or part of a day in Estonia counts, for any reason. Do not count only working days.
• What you pay tax on. A resident pays Estonian income tax on income from the whole world. A non-resident pays only on income from Estonia (Income Tax Act § 6 (1) and (3)).
• What does not make you resident. E-residency, an Estonian digital ID card, or ownership of an Estonian company.

Tell EMTA when your residency changes, on form R, when you arrive and when you leave (Income Tax Act § 6 (6), EMTA: determining residency). To be registered as a non-resident when you leave, file form R with a residence certificate from the tax authority of your new country (EMTA: determining residency).

When two countries both claim you. A tax treaty wins over the Estonian rule (Income Tax Act § 6 (5)). Most Estonian treaties use the same order of tests:

1. The country where you have a permanent home.
2. If that does not decide, the country of your centre of vital interests: family, social and economic ties.
3. Then the country where you habitually live.
4. Then your nationality.
5. Last, an agreement between the two tax authorities.

To use the treaty, you show a residence certificate of the country that wins, for Estonia the EMTA form TM3. The treaty only decides residence for the treaty. You may still have to file a return in the other country if its law requires it. Keep a travel log and proof of your permanent home, such as a lease and your registration.

Can your company become tax resident abroad?

Yes. Estonia treats every company founded under Estonian law as resident (Income Tax Act § 6 (2)). Many other countries also treat a foreign company as resident when it is managed from their territory. If you take every decision of your OÜ at home in such a country, the OÜ can be resident in both.

EMTA warns e-residents of exactly this: income of an Estonian company is also taxed abroad when the management takes place outside Estonia (EMTA: tax liabilities of companies).

What does not change in Estonia:

• The OÜ stays in the Estonian register and under Estonian company law.
• It still pays Estonian income tax when it distributes profit, and still files a TSD for each month with a salary, a board fee, a dividend, a fringe benefit or another taxable event (Income Tax Act §§ 40, 50 and 54). See corporate income tax on distributions and the TSD.

When both countries claim the company, the tax treaty decides, and treaties differ. Some give the company to the country of its place of effective management. Others leave the question to an agreement between the two tax authorities. Under some of those treaties, both countries can tax the company in full until they agree, or the company gets no treaty benefit at all. Read the treaty with your country. Without a treaty, both countries tax in full.

Before you distribute profit in this case, you can ask EMTA for a binding ruling (Taxation Act § 91^1), or ask for the mutual agreement procedure of the treaty. Talk to a tax adviser in the other country before you move there, not after.

Does working from home abroad create a permanent establishment?

Often, yes. A home office abroad becomes a permanent establishment (PE) of your OÜ when the business of the OÜ is carried on through it on a lasting basis, or when you habitually conclude the contracts of the OÜ there. For a one-person OÜ whose owner works from home in another country, both are usually true. That country then taxes the profit of the PE.

The other country applies its own law and its treaty with Estonia. Estonian law uses the same idea for a foreign company in Estonia: a PE is a place through which a non-resident carries on permanent activity, or a representative who concludes contracts (Income Tax Act § 7, Taxation Act § 9 (3)). Preparatory or auxiliary work does not create a PE. A short stay or a holiday does not create one either.

An Estonian registered address or a virtual office does not prevent a PE abroad.

If there is a PE:

• The other country taxes the profit that belongs to the PE. When you do all the work there, that is often a large share of the profit.
• The PE may have to register, keep records and file returns in that country.
• In Estonia, a dividend paid from the profit of a PE in an EEA state or Switzerland, or of a PE elsewhere whose profit was taxed there, is free of Estonian corporate income tax (Income Tax Act § 50 (1^1) clauses 2 and 4, EMTA: tax liabilities of companies).

Your own pay follows other rules. See also founder remuneration.

For the board fee, the international agreement is:

• in the EU, the EEA and Switzerland, Regulation (EC) No 883/2004. You show it with an A1 certificate from your home country. EMTA says no social tax is due on the board fee only when you hold that A1.
• for the United Kingdom, the social security protocol of the EU-UK Trade and Cooperation Agreement, with the certificate of coverage from the UK.
• for a few other countries, a bilateral social security agreement of Estonia.

With none of these, which is the case for most e-residents outside Europe, the OÜ pays the full 33 percent, on top of any contributions in your home country. Check this before the first payment, and keep the A1 with the payroll file.

What shows that the company is managed from Estonia?

Evidence that the key decisions of the business are really taken in Estonia. A registered address and an Estonian accountant alone do not prove it.

Estonian law does not require management in Estonia, because the OÜ is resident by incorporation (Income Tax Act § 6 (2)). The question comes from the other country or from a treaty. The management board manages and represents the OÜ (Commercial Code § 180 (1)), so the place where the board members work is the main fact.

Keep this evidence together:

• The board. At least one board member who lives or works in Estonia and takes real decisions, not a nominee who signs what you send. Travel records of the board members.
• Decisions. Resolutions that say where they were made, and minutes of meetings held in Estonia.
• Operations. An office in Estonia (a lease, not only a service address), people who work in Estonia, and contracts negotiated and signed from Estonia.
• Administration. Accounting, bank and legal advisers in Estonia. Accounting documents are kept for seven years (Accounting Act § 12).
• A tax residence certificate of the OÜ from EMTA.

If the address of the board is abroad, the OÜ must appoint a contact person in Estonia (Commercial Register Act § 24). That fact itself shows management outside Estonia. See address and contact person.

Common mistakes: board meetings in Estonia on paper while every decision is made by email from abroad, and a nominee board member who does not know the business. When you move abroad, it is often cheaper to accept that the company is managed there and plan for it than to build Estonian substance that fails in an audit.

Can your home country tax the company's retained profit?

Yes. Your home country can treat the OÜ as a controlled foreign company (CFC) and tax you, or your parent company, each year on profit the OÜ has not distributed. Estonia takes no tax on retained profit, so the OÜ often counts as low-taxed.

• A company as owner. Every EU state has CFC rules for companies under the Anti-Tax Avoidance Directive (ATAD Articles 7 and 8). The OÜ is a CFC when the owner holds more than 50 percent and the tax the OÜ really pays is lower than the difference between the tax it would pay in the owner's state and the tax it pays. Passive income, such as interest, royalties and dividends, is the usual target. A company with a real economic activity, with staff, equipment, assets and premises, can be spared under the passive income model.
• You as owner. The directive does not cover individuals. Some countries have their own CFC rules for resident individuals. Check the rules of your country.
• Estonia's own rule covers Estonian parent companies only (Income Tax Act § 54^3). Estonia taxes resident individuals on a controlled foreign entity only in a non-cooperative jurisdiction (Income Tax Act § 22).

What to do: map the income of the OÜ by type, build real substance for an active business, and expect CFC tax for a passive holding. Keep your Estonian accounts and a breakdown of income ready for your home adviser. Your home country's CFC tax is personal. You cannot credit it against the later Estonian tax on a distribution.

Is there an exit tax when you move abroad?

Not in Estonia, for an individual. Estonia taxes your gain on shares only when you sell or otherwise dispose of them (Income Tax Act § 15 (1)). You can leave Estonia with your shares and owe nothing on departure.

The country you leave may tax the unrealised gain on your shares when you leave. Inside the EU, such a tax is often deferred or paid in instalments, with yearly reports and conditions that last for years. Ask an adviser in that country before you move, and put every follow-up form and deadline in your calendar on the day you leave.

Estonia does have an exit tax for companies. A company that moves assets to a foreign PE, or that is deleted from the register when its assets leave Estonia, pays tax on the gain. Inside the EU and the EEA, it can pay in instalments over five years (Income Tax Act § 54^5 and § 50 (2^2), ATAD Article 5).

Is a gift from your family taxed in Estonia?

No. Estonia has no gift tax and no inheritance tax, and a gift you receive from an individual is not taxable income (Income Tax Act § 19 (3) clause 6). You do not declare it on the Estonian return.

The other country may tax it. Countries often tax a gift when the donor lives there on the day of the gift, when the recipient lived there in recent years, or when the asset is located there. Estonia has no gift tax treaty, so a double charge is not always relieved. Get a written opinion in the donor's country before the transfer, and record the gift with a gift contract and the bank transfers.

What can an Estonian resident deduct on the income tax return?

For 2026, a resident can deduct:

• the basic exemption of 8 400 euros a year, or 9 312 euros from the year you reach the Estonian old-age pension age (Income Tax Act § 23 (1), § 23^5 (1)). See basic exemption.
• training costs, and gifts to non-profits on the EMTA list, together at most 1 200 euros, and at most 50 percent of the income taxable in Estonia after business deductions (Income Tax Act §§ 26, 27 and 28^2 (1)).
• payments into a third-pillar pension, at most 15 percent of the income and 6 000 euros (Income Tax Act § 28).
• compulsory Estonian funded pension and unemployment insurance payments, and compulsory social security contributions paid abroad, but not those paid out of income that is not taxed in Estonia (Income Tax Act § 28^1).

Home loan interest is no longer deductible. The deduction was repealed from 01.01.2024, and the 2023 return was the last one with it (EMTA: housing loan interest).

The return is due by 30 April of the next year (Income Tax Act § 44 (1)). If you arrive or leave during the year, you declare only the months of residency, with a pro-rated basic exemption (Income Tax Act § 44 (1^2)).

Does your home tax authority see the company and its accounts?

Assume that it does. EMTA exchanges tax information with the other EU states and with treaty partners (Taxation Act §§ 51^1 and 51^2), and several automatic exchanges apply (EMTA: tax information exchange):

• CRS and DAC2. Banks report each year the accounts of residents of other countries. For a passive company, such as a holding of portfolio investments, the bank also reports the persons who control it, usually you, to your country. A holding of operating subsidiaries counts as active and is not looked through. Your self-certification to the bank drives this, and it must be correct.
• DAC6. An adviser, or you when there is no adviser, reports a cross-border tax arrangement with certain hallmarks within 30 days.
• DAC7. Platforms report their sellers to the seller's country.
• DAC8. Crypto-asset service providers collect data from 2026, with the first exchange in 2027.
• FATCA. The United States exchanges under its own rules.

A false self-certification to a bank, for example a claim that you live in Estonia when you live elsewhere, is what these exchanges are built to catch.

General information, not advice for your situation. The law as in force on 30.09.2026.