Germany - Estonia tax treaty

You live in Germany and own an Estonian OÜ, or plan to found one. This page shows how the Estonia - Germany tax treaty splits the right to tax between the two countries, and what German and Estonian law add. The German law parts cite the federal statutes on gesetze-im-internet.de. German law changes often and depends on your facts, so confirm each German point with a German tax adviser (Steuerberater) before you act.

Treaty facts

In short

• e-Residency and an Estonian OÜ do not make you resident in Estonia. If you live in Germany, Germany taxes your worldwide income.
• If you run the OÜ from Germany, Germany can treat it as a German company. The treaty has no simple tie-breaker for companies.
• Estonia taxes your board member fee. A salary for work you do in Germany is taxed only in Germany.
• Estonia withholds no tax from your dividend. Germany taxes it at the flat 25 percent rate, and you cannot credit the Estonian 22/78 company tax.
• The German CFC rules can tax the profit the OÜ keeps, if its income is passive, for example services you perform yourself.
• If you leave Germany, German exit tax can apply to your OÜ shares.

Does e-Residency or an Estonian company make me tax resident in Estonia?

No. You are resident in Estonia only if you have your place of residence there or stay there 183 days in 12 months (TuMS § 6 lg 1). e-Residency and company ownership count for neither. The Estonian side is explained in our guide on founder residency, permanent establishment and CFC rules.

Germany taxes the worldwide income of every person with a home (Wohnsitz) or a habitual abode in Germany (EStG § 1(1), AO § 8, AO § 9). A habitual abode always exists after a continuous stay of more than six months.

If both countries treat you as resident, the treaty decides in this order: permanent home, centre of vital interests, habitual abode, nationality, and finally agreement between the two tax authorities (Art. 4(2) of the treaty). In the year you move, German law puts the income of both periods into one assessment, and foreign income of the other period can raise your German rate (EStG § 2(7), EStG § 32b(1)).

Confirm with a local adviser: a flat you keep in Germany, even unused, can be a Wohnsitz and a "permanent home". Ask before the move whether to give it up, let it, or keep it.

Can Germany treat my Estonian company as a German company?

Yes. A company whose place of management (Geschäftsleitung) is in Germany is fully liable to German corporation tax (KStG § 1(1), AO § 10). The rate is 15 percent up to 2027, then it falls by one point a year to 10 percent from 2032 (KStG § 23(1)). Estonia still treats the OÜ as resident, because it was founded under Estonian law (TuMS § 6 lg 2).

This treaty has no "place of effective management" tie-breaker. The two tax authorities must agree. Without an agreement, the company is not resident of either state for treaty benefits (Art. 4(3) of the treaty). Then each state applies its own law with no treaty limits, so German tax on the profit and Estonian tax on a later distribution can both fall due. You ask for an agreement through the mutual agreement procedure (see below).

Germany can assess past years: four years as a rule, five years for reckless and ten years for deliberate evasion (AO § 169(2), AO § 170(2)). If no German return was filed, the period starts only at the end of the third year after the tax arose (AO § 170(2)), so an unfiled year stays open for up to seven years, or longer for evasion.

EMTA says it plainly: "Income of Estonian companies is also taxed abroad when the management of Estonian companies occurs outside of Estonia" (EMTA).

What does Germany look at to decide where my company is managed?

Germany asks where the centre of the top-level business direction is: "der Mittelpunkt der geschäftlichen Oberleitung" (AO § 10). That is where the person who really directs the business takes the decisions. The register, the bank and the bookkeeping do not decide it. If you sit in Germany and give the instructions, the place of management is in Germany, even if a nominee board member signs in Estonia.

To keep management in Estonia, the facts must change, not only the paperwork:

• a board member resident in Estonia who knows the business and takes the strategic and daily decisions;
• you act only as shareholder (you approve the annual report and appoint the board) and give no business instructions;
• board meetings in Estonia, with minutes that record who decided and where;
• contracts negotiated and signed in Estonia.

For a one-person service business run from Germany, these steps rarely match reality. The honest alternative is to plan for German tax. The Estonian evidence list is in our guide on founder residency, permanent establishment and CFC rules.

Confirm with a local adviser: German case law on companies run by a sole shareholder and on nominee directors.

Does my work from home in Germany create a permanent establishment?

Often yes. A home office through which the OÜ carries on its business is a "fixed place of business", and it can be "a place of management" or "an office" (Art. 5(1) and 5(2)(a) and (c) of the treaty). A person who habitually concludes contracts in the name of the OÜ in Germany also creates a permanent establishment (Art. 5(5)). German law lists the place of management and business offices as a Betriebsstätte too (AO § 12).

Germany can then tax the profit that belongs to the permanent establishment, priced at arm's length (Art. 7(1) and (2) of the treaty). You must notify the German tax office when a Betriebsstätte opens (AO § 138(1)), and an employer with a Betriebsstätte in Germany withholds German wage tax (EStG § 38(1)). The e-Residency programme gives the same example: an e-resident who works from Frankfurt "muss ... eine Betriebsstätte in Deutschland anmelden" (e-Residency).

On the Estonian side, a dividend paid out of the profit of a permanent establishment in an EEA state bears no Estonian distribution tax (TuMS § 50 lg 1^1 p 2). Keep separate accounts for the permanent establishment from the start, because the exemption needs proof of the profit.

Does German trade tax apply too?

Yes. Trade tax (Gewerbesteuer) applies to every business run through a German permanent establishment, including a place of management (GewStG § 2(1)). The base rate is 3.5 percent times the municipal multiplier, which is at least 280 percent (GewStG § 11(2), GewStG § 16(4)). A company managed from Germany also pays the 5.5 percent solidarity surcharge on its corporation tax (SolZG § 4). The treaty covers trade tax (Art. 2(3)(b)), but a dual-resident company gets no treaty benefits until the two authorities agree (Art. 4(3)).

How is my board member fee taxed?

Estonia may tax the fee, because the treaty gives directors' fees of an Estonian company to Estonia (Art. 16 of the treaty). The OÜ withholds 22 percent income tax (TuMS § 29 lg 2, § 41 p 2, § 4 lg 1). It also pays 33 percent social tax, unless you give it an A1 certificate issued in Germany (SMS § 2 lg 1 p 4, § 7 lg 1). EMTA confirms that the company pays income tax and social tax in Estonia "regardless of the location where work is carried on" (EMTA).

As a resident of an EEA state, you can apply in writing to the OÜ for the basic exemption, at one payer only (TuMS § 42 lg 1 and 2). If you did not, you can claim it in an Estonian annual return (TuMS § 31^1 lg 2).

Germany taxes the fee as part of your worldwide income. Directors' fees are on the list of income for which Germany gives a credit for the Estonian tax (Art. 23(2)(b)(dd) of the treaty; EStG § 34c(6)). The German credit is capped at the German tax on that income, and for board work done in Germany the cap can leave little or no credit (EStG § 34c(1), EStG § 34d Nr. 5).

Confirm with a local adviser: how the German tax office classifies the fee (employment or independent work), and whether it accepts that Art. 16 covers the management board of an OÜ. More on the Estonian side: founder remuneration.

Where is a salary for work I do in Germany taxed?

Only in Germany. A salary under an employment contract for work done in Germany by a German resident is taxable only there (Art. 15(1) of the treaty). Estonia taxes a non-resident's salary only for work done in Estonia (TuMS § 29 lg 1), and charges no social tax on pay for work abroad (SMS § 3 p 7).

A board member fee is different: it stays taxable in Estonia under Art. 16 (see the section above). If the OÜ has a German Betriebsstätte, German payroll registration and wage tax withholding apply from the first salary (EStG § 38(1)).

Which social security applies to me, and do I need an A1 certificate?

The tax treaty does not decide this. EU Regulation 883/2004 applies the law of one state only (Regulation (EC) No 883/2004). If you work only in Germany, German law applies (Art. 11(3)(a)). If you habitually work in both states, the law of your state of residence applies when a substantial part of the work is done there (Art. 13(1)(a)).

Estonia charges 33 percent social tax on a board fee unless an international agreement excludes it (SMS § 2 lg 1 p 4, § 3 p 15). EMTA accepts only one proof: "a certificate of social security coverage valid in such foreign country on Form A1", issued in your home country (EMTA). Without the A1 in the OÜ's file, EMTA can claim social tax on past fees.

This holds even if you are a majority shareholder-director (Gesellschafter-Geschäftsführer). Whether you count as employed for German social insurance depends on instructions and integration (SGB IV § 7(1)), and the German pension insurance can decide it in a status procedure (SGB IV § 7a). That is a separate question from the A1.

Confirm with a local adviser: which German body issues your A1 (health insurer, pension insurance or the DVKA) depends on your insurance status. Apply before the first fee.

How does Germany tax a dividend from my company?

Germany taxes the dividend as capital income at a flat 25 percent (EStG § 20(1) Nr. 1, EStG § 32d(1)), plus the 5.5 percent solidarity surcharge (SolZG § 4) and church tax where it applies. No German tax is withheld, so you declare the dividend in your income tax return (EStG § 32d(3)). The return is due seven months after the end of the year (AO § 149(2)).

With at least 25 percent of the shares, or at least 1 percent and a professional role in the company, you can opt for the partial-income method: 40 percent of the dividend is exempt and the rest is taxed at your progressive rate (EStG § 32d(2) Nr. 3, EStG § 3 Nr. 40(d)).

Estonia withholds nothing from a dividend paid to you. The OÜ pays the corporate income tax of 22/78 on the distribution (TuMS § 50 lg 1; EMTA). The treaty would allow Estonia to withhold up to 15 percent (Art. 10(2)(b)), but Estonian law does not use it. See how the distribution tax works, how to pay a dividend and the dividend tax calculator.

Can I credit the Estonian 22/78 company tax against my German tax?

No, not as an individual. Germany credits only "the Estonian tax paid ... on" the dividend (Art. 23(2)(b)(aa) of the treaty), and German law credits only foreign tax charged on you (EStG § 32d(5)). The 22/78 is charged on the company, and the dividend article "shall not affect the taxation of the company" (Art. 10(2)).

The treaty rates of 5 and 15 percent cap the Estonian tax on the shareholder. Estonia levies no such tax, so the rates give you nothing. The exemption of Art. 23(2)(a) is only for a German company that holds at least 25 percent, and only if the OÜ earns active income (Art. 23(2)(c)).

Confirm with a local adviser whether any German ruling accepts the Estonian distribution tax as creditable for an individual. We found none.

What if my company lends me money or pays my private costs?

In Estonia, the OÜ pays 22/78 on a loan to a shareholder that is in substance a hidden profit distribution (TuMS § 50^2), on expenses not related to the business (TuMS § 51) and on fringe benefits given to a board member (TuMS § 48), plus social tax on fringe benefits.

In Germany, a hidden profit distribution ("verdeckte Gewinnausschüttung") is capital income (EStG § 20(1) Nr. 1), and a benefit tied to your work is pay (EStG § 8). The treaty follows the same split: income treated as income from shares is a dividend (Art. 10(3)), a benefit for the board role falls under Art. 16, and genuine loan interest under Art. 11.

A loan from the OÜ to you needs a written agreement, a market interest rate and real repayment. Otherwise Germany may see a hidden distribution in the year of payment.

How is interest between Germany and my company taxed?

The treaty lets the source state tax interest at up to 10 percent (Art. 11(2) of the treaty). In practice neither state taxes ordinary loan interest at source. Estonia taxes a non-resident's interest only from certain real estate funds (TuMS § 29 lg 7). Germany taxes it only in listed cases, such as a loan secured on German real estate (EStG § 49(1) Nr. 5(c)).

The lender's state of residence taxes the interest (Art. 11(1)). A German individual pays the flat 25 percent (EStG § 20(1) Nr. 7, EStG § 32d(1)). An OÜ lender pays Estonian tax only when it distributes the profit. There is no safe rate in the law: the treaty limits apply only to an arm's-length amount (Art. 11(7)), and the Estonian transfer pricing rules test the rate (TuMS § 50 lg 4).

Does Germany withhold tax on royalties or service fees paid to my company?

Royalties: yes. Germany withholds 15 percent from royalties paid to a non-resident (EStG § 50a(1) Nr. 3 and (2)). The treaty caps German tax at 5 percent for the use of industrial, commercial or scientific equipment and at 10 percent for other royalties (Art. 12(2) of the treaty). The German payer still withholds the full rate unless the OÜ holds an exemption certificate of the Federal Central Tax Office (BZSt). Otherwise the OÜ claims a refund (EStG § 50c). Between associated EU companies, the tax can be zero on application (EStG § 50g).

Service fees: no withholding. Technical, consultancy and management services are not royalties (Protocol of 29.11.1996, point 6). Germany taxes them only through a German permanent establishment (Art. 7(1)).

If your OÜ pays royalties to Germany, it withholds 10 percent in Estonia (TuMS § 29 lg 6 p 4, § 41 p 8, § 43 lg 1 p 2), within the treaty cap.

What if my company owns a German company?

Germany withholds 25 percent on dividends (EStG § 43a(1) Nr. 1), plus the solidarity surcharge. The relief:

• 0 percent under the EU Parent-Subsidiary Directive, with a direct holding of at least 10 percent held for twelve months (EStG § 43b);
• else 5 percent under the treaty, for a company that holds directly at least 25 percent of the capital throughout a 365-day period that includes the day of payment; the period can be completed after the payment (Art. 10(2)(a), as amended by the 2020 Protocol; Protocol, point 4(b));
• else 15 percent (Art. 10(2)(b)).

A foreign company can also recover two fifths of the German withholding (EStG § 44a(9)). All relief is subject to the German anti-treaty-shopping rule (EStG § 50d(3)) and the treaty's principal purpose test (Art. 27).

In Estonia, with at least 10 percent at receipt, the OÜ can pass the German dividend on without Estonian income tax (TuMS § 50 lg 1^1 p 1), if the German company could not deduct the dividend from its profit (TuMS § 50 lg 1^3). You then pay German tax on the dividend you receive. A holding OÜ with one asset and no staff in Estonia is exactly the case these anti-abuse rules target.

Who taxes the gain when I sell my company shares?

Germany alone, while you live there. The treaty gives a gain on shares that are not land-rich only to the seller's state of residence (Art. 13(4) of the treaty). Estonia taxes a non-resident's share gain only if more than 50 percent of the company's assets were Estonian real estate at the sale or at any time in the two years before, and the seller held at least 10 percent (TuMS § 29 lg 4 p 5; EMTA).

In Germany, a holding of at least 1 percent makes the gain business income (EStG § 17), of which 40 percent is exempt (EStG § 3 Nr. 40(c)). Below 1 percent, the gain is capital income at the flat 25 percent, declared in your return (EStG § 20(2), EStG § 32d).

A payment from the OÜ itself on a buy-back, a capital reduction or a liquidation is different. Estonia taxes the part above your acquisition cost (TuMS § 29 lg 5 with § 15 lg 2 and 3). Ask both advisers first whether the treaty treats it as a dividend (Art. 10) or a gain (Art. 13(4)).

How are rent and real estate gains taxed?

The state where the property is may tax the rent (Art. 6(1) of the treaty) and the gain on a sale (Art. 13(1)). It may also tax a gain on shares that drew more than 50 percent of their value from its real estate at any time in the 365 days before the sale (Art. 13(1a), in this form since 01.01.2022).

For a German resident with Estonian property, Germany exempts that income (Art. 23(2)(a)), and rent from Estonian property does not even raise the German rate (EStG § 32b(1)). Estonia taxes a non-resident's rent and property gains at 22 percent (TuMS § 29 lg 4 and lg 6, § 4 lg 1; EMTA).

Can the German CFC rules tax the profit my company keeps?

Yes, they can. A German resident who, alone or with related persons, holds more than half of a foreign company is taxed each year on its low-taxed passive income, as if it were distributed at the end of the company's financial year (AStG § 7, AStG § 10(2)). Income is low-taxed below a 15 percent burden (AStG § 8(5)). The OÜ pays 0 percent until it distributes, so its retained profit is exposed.

Service income in which you yourself take part is passive (AStG § 8(1) Nr. 5). An OÜ escapes only if you prove a substantial economic activity in Estonia, with its own staff and premises (AStG § 8(2) and (3)). No article of the treaty limits this charge on a German resident shareholder.

When the OÜ later pays out the profit already taxed under the CFC rules, Germany does not tax it again: a reduction amount is deducted (AStG § 11). Estonia still charges its distribution tax when the dividend is paid. Germany credits taxes "actually levied" on the company against the CFC charge (AStG § 12(1)).

Confirm with a local adviser: how the later Estonian distribution tax enters the 15 percent test and the credit. Map the OÜ's income line by line before you rely on the substance exception. The Estonian view of CFC rules is in our guide on founder residency, permanent establishment and CFC rules.

Can I invoice through an Estonian company instead of working as a German freelancer?

Legally the OÜ can invoice, but for a German resident who does the work from Germany it rarely changes the German result. Germany can tax the OÜ as a German company if you manage it from Germany (KStG § 1(1); Art. 4(3) of the treaty), or tax its German permanent establishment (Art. 5 and 7). If the OÜ stays foreign, its service income from your own work is passive CFC income, attributed to you every year (AStG § 7, § 8(1) Nr. 5). The German tax office can also disregard an inappropriate arrangement (AO § 42).

Ask a German adviser to compare the result with a German GmbH or plain freelancing (EStG § 18) before you set up the OÜ.

Does Germany charge exit tax if I move to Estonia?

Yes. Leaving Germany counts as a sale of shares of at least 1 percent at market value, if you had unlimited German tax liability for at least seven of the last twelve years (AStG § 6(1) and (2), EStG § 17(1)). On application, you can pay the tax in seven yearly instalments, usually against security (AStG § 6(4)). The tax lapses if you return within seven years (AStG § 6(3)). A missed report makes the rest of the tax due at once.

After the move, a later sale is taxed only in Estonia (Art. 13(4) of the treaty), unless the shares drew more than 50 percent of their value from German real estate in the 365 days before the sale (Art. 13(1a)).

What changes when I move to Germany with an existing company?

From the day you have a home or habitual abode in Germany, you have unlimited German tax liability (EStG § 1(1)). Your shares keep their historic cost: Germany uses a higher value only if the state you left charged an exit tax comparable to the German one (EStG § 17(2)). Estonia has no exit tax for individuals.

The German CFC rules (AStG § 7), the duty to report foreign holdings (AO § 138(2)) and the seven-year clock of the German exit tax (AStG § 6(2)) start to apply. Ask a German adviser about any special regime for newcomers; we found none in the law we read.

Which country taxes my pension?

A pension for past employment is taxed only in the state where you live (Art. 18 of the treaty), and other pensions follow the same rule (Art. 21(1)). A pension paid by a state or a municipality for government service is taxable only in the paying state (Art. 19(2)(a)), with an exception for a pensioner who is a resident and a national of the other state (Art. 19(2)(b)).

EMTA confirms that Estonian state, second pillar and third pillar pensions paid at retirement age to residents of Germany are exempt in Estonia, but only with "a valid certificate of residency or a life certificate confirmed by a foreign tax authority" (EMTA). Give the Estonian payer a German certificate of residence every year, or it withholds 22 percent.

What must I report in Germany about my company?

You report the acquisition or sale of a holding in a foreign company that reaches 10 percent, or of holdings that cost more than 150,000 euros in total. The report goes with your income tax return, at the latest 14 months after the end of the year (AO § 138(2)). The deadline cannot be extended (BZSt). A late or missing report can cost a fine of up to 25,000 euros (AO § 379). If the CFC rules apply, you also file the CFC declaration (AStG § 18).

Germany learns about the OÜ's accounts through the treaty's exchange of information (Art. 26 of the treaty) and the automatic exchange between tax authorities.

How do I prove residence to get the treaty rates?

Your OÜ compiles a "certificate of residence and tax liability" in e-MTA and selects Germany as the treaty country (EMTA). For your own Estonian income, Estonia applies treaty relief only on a residence certificate confirmed by the German tax office (EMTA).

A German payer must withhold its full tax despite the treaty (EStG § 50c(1)). Relief comes from the BZSt, as an exemption certificate before the payment or a refund within four years (EStG § 50c(2) and (3); Protocol of 29.11.1996, point 1).

Can Germany deny my company treaty benefits as abusive?

Yes, on three grounds:

• Since 01.01.2022, the treaty has a principal purpose test: no benefit if getting it was one of the principal purposes of the arrangement, unless it fits the object and purpose of the treaty (Art. 27 of the treaty, inserted by the 2020 Protocol).
• German law denies relief from German withholding to a foreign company whose owners would not get it themselves, for income with no substantial link to its own business (EStG § 50d(3)).
• Germany has a general anti-abuse rule (AO § 42).

Estonia has its own general anti-abuse rule (TuMS § 5^1). Document the business reasons and the substance of the OÜ (staff, office, decisions in Estonia) before you claim German treaty relief.

What can I do if both countries tax the same income?

You can start a mutual agreement procedure. You present the case to the tax authority of your state of residence within three years from the first notice of the action that taxes you against the treaty, whatever domestic remedies you use (Art. 25(1) of the treaty). An agreement is carried out whatever the domestic time limits (Art. 25(2); AO § 175a). EMTA describes the request and its time limits (EMTA).

In the EU, you can instead file a dispute complaint under Council Directive (EU) 2017/1852, also within three years (MKS § 151^4; in Germany the EU-DBA-SBG). An individual or a company that is not large can file it with its own state's authority alone (MKS § 151^3 lg 2; EU-DBA-SBG § 28). Choose deliberately: the EU complaint ends a pending treaty procedure on the same question and bars a new one (EU-DBA-SBG § 4(4)). To accept an agreement under the EU route, you confirm within 60 days that you give up domestic remedies (MKS § 151^16 lg 1). The treaty has no arbitration clause.

Does the MLI change this treaty, and what did the 2020 Protocol change?

The MLI does not change this treaty. Neither state listed it, so it is not a Covered Tax Agreement and there is no synthesised text. The two states put the main anti-abuse rules into the treaty by the Protocol of 15.12.2020 (Riigi Teataja; German law on the Protocol, BGBl. 2021 II p. 562). It is in force since 29.06.2021 and effective from 01.01.2022. It:

• changed the title and the preamble;
• added corresponding adjustments between related companies (Art. 9(2));
• made the 5 percent dividend rate depend on a 25 percent holding kept for 365 days (Art. 10(2)(a));
• replaced the old land-rich share rule in Art. 13(1) by a new Art. 13(1a) with a 50 percent and 365-day test (Art. 13(1) and (1a));
• inserted the principal purpose test as a new Art. 27, so the former Art. 27 to 29 are now Art. 28 to 30;
• allowed the 365-day holding period for the 5 percent rate to be completed after the payment (Protocol, point 4(b));
• replaced the data protection clause on the exchange of information (Protocol, point 8).

For an individual owner, the Protocol matters mainly through the land-rich share rule and the principal purpose test.

General information, not advice for your situation. The law as in force on 01.10.2026.