Filing US Taxes as an American in Estonia

Estonia, a Baltic state in Northern Europe, is a beautiful place for expats to reside. You’ll find splendid beaches on the extensive coastline, but enjoy it while you can –the swimming season is short! After all, the Baltics are not known for their outstanding weather, but expats may love the culture and history of the area. Before you head off to explore the medieval towns, let’s take a look at your US expat tax obligations as an American in Estonia!

Filing US Taxes

All US citizens must file US taxes each year. If you read our blog often, then you already know that US tax returns are more complex for expats. Plus, you may be required to report your foreign bank accounts and assets if they exceed certain thresholds. So while the US is one of the few governments that tax the worldwide income of their citizens regardless of residency, expats are offered special deductions and exclusions to help protect from double taxation including:

  • The Foreign Earned Income Exclusion, which allows you to decrease your taxable income on 2017 US expat taxes by the first $102,100 earned as a result of your labor ($104,100 in 2018) while a resident of a foreign country,
  • A foreign tax credit that could lower your tax bill on your remaining income by certain amounts paid to a foreign government, and
  • A Foreign Housing Exclusion that allows an additional exclusion from income for certain amounts paid for household expenses that occur as a consequence of living abroad.

Who Is a Resident of Estonia?

You are considered a resident if you spend 183 days or more in Estonia over a 12 month period. When that occurs, residency will be granted from the day you arrived in Estonia.

Is Foreign Income Taxed in Estonia?

Residents of Estonia are required to pay taxes on their worldwide income, while non-residents are only taxed on Estonia-sourced income.

Income Tax Rates

Estonia enjoys a flat tax rate, where everyone pays the same rate, regardless of their income: 20%, a rate that has steadily declined since 2004 but remained the same since 2015.

Tax Due Date

The Estonia tax year is the same as the calendar year, just like the US. Returns must be filed by March 31 and any additional tax owed must be paid in full by July 31.

Additional Taxes

Standard VAT (Value Added Tax) is 20%, but some goods and services are taxed at a reduced rate of only 9%. Capital gains are taxed as ordinary income (so at 20% in 2018). Estonia has no wealth, inheritance, or gift taxes.

Social Security

In Estonia, no distinction is made between social insurance and social security, which are covered by the same term in the Estonian language. The pension and health insurance schemes are financed primarily by the social tax. The Estonian social tax of 33% (20% social security contributions and 13% health insurance contributions) must be paid by employers on top of the gross salary.

US citizens in Estonia who are self-employed must pay the social insurance noted above, but they must also pay 15.3% self-employment tax to the US, which includes Social Security and Medicare.

Greenback Can Help You With Your US Taxes

If you have any questions about filing your US taxes as an American in Estonia, please contact us.

Originally published in 2015; updated August 13, 2018.

Free Guide: 25 Things Every Expat Needs to Know About Taxes

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