Expat Taxes for Americans Living in Estonia: A Complete Guide

Living as an American Expat in Estonia

Living as an American expat in Estonia can be an exciting adventure. This small Baltic country has a rich cultural heritage and a thriving tech industry. Estonia is also known for its digital government services, making it an attractive destination for tech-savvy expats. 

One of the benefits of living in Estonia is the flat income tax rate of 20%, which is one of the lowest in Europe. Estonian tax residents are required to file an annual tax return using Form TSD. This Form is used to report income, deductions, and tax credits for the previous tax year. The filing deadline is typically March 31st. 

As a US expat living in Estonia, you may also be required to file a US income tax return and meet other reporting obligations such as FBAR. The good news is that Estonia and the US have a tax treaty to avoid double taxation, which can help you reduce your tax burden. It’s essential to stay informed about your tax obligations in Estonia and the US to avoid penalties or fines. 

Let’s look at what expat taxes you can expect as an American living in Estonia.

Estonia at a Glance

What Are Expat Taxes Like for Americans Living in Estonia?

When discussing expat taxes, it’s always worth noting that Americans living overseas are still required to file a US tax return every year. You may even have to file additional forms as an American abroad, such as an FBAR or a FATCA report. (More on both below.)

Beyond this, most US citizens living in Estonia will have to file an Estonian tax return. Fortunately, Estonia has low taxes and a simple tax policy.

Who Has to File Taxes in Estonia?

 In Estonia, tax residents must file an income tax return each year. A tax resident is defined as an individual who has spent at least 183 days in Estonia in a 12-month period or whose center of vital interests is in Estonia. 

As an Estonian tax resident, you must file your taxes by March 31st of the following year. The primary tax form for reporting income in Estonia is the TSD form. This Form is used to report all income and deductions for the previous year, including employment income, rental income, and capital gains. 

Even if you are not a tax resident of Estonia, you may still be required to file a tax return if you have received income from Estonian sources. It’s essential to stay up-to-date with Estonia’s tax laws and requirements to avoid any penalties or fines. 

Who Qualifies as a Tax Resident in Estonia?

To be considered a tax resident in Estonia, you must spend at least 183 days within a 12-month period in the country. These days can be non-consecutive; even partial days count as full days. Once you meet this threshold, you will be retroactively considered a resident from the day you arrive in Estonia. If you don’t reach the 183-day mark, you’ll be classified as a non-resident for tax purposes. 

What Types of Taxation Does Estonia Have?

Income

Estonia’s income tax policy is straightforward. All income is taxed at a flat rate of 20% regardless of income level. Virtually all forms of income are taxable under this policy, including:

• Salaries and wages
• Self-employment income
• Capital gains
• Rents
• Royalties
• Interest
• Dividends
• Pensions
• Scholarships and grants
• Prizes
• Lottery winnings

Residents and non-residents are both taxed at the same 20% flat rate. The only distinction is that residents must report their worldwide income, while non-residents only have to report Estonia-source income.

Capital Gains Tax

Capital gains are taxed as ordinary income at a flat rate of 20%.

Social Security Tax

Employers based in Estonia must pay a social security tax. The rate for this tax is 33% of an employee’s salary, with 20% going to a public pension fund and the remaining 13% going to a public health insurance fund. The employer covers the total amount. Employees are not required to contribute to the social security tax at all. Self-employed professionals must pay the complete 33% as well.

Unemployment Insurance Tax

In Estonia, employers and employees must contribute to an unemployment insurance fund. The rate for this tax is 2.4% of an employee’s salary. The employer contributes 0.8%, while the employee contributes 1.6%.

Value-Added Tax

Estonia levies a value-added tax (VAT) on certain goods and services. The standard rate for this tax is 20%. However, some goods and services are taxed at a reduced rate of 9%. This includes:

• Books
• Periodicals
• Hotel accommodations
• Listed pharmaceuticals

Corporate Tax

Like individuals, resident corporations are taxed on their worldwide income, while non-resident corporations are only taxed on Estonia-source income. All undistributed corporate profits are exempt from taxation. Once the profits are distributed, they are generally taxed at a flat rate of 20%. A reduced rate of 14% may be available for companies making regular profit distributions.

Land Value Tax

Estonian land is taxed at the municipal level. This tax is applied annually, with rates ranging from 0.1% to 2.5% of the value of the land, depending on the municipality. Landowners are generally responsible for paying the land value tax, though in some cases, the person using the land will be responsible instead.

Local Taxes

Estonian municipalities may have local taxes, such as:

• Advertisement tax
• Road and street tax
• Motor vehicle tax
• Animal tax
• Entertainment tax
• Parking charges

However, these local taxes are always meager.

When Are Taxes Due in Estonia?

Like in the US, the Estonian tax year is the same as the calendar year: January 1st to December 31st. Annual tax returns are due on April 30th of the following year.

Essential Tax Forms for US Expats in Estonia 

As a US expat living in Estonia, you must know the essential tax forms you must file. Firstly, you must file your US tax return using Form 1040, reporting your worldwide income. You may also need to file Form 8938 to disclose any foreign assets and the Foreign Bank Account Report (FBAR) if you have any foreign financial accounts with a value exceeding $10,000 at any point during the year. 

If you also pay taxes in Estonia, you must file an Estonian tax return using Form TSD, which covers income, social security, and health insurance payments. Estonia has a flat income tax rate of 20%, and social security contributions are divided equally between the employer and employee. 
It’s worth noting that Estonia has a tax treaty with the US to prevent double taxation. This means that if you have paid taxes in Estonia, you can claim a foreign tax credit on your US tax return to reduce your US tax liability. 

Ensure you keep up to date with your tax obligations in Estonia and the US to avoid any penalties or fines. It may be helpful to consult with a tax professional with expertise in US-Estonian taxation to ensure that you comply with all relevant tax laws. 

Does the US Have a Tax Treaty with Estonia?

Yes. The US has agreed to a tax treaty with Estonia. The treaty’s purpose is to prevent double taxation and promote economic ties between the two countries. The tax treaty covers various types of income, such as business profits, dividends, interest, and royalties.  

Under the treaty, residents of one country can claim a credit for taxes paid in the other country to avoid being taxed twice on the same income. The tax treaty also includes provisions for resolving disputes between the two countries. US expats in Estonia must know the tax treaty and how it may affect their tax obligations.  

Does the US Have a Totalization Agreement with Estonia?

No. There is no US-Estonia totalization agreement. This means Americans living abroad in Estonia may have to contribute to both social security systems. 

Without a totalization agreement between the US and Estonia, Americans living in Estonia may have to contribute to both social security systems. This means that they would need to pay into the Estonian social security system and continue paying into the US social security system.  

However, the US does offer a foreign tax credit that can offset the taxes paid in Estonia. US expats in Estonia can also take advantage of the Foreign Earned Income Exclusion, which allows them to exclude up to a certain amount of their foreign-earned income from US taxation.  

American expats in Estonia must consult with expat tax professionals like Greenback to ensure compliance and take advantage of all available tax benefits. 

Navigating Tax Compliance for US Expats in Estonia

We trust that this guide has provided you with a better understanding of the expat taxes you can expect as an American residing in Estonia. However, if you have any remaining questions, our team can provide your answers. Additionally, we offer expat tax preparation and filing services and would happily assist you with this process.

If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.