Can a Non-Resident Board Member of an Estonian OÜ Pay Salary Taxes Only Abroad?
A common question among e-residents and foreign founders: if you’re the sole shareholder and board member of an Estonian OÜ, living and working entirely abroad, can you pay yourself a salary and declare all taxes only in your country of residence?
The Short Answer
Technically, yes — but not without risk.
Under Estonian tax law, an Estonian company is only required to withhold payroll taxes on employee salaries if the employee actually works in Estonia. If you’re a non-resident, don’t live in Estonia, and perform all your work from abroad, the salary taxes should be paid in the country where you are a tax resident.
The Catch: You’re Also a Board Member
Here’s where it gets tricky. As a board member (juhatuse liige) of an Estonian company, you inevitably perform board-level duties — signing contracts, representing the company, filing annual reports, and making management decisions. Estonian law is clear: directors’ fees paid by an Estonian company to a non-resident board member are always subject to 22% income tax in Estonia. Most tax treaties support this by allocating the taxing right to the country where the company is established.
If the Tax and Customs Board (MTA) reviews your arrangement and sees that you are the sole shareholder, sole board member, receive a salary under an employment contract, yet pay zero board member’s fee, they may reclassify part of your salary as a director’s fee. This would trigger Estonian income tax (22%) and social tax (33%) on the reclassified amount, plus interest.
The Recommended Approach
The widely accepted practice among Estonian accountants and tax advisors is to split your compensation into two parts:
Board member’s fee (roughly 20% of total compensation) — taxed in Estonia with income tax and social tax. Social tax can be avoided if you hold a valid A1 social security certificate from your home country.
Employee salary for actual operational work (roughly 80%) — taxed only in your country of tax residence, provided you work entirely outside Estonia.
This split doesn’t have to be exactly 20/80, but it should reasonably reflect the scope of your board duties.
Important: "Not taxed in Estonia" does not mean "not taxed at all." You are fully obligated to declare and pay all applicable income and social taxes on this salary portion in your country of tax residence. Neglecting to do so constitutes tax evasion, which can lead to severe penalties, back taxes, and criminal liability in your home country. The Estonian arrangement only determines where the taxes are due — it does not reduce or eliminate your overall tax obligation.
Estonian tax authorities may send a query to the tax authorities of the country where you are a tax resident, or ask you to present your tax returns.
Key Takeaways
Salary for work performed abroad by a non-resident is generally not taxable in Estonia.
Board members’ fees are always taxable in Estonia, regardless of where the board member lives.
Paying yourself only a salary, with no board members’ fees, is formally possible but carries significant audit risk.
A reasonable split between board members’ fees and employee salaries is the safest approach.
Until the company makes any payments (salaries, fees, or dividends), there is no Estonian tax obligation.
The salary portion exempt from Estonian tax must still be fully declared and taxed in your country of residence. Not paying taxes anywhere is illegal — it is tax evasion.
This is a general overview and does not constitute tax advice. Every situation has its nuances — especially when tax treaties and social security agreements are involved. We recommend consulting a qualified tax advisor for your specific circumstances.