The two most common payments made by a company to its management or employees are a service fee to a management board member (juhatuse liikme tasu) and a salary (töötasu). There is a difference in the relations between an Estonian private limited company (OÜ) and a management board member and those between the company and its employee.


Regarding the relationship with an employee, the Employment Contracts Act (Töölepingu seadus) is applicable, containing all the requirements of work hours, holiday entitlement, sick pay, etc. If an employee is hired under an employment contract, they must be recorded in the Employment Register (Töötamise register) within the time limit prescribed by Estonian law, as well as register with the Tax and Customs Board of Estonia, in which the following data must be entered for each employee:

  • Their job title as stated in the employment contract
  • The name of their workplace and its address as stated in the employment contract
  • Their salary rate

An employee on the Employment Register can check via the electronic environment of e-maksuamet/e-toll that their employer has declared their full salary.

Management board member

The relationship with a management board member is regulated by another piece of legislation – the Law of Obligations Act (Võlaõigusseadus, VÕS). The powers and authorities of a management board member are also regulated by the company’s Articles of Association.

Obligations of the management board member include company management and representation of the company’s interests before the state authorities and third parties. A management board member has the right to sign documents on behalf of the company, and to open and administer company bank accounts. A management board member also has the right to work on a remuneration-free basis.

Payment under the employment contract

Labour taxes in Estonia are apportioned between the employer and the employee. On entering into the employment contract, the parties are to agree upon the sum of the gross pay, from which 3 taxes are withheld:

  • Income tax of 20%
  • Contribution into a mandatory pension fund of 2% (for residents)
  • Unemployment insurance premium paid by the employee: 1.6%

After these three taxes have been withheld, the employee will receive their net pay.

For the employer, labour costs will be higher than the employee’s gross salary as stated in the employment contract. Two more taxes, charged in excess of the gross pay, are payable by the employer:

  • Unemployment insurance premium — 0,8%
  • Social tax — 33%.

After paying all taxes (both those paid by the company and those withheld from the employee) the employer must declare the taxes through the TSD declaration and pay them to the Tax and Customs Board of Estonia within the time limit prescribed by law.

Working in an Estonian company while residing abroad

If a non-resident employee works for an Estonian company under an employment contract and performs their job as a distance worker while residing outside Estonia, payroll taxes are neither paid nor declared in Estonia.

However, we recommend that such an employee contacts a tax consultant and the tax authorities in their country of residence. It is possible that the Estonian company will have to register with the tax authorities in the country of the non-resident employee.

Payments to Management Board Member

In Estonia, the following taxes are to be withheld from the payments to a management board member:

  • income tax of 20%
  • contribution to a mandatory pension fund of 2% (for residents).

Taxes payable by the company:

  • social tax of 33%


A non-resident entrepreneur is starting up a business in Estonia and registers their private limited company (OÜ). The company does not have a physical office or employees in Estonia.  The owner and the management board member, the same individual, runs all business activity while residing in the Netherlands and decides to pay themselves a monthly fee to the amount of 3000 EUR gross.

If the entrepreneur fulfills both company executive and professional roles, for example by also acting as a software developer, they can receive not only the service fee as the management board member but also a salary, having entered into an employment contract with themselves on the private limited company’s (OÜ’s) behalf.

Taxation of payment to a management board member

  • Taxes withheld from the payee’s income:

Income tax of 20% of the amount would be withheld and paid in Estonia, since the company is registered in Estonia. Therefore in this example, income tax would be 3000 x 20% = 600 EUR

Because the management board member is not an Estonian resident, they are not bound by the  mandatory pension fund requirement and their contribution is not applicable in this case.

In the aforementioned example, the management board member would receive net pay exclusive of income tax (20%), which would amount to 2400 EUR.

  • Taxes paid by the company:

Whether the social tax of 33% would be charged depends on the availability of an A1 Certificate (EU/EEA countries), which certifies that the person has social insurance in the Netherlands.

Social tax of 33% in excess of the management board member service fee is to be paid in Estonia if the A1 Certificate has not been provided.

3000 x 33% = 990 EUR. Social tax of 990 EUR is to be paid by the employer.

  • Costs borne by the Company on paying the gross service fee of 3000 EUR to the management board member:

If the A1 Certificate has been submitted, the payroll expense will be 3000 EUR (gross service fee).

If the A1 Certificate has not been submitted, the payroll expense will be: 3000 EUR (gross pay) + 990 EUR (social tax) = 3990 EUR

After making payments, the employer (OÜ) is to declare taxes in the TSD Declaration, both those the company witholds from the payee and those they pay on their behalf, as well as taxes paid by the company itself, and pay all taxes owed to the Tax and Customs Board of Estonia.

Taxation in accordance with the Employment Contract

In this case, the laws of the country in which the employee carries out their duties will be applied, meaning that both income and social taxes are to be calculated and paid in the Netherlands at Dutch tax rates. For the Estonian company (OÜ) it will also mean that the employee does not need to be recorded in the Estonian Employment Register, and the TSD Declaration is not completed and filed in Estonia, but in the Netherlands.

We recommend clients contact the tax consultants and tax authorities of their country for the details and regulations there.

Importance of Bilateral Treaties

It is always worth finding which international tax treaties are in effect, e.g. in this particular case the treaty entered into between Estonia and the Netherlands. A bilateral international treaty takes precedence over the national tax laws of both countries and regulates disputable taxation issues, when there is a possibility of double taxation of one and the same income in both countries in compliance with their national tax laws.

To avoid double taxation, Estonia has entered into international tax treaties with more than 50 countries. For the list of the treaties, please use the link below.

Links to legislative acts