When you want to assign a salary, you only need to make one or two transfers from your company bank account to your bank account (in your name) in a specific format.
But first, you need to understand how VAT, taxes, and salaries work.
There are these possibilities:
1️⃣If you are a tax resident in Estonia, 100% of your salary pays taxes in Estonia, and it is usually considered that your job is as a board member (director or board member).
2️⃣If you are not a tax resident in Estonia, you do not need to have the salary of a tax-paying board member/director in Estonia. Your salary does not pay taxes in Estonia and would be considered an employee salary.
In this case, there are two options :
- If you do not have tax residence (you are a digital nomad without tax residence) your salary is not subject to taxes anywhere. Still, in return, you need to take into account private health insurance and optionally a private pension fund since you are not contributing in any country for these benefits.
- If you have tax residence in any country other than Estonia there are 3 possibilities:
- Register as a freelancer in that country.
- That your Estonian company becomes a social payer in that country, a process that is usually complicated.
- Another option is to use solutions that allow you to contract internationally in a simple and fast way, such as Lano or Deel. If you are a Companio customer you have a 10% discount on Lano and you can get a free demo on Deel.
How to make the payment?
You only need to make one or two transfers from your business account to your account every month you want to pay yourself a salary.
You must indicate in the transfer definition “board member salary ” or “employee salary”, as applicable.
This definition will allow us to identify the type of salary and calculate the possible taxes.
On the other hand, you have to create a contract as an employee or as a board member, depending on the case. These contracts must indicate:
- That the company hires you as an employee or board member.
- The job description (e.g., online marketing expert or board member).
- Other details such as salary, working hours, schedules, etc.
With Companio you can automatically generate these contracts in a couple of clicks.
👉🏻 Let’s see an example:
Erick is the CEO of a three-member startup. He has been living in Estonia for the past 2 years, so he is considered a tax resident there. Consequently, he chooses a full board member salary of €1000.
To pay his salary, the company makes a transfer of €1000 from the company’s corporate account in Wise to Erick’s bank account with the definition of “board member salary”.
Erick will always receive the same salary, so he uses Companio to generate a simple contract for himself with this amount. Then, he talks to the other two members of his startup to help them prepare their contracts.
You can contact our support team here if you don’t know how to complete these contracts or have any other questions.