social taxes: the ultimate guide

Andy Stofferis • Apr 08, 2025 • 11 min read

How social taxes impact your Estonian company, from payroll rules to cross-border hiring. Stay compliant with practical tips & expert guidance.

Filing social taxes is an important part of being an entrepreneur

Have you considered the impact of social taxes on your company? In many countries around the world, social taxes are levied on employers and employees, and these tax contributions are used by governments to fund social security services like providing healthcare to citizens, and providing unemployment benefits.

Social taxes are an important part of running a responsible business—but if you’re a founder operating across borders, they can quickly become complex. As an e-⁠resident of Estonia, understanding how social taxes work in different scenarios will help you make confident decisions about hiring, paying yourself a salary, and staying compliant both in Estonia and internationally.

Did you know that over 120,000 people have chosen to become e-⁠residents of Estonia, representing over 170 countries and 15 billion Euro in combined company revenues? This stands testament to the demand for places like Estonia where companies can grow and thrive in a booming market, with the support of investors and fellow entrepreneurs while taking advantage of competitive corporate tax rates and a welcoming business environment.

In this guide, we’ll explore what social taxes are, how they affect your Estonian company, and what you need to consider when working with a remote team. You’ll also find practical tips and a helpful checklist to prepare you for speaking with a payroll or accounting expert.

What are Social Taxes?
Social Taxes and Business: a balanced overview
- How Social Taxes can impact your business – and How to plan for them
Social Taxes and your Estonian Company: What e-residents need to know
Next steps: Get the right support for your business
- A quick checklist to prepare when speaking with a Service Provider about Social Taxes:

Social taxes are a type of tax that some governments levy on business employers and their employees to help fund a country’s social security system.

These taxes, often called social security taxes, employment contributions, labour or payroll taxes, are usually levied as a percentage of the employees annual salary, with employers also having to contribute a percentage in some cases. Social taxes can vary quite a lot from one country to another.

Social taxes play a significant role in shaping the financial and operational landscape of businesses around the world. These taxes are typically used to fund essential social services such as public healthcare, pensions, unemployment benefits, disability support, paid sick leave, paid maternity or paternity leave. Social taxes help reduce poverty and social inequities, and provide a safety net for people who are vulnerable or who cannot work due to disability. By funding these vital social services and programmes, social taxes also contribute to social and economic stability in broader society.

For businesses, social taxes can offer clear advantages. By contributing to a well-functioning social system, companies help ensure that employees have access to healthcare, social insurance, and retirement savings. In many countries, these contributions foster social stability and can enhance employee wellbeing and loyalty—benefits that ultimately support long-term business growth.

However, social taxes also represent a significant cost for employers, particularly when hiring staff or drawing salaries as founders. Depending on the jurisdiction, social tax rates can substantially increase the total cost of employment, making it more expensive to grow a team or pay oneself a regular income. In some cases, complex reporting obligations can also add to administrative overhead, especially for smaller or newly established businesses.

Understanding how social taxes work—and the impact they can have on hiring decisions, salary planning, and overall business sustainability—is essential for entrepreneurs operating across borders. When considered strategically, social tax obligations can be managed in a way that supports both compliance and competitiveness.

For businesses with employees in multiple countries, navigating social taxes becomes even more complex. Each jurisdiction has its own rules, rates, and reporting obligations, which can significantly impact payroll planning, tax compliance, and operational costs across borders.

Social taxes can influence your business operations in several key ways. By understanding their impact early on, you can make confident, informed decisions that support sustainable growth.

Affect overall labour costs: Social taxes are often paid by the company and contribute to the total cost of employing staff. While this can impact profitability, building social taxes into your salary planning helps you set realistic budgets and maintain financial stability as you scale.
Add administrative responsibilities – but support is available: Also known as payroll taxes, social tax contributions require businesses to calculate, report, and pay contributions accurately and on time. With the right accounting or HR support, you can streamline these processes and stay compliant without stress.
Influence hiring decisions: Factoring in social taxes when budgeting for new roles gives you a clearer picture of your total employment costs. This enables more strategic hiring that aligns with your financial goals and growth plans.
Shape employee earnings and satisfaction: In countries with higher social taxes, take-home pay for employees may be reduced. Being transparent about contributions and highlighting the long-term benefits (such as health coverage or pensions) can help boost morale and attract talent aligned with your company culture.
Require careful planning for remote teams: If your business employs people in multiple countries, each jurisdiction will have different social tax rules and obligations. Understanding these in advance—and seeking expert guidance where needed—can help you navigate international payroll with confidence.

In addition to social taxes, Estonia is an attractive place to start a company because of its thriving startup culture, entrepreneurial culture, interest from venture capitalists, competitive tax rates, trustworthy business environment, and its access to the EU market.

The Rise of Estonia's startup ecosystem

Estonia has built a reputation as Europe’s startup powerhouse, thanks to its entrepreneurial culture and propensity for innovation.

As an e-⁠resident running a business in Estonia, understanding your social tax obligations is an important part of staying compliant and planning sustainably. Estonia’s tax system is known for its transparency and digital efficiency—and social tax is no exception.

Employee Salaries

In Estonia, social tax is paid by the employer on top of gross salary and is used to fund the national social security and healthcare systems. The current rate is 33%, and it applies when you pay salaries to employees. Furthermore, employers are responsible for covering part of an employee's unemployment insurance contribution. These flat rates simplify payroll calculations and allow for more predictable budgeting.

For example, say you have an employee with a gross salary of €1,000. The social tax your company will pay on top of this salary is €330 (33% of €1,000) and it will be responsible for covering the employee's unemployment insurance contribution of €8 (the employee pays €16). The total cost of employing that employee per month is therefore €1,338.

If your Estonian company has employees who are tax resident in Estonia, you are responsible for withholding and paying social tax on their behalf. These contributions give your employees access to Estonia’s public healthcare and contribute to your Estonian pension. Estonia’s advanced digital services mean that e-⁠residents who have companies in Estonia and need to pay social taxes, can do so online. The Estonian Tax and Customs Board also provides clear, easily accessible information about social tax rates in Estonia, tax regulations, and online tax filing procedures.

Read about the strategic benefits of hiring in Estonia in this blog post:

Unlocking Growth: The Strategic Benefits of Hiring in Estonia

Administration is 100% online, employment legislation pro-business, and hiring decisions can be made with flexibility and growth at front of mind.

However, Estonia offers flexibility, particularly for early-stage startups. Board members and founders are not legally required to draw a salary, meaning there is no automatic obligation to pay social tax unless a salary is actually paid. This allows founders to scale their business at their own pace while planning for future salary payments and contributions.

Board member fees

For e-residents with Estonian companies, if you pay a director’s fee to a board member, then that will be subject to social tax if the board member is a resident of Estonia, or is a resident of a country without a tax treaty with Estonia (or if the director is uninsured for social benefits in EEA, Switzerland or treaty countries).

However, if the director is a resident of Switzerland or an EEA country, then the company may be exempt from paying social taxes if an A1 certificate is obtained. And, residents of countries that have taxation treaties with Estonia may similarly avoid having to pay social taxes in Estonia if they can present a certificate from the home tax authority showing that social taxes were paid there.

Dividends

There is no social tax due in Estonia when an Estonian company pays dividends.

Cross-border considerations

As an e-⁠resident, it's also essential to consider your business’s cross-border footprint. If you, as a salary-earning founder, are tax resident outside Estonia—or if you hire remote employees based in other countries—your business may have payroll obligations in those jurisdictions. Each country has its own rules about when and where social taxes apply, and it’s possible that obligations in another country may take precedence over those in Estonia. For this reason, seeking tailored legal or tax advice is highly recommended.

When an Estonian company pays a non-resident a salary for work that is not physically performed in Estonia, then the company doesn’t need to pay any Estonian social tax or unemployment contributions: the income will be taxed where the person resides or is tax resident.

To navigate these requirements confidently, many e-residents choose to work with trusted service providers who offer payroll, tax, and legal support. You can explore a range of experienced professionals on the e-⁠Residency Marketplace, many of whom are familiar with the needs of cross-border digital businesses.

Understanding your social tax obligations early helps you make informed decisions, stay compliant, and build a sustainable business that’s ready to grow globally.

If your Estonian company employs people in different countries, your social tax obligations may change depending on each employee’s location and legal status. Estonia has clear rules about when social tax is due locally—but if your employee lives and works outside Estonia, you may need to comply with the social tax rules in that country instead.

The following table outlines typical scenarios and what you, as an e-⁠resident company founder, need to consider. Whether your team is in Estonia, another EU or treaty country, or a third country without a social tax agreement, it's important to understand where your obligations lie—and to seek professional guidance when needed.

Understanding Social Tax Obligations Based on Employee Location

Where is your employee located?

Estonia

EU/EEA or a treaty country (e.g. Ukraine)

Third country without a treaty (e.g. India, Brazil)

Are Estonian Social Taxes Due?

Yes

Usually no

It depends

What to consider?

Estonian social tax (33%) applies. The company must register the employee and pay taxes monthly.

If the employee is covered by their local social system, Estonian social tax is not due. An A1 certificate may be required to prove this.

Estonia may require social tax (33%) unless you can prove the employee is insured elsewhere. Double obligations are possible without a bilateral agreement.

Recommended action

Work with a payroll provider or accountant to handle reporting and payments.

Confirm where the employee is insured and obtain an A1 certificate if applicable. Seek guidance on local payroll obligations.

Consult a tax advisor to assess risks and avoid double contributions. May need to register locally or adjust contract terms.

Where is your employee located?

Estonia

EU/EEA or a treaty country (e.g. Ukraine)

Third country without a treaty (e.g. India, Brazil)

Are Estonian Social Taxes Due?

Yes

Usually no

It depends

What to consider?

Estonian social tax (33%) applies. The company must register the employee and pay taxes monthly.

If the employee is covered by their local social system, Estonian social tax is not due. An A1 certificate may be required to prove this.

Estonia may require social tax (33%) unless you can prove the employee is insured elsewhere. Double obligations are possible without a bilateral agreement.

Recommended action

Work with a payroll provider or accountant to handle reporting and payments.

Confirm where the employee is insured and obtain an A1 certificate if applicable. Seek guidance on local payroll obligations.

Consult a tax advisor to assess risks and avoid double contributions. May need to register locally or adjust contract terms.

Always consider the specific circumstances of the employment relationship, including residency status, employment contracts, and place of work.
Tax treaties or EU regulations may override default Estonian obligations.
The e-⁠Residency Marketplace includes service providers who can assist with cross-border employment and tax compliance.

E-Residency Marketplace: Essential Services for Your Business

Easily start and manage your business with the help of service providers who have considerable experience working with e-resident companies.

Next steps: Get the right support for your business

Understanding social taxes—both in Estonia and across borders—can feel complex at first. But with the right knowledge and professional guidance, it's entirely manageable. Whether you're paying yourself a salary, hiring your first team member, or expanding internationally, being proactive about social tax planning helps you stay compliant and build a more resilient business.

Working with a trusted payroll or accounting service provider is one of the best ways to ensure you're meeting your obligations and making informed decisions. You’ll find many experienced professionals on the e-⁠Residency Marketplace who are well-versed in both Estonian tax law and the realities of running a global, digital business.

To make the most of your first conversation, it’s helpful to come prepared with a few key details.

Where are you (and any employees or contractors) physically located?
Are you planning to pay yourself a salary as a founder or board member?
Do you currently employ anyone, or plan to do so in the near future?
Will your team be based in Estonia, in another EU country, or elsewhere?
Have you hired employees or contractors before? What systems are in place?
Are you already registered for payroll or social tax in any country?

By sharing this information up front, your service provider can give you tailored advice and help you avoid common pitfalls—so you can focus on growing your company with confidence.

This article was written by guest contributor Andy Stofferis (www.andysto.com). Andy is not a tax or Social tax expert and the article is not intended to give any legal or tax advice. Tax laws and regulations vary greatly from country to country, and this information is a general guide only. You are advised to contact a professional tax advisor for any legal or tax advice, and not to rely on this article as gospel.

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social taxes: the ultimate guide