HMRC internal manual

Double Taxation Relief Manual

DT6705 - Double Taxation Relief Manual: Guidance by country: Estonia: Treaty summary

The table summarises the provisions of the treaty as they relate to income beneficially owned by UK residents. The rate shown is the ‘treaty rate’ and does not reflect taxes chargeable under domestic law before relief is given under the provisions of the treaty. The ‘treaty rate’ is the maximum rate at which Estonia is permitted to tax income in the relevant categories under the treaty. Rates chargeable under domestic law may be higher or lower.

In all cases other conditions for relief (e.g. beneficial ownership) will have to be met before relief is due under the treaty. The text of the treaty itself should be consulted for the full details. The text of the treaty can be found on gov.uk.

Subject Comments Article
     
Portfolio dividends 15% 10
Dividends on direct investments 5% (Note 1) 10
Conditions for lower rate on dividends on direct investments The beneficial owner must be a company which controls directly at least 25% of the voting power in the company paying the dividends 10
Property income dividends 15% 10
Interest 10% (Notes 2 and 3) 11
Royalties 0% (Note 4) 12
Government pensions Taxable only in Estonia unless the individual is a resident and national of the UK 19
Other pensions Taxable only in the UK 18
Arbitration No N/A

Note 1: Until 31 December 2020, under the EU Parent/Subsidiary Directive, dividends paid to a company resident in the UK that holds at least 10% of the capital of the Estonian company paying the dividend are exempt from tax in Estonia.

Note 2: Interest paid in the following circumstances is taxable only in the state of residence of the beneficial owner of the interest:

  • where the payer or the recipient is the Government of the UK or Estonia, a political subdivision or a local authority thereof or an agency or instrumentality of that Government, political subdivision or local authority
  • where the interest is paid in respect of a loan made, guaranteed or insured, or any other debt-claim or credit guaranteed or insured by the UK Export Credits Guarantee Department or by any organisation established in either the UK or Estonia after the date of signature of this Convention and which is of a similar nature
  • where the interest is paid in respect of a loan made, guaranteed or insured by the Bank of England or the Bank of Estonia

Note 3: Paragraph 6 of the Exchange of Notes to the Convention contains a “Most Favoured Nation” provision, relating to interest paid in respect of a loan made, guaranteed or insured by a financial institution of a public character. The effect of this provision is that from 21 May 2006, (the date the Estonia/Netherlands Convention entered into force) no source state tax is permitted under the Convention in respect of the interest on such a loan.

Note 4: Paragraph 7 of the Exchange of Notes contains a “Most Favoured Nation” (MFN) provision relating to royalties. It gives UK residents access to any lower rates agreed by Estonia in a DTA it later agrees with a country that was an OECD member when the UK/Estonia DTA was signed in 1994. The Estonia/Switzerland DTA, which entered into force on 16 October 2015, provides for resident state taxation only of royalties and so the 1994 MFN provision has been triggered. The effect of this provision is that from 16 October 2015 no source state taxation is permitted under the DTA in respect of royalties.

Prior to that date, royalties were taxable in Estonia at a rate not exceeding 10%, with the exception of amounts paid for the use of industrial, commercial or scientific equipment to which a rate of 5% applied.