If you’re an Estonian company doing business with U.S. clients, there are a few things you need to know in order to stay compliant with both Estonian and U.S. tax laws. This information is important not only for tax purposes, but also for legal liability. For example, if you are incorporated in Estonia, but do not have a physical presence in the United States, you may still be subject to U.S. taxation on your worldwide income. This article will provide an overview of the key tax considerations for Estonian companies doing business with U.S. clients.
Businesses in Estonia that wish to expand their client base to the United States should be aware of the potential tax consequences. The most common issue is that of double taxation, which can occur when a company is subject to tax in both Estonia and the United States on the same income. To avoid double taxation, businesses can take advantage of Estonia’s tax treaties with the United States. These treaties provide for reduced or eliminated taxation on certain types of income, such as business profits, dividends, interest, and royalties.
In addition to double taxation, businesses should also be aware of the requirements for filing U.S. tax returns. Companies that are engaged in a trade or business in the United States are generally required to file a corporate income tax return, even if they do not have a physical presence in the country. This is because the United States has a broad definition of “doing business,” which includes activities such as selling goods or services to U.S. customers, even if those activities are conducted entirely outside of the United States.
Another area of consideration is the taxation of digital goods and services. The United States has not yet enacted legislation that would provide for a uniform treatment of digital goods and services for tax purposes. As a result, the tax treatment of these items can vary from state to state. In general, digital goods are taxed as if they were Tangible Personal Property (TPP), which means that they are subject to sales tax. However, there are some states that exempt digital goods from sales tax, and others that treat them as services, which are subject to different tax rules.
Finally, businesses should be aware of VAT when doing business with U.S. clients. The United States does not have a VAT system, but many other countries do. When Estonian businesses sell goods or services to customers in these countries, they may be required to collect and remit VAT to the country’s tax authorities.
Estonian businesses that are thinking of expanding their operations to the United States should be aware of the potential tax implications. By understanding the key tax issues, businesses can minimize their exposure to double taxation and ensure that they are compliant with U.S. tax laws.
Furthermore, to make sure you’re compliant with both Estonian and U.S. tax laws, it’s important to:
1. Understand the basics of U.S. taxation of your services
2. Know which business entity to use
3. File the appropriate tax returns
4. Pay attention to deadlines
5. Keep good records
If you follow these simple guidelines, you’ll be on your way to doing business with U.S. clients while staying compliant with both Estonian and U.S. tax laws.
We recently assisted CyberTech and Data Analytics startups, with tax consulting on how to charge their U.S. clients from their Estonian company. We also helped them with the incorporation of their company and drafting their articles of incorporation, terms of use and privacy policy. Because we were able to help them with both the tax and legal aspects of their business, they were able to focus on their core business and get up and running quickly and compliantly.
If you’re a startup doing business with U.S. clients, you might want to speak to a legal professional to get started on the right foot.
At LEGID, we are happy to help our clients with any questions they have about doing business with U.S. clients, whether it’s tax consultation, incorporation, or something else entirely. Learn more by getting in touch with us at hi@legid.app