Estonian Company Run from Canada: Tax Residence

Many Canadian entrepreneurs form or buy an Estonian private limited company (OÜ), often as e-residents, and run it from Canada. That works, but Canadian tax law does not look only at where a company is registered: under the common-law test the Canada Revenue Agency applies, a company is resident where its central management and control is actually exercised. The tax treaty between Estonia and Canada then has a clear rule for a company that both countries count as resident, and Canada's foreign accrual property income (FAPI) rules can tax a Canadian owner on part of the company's income. This guide sets out these rules with the official texts, and what we do on the Estonian side.

The guide is general information, not tax advice. How your company and you are taxed depends on the facts of your case; ask a Canadian tax adviser before you form or buy the company. We read Canada's Income Tax Act (R.S.C. 1985, c. 1 (5th Supp.)) on the federal Justice Laws website in its version current to 30 September 2026, the Canada Revenue Agency's page "Residency of a corporation" on canada.ca (modified 20 October 2026), and the treaty in its English text published by the Estonian Ministry of Finance, on 21 October 2026. Provincial taxes are not covered.

In Estonia: an Estonian company is Estonian

A company established under Estonian law is resident in Estonia for tax purposes (Income Tax Act § 6). Its profit is taxed when it is distributed, not while it stays in the company — the guide how Estonia taxes company profit explains the rule. The company keeps its Estonian duties wherever its owners live: accounts, an annual report to the commercial register and, if its address is abroad, a contact person in Estonia.

In Canada: where central management and control is

The Act deems Canadian companies resident. A corporation incorporated in Canada after 26 April 1965 is deemed resident in Canada (Canada's Income Tax Act, subsection 250(4)). An Estonian OÜ is not incorporated in Canada, so this rule does not reach it.
Common law for the rest. The Canada Revenue Agency writes that the Act does not define residency and that it determines a corporation's residency using common-law principles: a company is resident in the country in which its central management and control is exercised. Usually that is where the board of directors meets; what counts is where control is actually exercised, not where the articles say it is. A corporation can be resident in Canada without being a Canadian corporation (CRA, "Residency of a corporation").
The treaty can override. A person who would otherwise be resident in Canada but is, under a tax treaty, resident in the other country and not in Canada is deemed not resident in Canada (Canada's Income Tax Act, subsection 250(5)).

What the Estonia–Canada tax treaty says

Resident in both countries. If a company is a resident of both states, it is deemed to be a resident only of the state of which it is a national (convention signed in Tallinn on 2 June 1995, article 4(3)). A national includes a legal person deriving its status as such from the laws in force in a contracting state (article 3(1)(h)) — for an OÜ, Estonian law.
Not automatic. The Canada Revenue Agency writes that a corporation which claims to be resident of a treaty country must establish, for the treaty to apply, that it is taxed comprehensively in that country; a preferential tax rate does not by itself disqualify it (CRA, "Residency of a corporation", citing Crown Forest Industries). Whether a company under Estonia's distribution-based tax meets that test in your case is a question for your Canadian tax adviser — we do not give that ruling. The multilateral convention on tax treaty measures (MLI) can also change the rules of tax treaties; your adviser checks how it applies.
Permanent establishment. A permanent establishment is a fixed place of business through which the business of an enterprise is wholly or partly carried on; it includes especially a place of management, a branch and an office (article 5(1) and (2)). The business profits of an Estonian enterprise may be taxed in Canada only so far as they are attributable to a permanent establishment there (article 7(1)).
Directors' fees. Fees a Canadian resident receives as a member of the board of directors or a similar organ of an Estonian company may be taxed in Estonia (article 16) — see board member fee or dividend from abroad.
Dividends. Dividends paid by an Estonian company to a Canadian resident may be taxed in Canada; if Estonia also taxes them at source, the treaty limits that tax to 5 percent of the gross amount for a company which controls directly at least 25 percent of the voting power, and 15 percent in all other cases (article 10(1) and (2)).

So, unlike the UK, Turkey and Austria treaties, the Canada treaty settles a company's double residence by itself — in favour of the state under whose laws the company exists. That still does not mean an Estonian company has nothing to do with Canadian tax: an office or place of management in Canada can be a permanent establishment, and the FAPI rules below look at the Canadian owner, not at the company.

In Canada: the FAPI rules for Canadian owners

For any Canadian resident owner, including an individual. A taxpayer resident in Canada includes in income, for each share of a controlled foreign affiliate, that share's percentage of the affiliate's foreign accrual property income (Canada's Income Tax Act, subsection 91(1)).
Foreign affiliate. A non-resident corporation in which the taxpayer's equity percentage is at least 1% and, together with persons related to the taxpayer, at least 10% (subsection 95(1)).
Controlled foreign affiliate. A foreign affiliate controlled by the taxpayer — or one that would be controlled if the shares of persons not dealing at arm's length with the taxpayer, and of up to four other Canadian-resident shareholders, were counted as the taxpayer's (subsection 95(1)).
What is caught. Foreign accrual property income is built mainly from the affiliate's income from property and from a business other than an active business (subsection 95(1)). Income from an active business is not part of it.

An Estonian company wholly owned by one Canadian resident is therefore a controlled foreign affiliate of that owner. Whether its income is FAPI depends on what the company earns. Your Canadian tax adviser answers that with your figures.

What to decide before you form or buy the company

Where the board really decides. Where the decisions that direct the company are in fact taken is the fact the Canadian common-law test looks at.
What the company earns. Active business income and income from property are treated differently under the FAPI rules.
Where the work is done. An office or other fixed place of business in Canada can be a permanent establishment.

What we do on the Estonian side

online formation for an e-resident — €950 Registered address and contact person service for one year are included., or formation by power of attorney — €1,250;
a ready-made company bought remotely — €1,200 Registered address and contact person service for one year are included.;
accounting — from €150 / month and the annual report — from €450;
the registered address and contact person after the first 12 months — €350 / year.

Our accounting covers the Estonian company's Estonian obligations. Canadian tax returns, Canadian information returns and Canadian tax advice are not included. Owners in other countries: Estonian company run from abroad compares the rules side by side.

Prices exclude VAT. All communication takes place by email.

Ready to start? A new Estonian company — online for e-residents or by power of attorney; Canadian tax advice is not included. Order.

Official sources

The laws this article names, by the name of their official text, as read on 9 October 2026. For the Estonian acts we read the English translation in Riigi Teataja; the legally binding text is the Estonian one.

Income Tax Act — Riigi Teataja, English translation

Sources are named in the text, without links. To see which of our services your company needs, open the Business Navigator.

Frequently asked questions

Is my Estonian company taxed in Canada if I run it from Canada?

It can be. Under the common-law test the Canada Revenue Agency applies, a company is resident in Canada if its central management and control is exercised there — usually where its board actually meets (CRA, "Residency of a corporation"). In Estonia the company stays resident because it was established under Estonian law (Income Tax Act § 6). Under the Estonia–Canada tax treaty a company resident in both countries is deemed resident only of the state of which it is a national (article 4(3)) — for an OÜ, Estonia; Canada then deems it not resident (Canada's Income Tax Act, subsection 250(5)), but the CRA expects a company claiming treaty residence to show it is taxed comprehensively there. An office in Canada can still be a permanent establishment, and a Canadian resident owner of a controlled foreign affiliate includes its foreign accrual property income (subsection 91(1)). Ask a Canadian tax adviser before you form or buy the company; we handle the Estonian side.

Estonian company run from Canada: where it is taxed