Employment of in an Estonian Company
Registration of employment
The employment register is a register that contains employment-related information and is maintained by the Estonian Tax and Customs Board. Data contained in the employment register are a basis for the assignment of social benefits related to employment (medical insurance, unemployment insurance benefit, etc.) and for benefits to low-wage employees.
Registration of employment is required for all natural persons and legal entities that provide employment. A person that provides employment (employer) is an Estonian resident or non-resident legal entity, Estonian government agency or local government agency, natural person or sole proprietor (füüsilisest isikust ettevõtja – FIE) that enters into an agreement that forms a basis for employment or appoints an individual (employee) to a job position. In the employment register, the employment of any natural persons must be registered where the tax liability occurs in Estonia and this must be done without regard to the form of the agreement or duration. As an exception, employers must enter into the employment register any work performed for a company or for a sole proprietor on the basis of voluntarism without any compensation.
Start of employment must be registered by the date that the individual performing the work becomes employed. Termination and suspension of employment must be registered within ten calendar days of the date that employment is suspended or terminated.
Employer’s minimum social tax liability
Social tax is paid by employer in full and a general rate is 33% of the gross payment. There is always a minimum obligation for social tax to be paid, in 2018, it is 155.10 euros monthly, even if there were no payments for salaried work for each employee.
Beginning from 1 January 2018 the overall tax-free amount (basic exemption) of 6000 euros per year or 500 euros per month will be applied on all types of income and the increased basic exemption on pension and compensation for accident at work will not be applied in the future.
In year 2018:
- annual income up to 14 400 euros gives 6000 euros as annual basic exemption
- in case annual income increases from 14 400 euros to 25 200 euros, basic exemption decreases according to the following formula: 6000 – 6000 ÷ 10 800 × (income amount – 14 400)
- if annual income is above 25 200 euros, basic exemption is 0.
Income amount consists of earned income and other revenues, service fees received on the basis of a contract for services, business income, gains from transfer of property, rental income, royalties, interest, dividends, taxable pensions, benefits, scholarships and grants, awards, compensations or other income.
Gross salary from which income tax, unemployment insurance premiums and contributions to mandatory funded pension are withheld, as well as other gross payments taxed by withholding income tax, are considered income amount.
Wage payment service in the Internet bank of LHV
LHV Pank and the Estonian Customs and Tax Board have launched a collaboratively developed wage payment service whereby business operators can disburse and declare wages and pay taxes simultaneously in LHV’s Internet bank without visiting the E-Tax/E-Customs.
In particular, the new service streamlines the declaration of wages for small business operators who have wage disbursements of a simpler type. Where a wage payment service is used, in most instances business operators are relieved of having to enter information into various portals.
The wage payment service may be used for six disbursements provided for private individuals: 1) wages; 2) management board member remuneration; 3) remuneration under a contract under the law of obligations (e.g. contract for services); 4) sickness pay; 5) payment of the minimum rate of social tax; 6) disbursement of a taxable dividend. Other types of disbursements provided for an employee or disbursements for non-residents have to be declared as before.
When the service is used, a customer of LHV can set the relevant features for the transfer in the Internet bank (e.g. wage payment, work hours, tax-exempt income calculation). The bank sends initial taxation data to the Estonian Customs and Tax Board, which automatically calculates the tax amount payable on an individual basis and sends back to the bank information about the tax amounts payable, so that the customer can see the resulting tax liability already when effecting a transfer. If so desired, the tax amount may be paid together with any other amounts straight away or later. Payments may be recorded in order to make wage payments in one go going forward.