Payroll taxes from an employer in Estonia
The taxation of personal income is regulated by the Income Tax Act (The income tax act, 15.12.1999, hereinafter referred to as the Law). Under the general taxation system, income tax (PIT) is levied.
The procedure for paying PT from income under an employment contract depends on three main factors:
- place of employment (on the territory of Estonia or abroad);
- the status of the employer (whether the employer is recognized as a tax agent);
- the tax status of the employee (whether the individual receiving income is recognized as a tax resident in Estonia).
Remuneration for the performance of work duties in Estonia is income from sources in Estonia (Section 13 para. 1, Art. 29 para. 1 of the Law). And remuneration for performing work duties outside Estonia is income from sources outside Estonia. At the same time, the place of performance of labor duties is determined not at the location of the employer, but at the place of work of the employee himself, taking into account the terms of his employment contract.
Recognition of remuneration as income from sources in Estonia or income from sources outside Estonia affects the procedure for taxation with income tax.
As a general rule, regardless of the place of employment, an Estonian employer is recognized as a tax agent in relation to the income of employees - both tax residents and non-residents. The tax agent must calculate, withhold and pay to the tax budget (clause 1, article 40 of the Law).
At the same time, a foreign organization that does not have a branch or representative office in Estonia, but which carries out economic activities in Estonia through a representative authorized to conclude contracts (Article 7 of the Law) may also be recognized as a tax agent. In this case, the foreign organization is recognized as having a "permanent establishment" in Estonia and is subject to tax registration.
Procedure for declaring and paying tax
Two different tax periods are established for taxpayers: in the presence of a tax agent - a calendar month (clause 2, article 3 of the Law); when paying tax by an individual on his own - a calendar year (clause 1, article 3 of the Law).
As a general rule, if there is only income from employment for an Estonian employer, if there are no tax deductions other than the standard deductions, then filing a tax return is not required.
The employer submits a tax return for each month (reporting period according to the PV for the tax agent) by the 10th day of the month following the reporting period, and on the same date, he must pay the withheld tax. If there are more than 5 recipients of income, the declaration is submitted only in electronic form (clauses 4, 5, article 40, article 54 of the Law).
At the request of the employee, the employer must issue a certificate of income paid and tax withheld no later than February 1 of the year following the reporting year (clause 6, article 40 of the Law).
In the presence of income received from a person who is not a tax agent, or when claiming tax deductions, employees must submit a tax return by April 30 of the next year (clause 1, article 44 of the Law). If there is a tax payable, in addition to that withheld by tax agents, it must be paid before October 1 of the next year (clause 3, article 46 of the Law).
Tax calculation
For the purposes of taxation of taxpayers, a number of exemptions from taxation are provided, in particular (clause 3 of article 13 of the Law):
In addition, there are deductions, the application of which depends on the tax status of the employee (resident or non-resident), which is discussed in more detail below in the relevant section.
Income from the performance of labor activity is taxed at a rate of 20%, regardless of the tax status of both the employee and the employer (clause 1, article 4, article 41, clause 1, article 43 of the Law).
From the salary of employees in Estonia (both residents and non-residents) unemployment insurance premiums are withheld - 1.6%.
In addition, insurance premiums for the mandatory funded pension - 2% - are withheld from the salary of resident employees.
Employees under an employment contract in Estonia do not pay social tax, it is paid by the employer at the expense of his own expenses in the amount of 33%.
The following describes the features of the taxation of the PT of wages, depending on the tax status of an individual. A summary of the criteria for being a tax resident in Estonia is also provided.
The procedure for paying PT from income under an employment contract depends on three main factors:
- place of employment (on the territory of Estonia or abroad);
- the status of the employer (whether the employer is recognized as a tax agent);
- the tax status of the employee (whether the individual receiving income is recognized as a tax resident in Estonia).
Remuneration for the performance of work duties in Estonia is income from sources in Estonia (Section 13 para. 1, Art. 29 para. 1 of the Law). And remuneration for performing work duties outside Estonia is income from sources outside Estonia. At the same time, the place of performance of labor duties is determined not at the location of the employer, but at the place of work of the employee himself, taking into account the terms of his employment contract.
Recognition of remuneration as income from sources in Estonia or income from sources outside Estonia affects the procedure for taxation with income tax.
As a general rule, regardless of the place of employment, an Estonian employer is recognized as a tax agent in relation to the income of employees - both tax residents and non-residents. The tax agent must calculate, withhold and pay to the tax budget (clause 1, article 40 of the Law).
At the same time, a foreign organization that does not have a branch or representative office in Estonia, but which carries out economic activities in Estonia through a representative authorized to conclude contracts (Article 7 of the Law) may also be recognized as a tax agent. In this case, the foreign organization is recognized as having a "permanent establishment" in Estonia and is subject to tax registration.
Procedure for declaring and paying tax
Two different tax periods are established for taxpayers: in the presence of a tax agent - a calendar month (clause 2, article 3 of the Law); when paying tax by an individual on his own - a calendar year (clause 1, article 3 of the Law).
As a general rule, if there is only income from employment for an Estonian employer, if there are no tax deductions other than the standard deductions, then filing a tax return is not required.
The employer submits a tax return for each month (reporting period according to the PV for the tax agent) by the 10th day of the month following the reporting period, and on the same date, he must pay the withheld tax. If there are more than 5 recipients of income, the declaration is submitted only in electronic form (clauses 4, 5, article 40, article 54 of the Law).
At the request of the employee, the employer must issue a certificate of income paid and tax withheld no later than February 1 of the year following the reporting year (clause 6, article 40 of the Law).
In the presence of income received from a person who is not a tax agent, or when claiming tax deductions, employees must submit a tax return by April 30 of the next year (clause 1, article 44 of the Law). If there is a tax payable, in addition to that withheld by tax agents, it must be paid before October 1 of the next year (clause 3, article 46 of the Law).
Tax calculation
For the purposes of taxation of taxpayers, a number of exemptions from taxation are provided, in particular (clause 3 of article 13 of the Law):
- expenses in connection with business trips, as well as expenses in connection with moving to work in another area, within the established limits;
- compensation for the use of a personal car in the amount of €0.3 per kilometer, but not more than €335 per month for each employer;
- childbirth allowance up to 5/12 of the standard deduction (see below);
In addition, there are deductions, the application of which depends on the tax status of the employee (resident or non-resident), which is discussed in more detail below in the relevant section.
Income from the performance of labor activity is taxed at a rate of 20%, regardless of the tax status of both the employee and the employer (clause 1, article 4, article 41, clause 1, article 43 of the Law).
From the salary of employees in Estonia (both residents and non-residents) unemployment insurance premiums are withheld - 1.6%.
In addition, insurance premiums for the mandatory funded pension - 2% - are withheld from the salary of resident employees.
Employees under an employment contract in Estonia do not pay social tax, it is paid by the employer at the expense of his own expenses in the amount of 33%.
The following describes the features of the taxation of the PT of wages, depending on the tax status of an individual. A summary of the criteria for being a tax resident in Estonia is also provided.
Estonian tax residency criteria
As a general rule, tax residents are recognized (Article 6 of the Income Tax Act - The income tax act, 15.12.1999, hereinafter - the Law):
A person must notify the tax authority of the circumstances related to the change of residence and submit form R to determine the residence of an individual (clause 6, article 6 of the Law).
- natural persons with a place of residence in Estonia;
- individuals who actually stay in Estonia for at least 183 calendar days within 12 consecutive calendar months. In this case, a person is considered a resident from the day of his arrival in Estonia.
A person must notify the tax authority of the circumstances related to the change of residence and submit form R to determine the residence of an individual (clause 6, article 6 of the Law).
So, taking into account your actual tax status (the status of your employee), click on the appropriate button below to get detailed information on the procedure for paying TIT by a tax agent or employee, including when changing tax status (resident / non-resident) during the year.
You can also see the visual taxation scheme at the bottom of the page.
Taxation of wages of an Estonian tax resident
Income from an employment contract of an Estonian tax resident is taxed when performing work duties both in Estonia and outside Estonia.
If you perform work duties from outside of Estonia, then your income will only be taxed in Estonia if you are recognized as a tax resident of Estonia. However, in the case of working outside of Estonia, the income of a tax resident is exempt from taxation if two conditions are met (clause 4, article 13 of the Law):
1) stay in a foreign state for the purpose of work for at least 183 days within 12 consecutive calendar months;
2) the income received was taxable income of a person in a foreign state, if this is confirmed by a certificate indicating the relevant amount of income tax (even if the amount is zero).
For tax residents of Estonia, upon their application, a number of deductions can be applied, including:
As a general rule, if there is only income from employment for an Estonian employer, if there are no tax deductions other than the standard deductions, then filing a tax return is not required. Otherwise, tax residents must submit a tax return by April 30 of the following year.
The declaration can be submitted through the electronic service starting from February 15 of the next year (clause 1, article 44 of the Law). By this date, the tax authority must prepare a preliminary declaration based on information received from tax agents. At the same time, an individual tax resident has the right to use such a declaration, including making the necessary adjustments and additions (clause 1.1, article 44 of the Law).
The declaration must also be submitted in case of exemption from the PT due to long-term work outside Estonia (from 183 days within 12 consecutive months).
If you perform work duties from outside of Estonia, then your income will only be taxed in Estonia if you are recognized as a tax resident of Estonia. However, in the case of working outside of Estonia, the income of a tax resident is exempt from taxation if two conditions are met (clause 4, article 13 of the Law):
1) stay in a foreign state for the purpose of work for at least 183 days within 12 consecutive calendar months;
2) the income received was taxable income of a person in a foreign state, if this is confirmed by a certificate indicating the relevant amount of income tax (even if the amount is zero).
For tax residents of Estonia, upon their application, a number of deductions can be applied, including:
- standard deduction, which from 2023 is calculated based on the amount of income for the calendar year. For annual income up to €14,400, the deduction is €7,848. With a larger amount of annual income, the amount of the deduction is reduced according to a special formula, according to which, with an income of € 25,200 or more, the standard deduction will be equal to 0. This deduction is applied until reaching retirement age, after which a different procedure for calculating the standard deduction is applied (Art. 23, para. 1 article 42 of the Law);
- an increased standard deduction is granted if the income of an individual and his/her spouse does not exceed €50,400 in a calendar year. In such a case, the standard deduction may be increased by another €2,160 (art. 23.4 of the Law);
- an increased standard deduction for minor children is granted with the appearance of a second child (€1848) and a third child (€3048) and until the children reach 17 years of age (art. 23.1 of the Law);
- employee contributions to the mandatory funded pension and unemployment insurance contributions (Article 28.1, Clauses 5, 6 of Article 42 of the Law);
- supplementary funded pension contributions and shares of voluntary pension funds within the amount of 15% of income or €6,000 per year (Article 13, paragraph 3, Article 28, Article 42, paragraph 7 of the Law);
- interest on a loan for the purchase of a residential building or apartment or for the construction of a residential building or for the purchase of land for such construction, as well as the costs of a number of reconstruction and modernization works. This deduction is granted only once (Article 25 of the Law). Moreover, the deduction is applicable for loans received from a bank in the European Economic Area (for example, Switzerland and the UK are not included in the EEA);
- expenses for one's education or education of a descendant family member, brother, sister under the age of 26, in educational institutions (Article 26 of the Law).
As a general rule, if there is only income from employment for an Estonian employer, if there are no tax deductions other than the standard deductions, then filing a tax return is not required. Otherwise, tax residents must submit a tax return by April 30 of the following year.
The declaration can be submitted through the electronic service starting from February 15 of the next year (clause 1, article 44 of the Law). By this date, the tax authority must prepare a preliminary declaration based on information received from tax agents. At the same time, an individual tax resident has the right to use such a declaration, including making the necessary adjustments and additions (clause 1.1, article 44 of the Law).
The declaration must also be submitted in case of exemption from the PT due to long-term work outside Estonia (from 183 days within 12 consecutive months).
If the tax was paid abroad
If you work abroad, you may be liable to pay tax in the relevant foreign country. At the same time, as mentioned above, when working abroad for a long time, the income of an Estonian tax resident may be exempt from taxation in Estonia. If the conditions for such an exemption do not apply, then the tax resident of Estonia, when submitting a tax return, has the right to reduce Estonian income tax by the amount of tax paid abroad (Article 45 of the Law).
To apply such a deduction, you will need a certificate issued by a foreign tax authority or tax agent confirming the payment of tax abroad.
However, if the tax paid abroad exceeds the income tax liability in Estonia, the difference is not returned to the taxpayer.
It is necessary to take into account the provisions of the double tax treaties (DTT) concluded by Estonia.
To apply such a deduction, you will need a certificate issued by a foreign tax authority or tax agent confirming the payment of tax abroad.
However, if the tax paid abroad exceeds the income tax liability in Estonia, the difference is not returned to the taxpayer.
It is necessary to take into account the provisions of the double tax treaties (DTT) concluded by Estonia.
Taxation of wages of a tax non-resident of Estonia
Income under an employment contract of an Estonian tax non-resident is taxed when carrying out labor activities in the territory of Estonia or while staying in Estonia for the purpose of employment for at least 183 days within 12 consecutive calendar months (clause 1, article 29 of the Law).
That is, if you, while working for an Estonian company, perform your work duties remotely outside of Estonia, then your income will be taxed in Estonia only if you are a tax resident of Estonia.
As noted above, an Estonian employer, including a permanent establishment of a foreign organization, calculates and withholds the TI as a withholding agent. Among other things, the duties of a tax agent arise if such an Estonian employer attracts labor according to the so-called. personnel lease agreement (clause 1.3 of article 29 of the Law).
For a tax non-resident of Estonia working under an employment contract in Estonia, the same tax exemptions are available as for an Estonian resident, with the exception of mandatory funded pension contributions, which are paid only by residents (see above).
At the same time, tax deductions differ (Article 31.1 of the Law). The deductions similar to those for Estonian residents can only be applied by tax residents from the countries of the European Economic Area (EEA). To apply the deductions, certificates of tax residency and income received will be required.
Also, the income of a non-resident is reduced by the unemployment contributions withheld from his income.
Individuals - tax non-residents who receive income from work in Estonia for an Estonian employer, as a general rule, do not have to submit a tax return (Article 44 of the Law). However, if a person was a tax resident of Estonia for part of the year, then it is necessary to submit a declaration in respect of income for the period when such a person was such a tax resident. In this case, tax deductions available for tax residents can be applied in the relevant part (clause 1.2 of article 44 of the Law). In addition, tax residents of the EEA countries, in order to receive tax deductions, must also submit a tax return by April 30 of the following year (clause 5.2, article 44 of the Law).
Non-resident employees who do not have an Estonian personal identification code must be registered with the Estonian tax authority.
That is, if you, while working for an Estonian company, perform your work duties remotely outside of Estonia, then your income will be taxed in Estonia only if you are a tax resident of Estonia.
As noted above, an Estonian employer, including a permanent establishment of a foreign organization, calculates and withholds the TI as a withholding agent. Among other things, the duties of a tax agent arise if such an Estonian employer attracts labor according to the so-called. personnel lease agreement (clause 1.3 of article 29 of the Law).
For a tax non-resident of Estonia working under an employment contract in Estonia, the same tax exemptions are available as for an Estonian resident, with the exception of mandatory funded pension contributions, which are paid only by residents (see above).
At the same time, tax deductions differ (Article 31.1 of the Law). The deductions similar to those for Estonian residents can only be applied by tax residents from the countries of the European Economic Area (EEA). To apply the deductions, certificates of tax residency and income received will be required.
Also, the income of a non-resident is reduced by the unemployment contributions withheld from his income.
Individuals - tax non-residents who receive income from work in Estonia for an Estonian employer, as a general rule, do not have to submit a tax return (Article 44 of the Law). However, if a person was a tax resident of Estonia for part of the year, then it is necessary to submit a declaration in respect of income for the period when such a person was such a tax resident. In this case, tax deductions available for tax residents can be applied in the relevant part (clause 1.2 of article 44 of the Law). In addition, tax residents of the EEA countries, in order to receive tax deductions, must also submit a tax return by April 30 of the following year (clause 5.2, article 44 of the Law).
Non-resident employees who do not have an Estonian personal identification code must be registered with the Estonian tax authority.
Algorithm for paying PIT from income from an employer in Estonia
* regardless of the tax status of the employee (resident or non-resident)
**check tax liabilities in the country of tax residence
If tax status has changed during the year
Since tax residence is determined for any 12 consecutive months, tax status may change during the year. At the same time, since the tax rate and the procedure for paying tax by a tax agent do not depend on the residence of employees, and also since the tax period for a tax agent is a calendar month, a change in tax residency will affect taxation only if the place of performance of labor duties changes.
Was a resident, became a non-resident
If an employee becomes a non-resident within a year, then his income is subject to income tax in Estonia only when performing labor functions in Estonia. Income of a non-resident working outside of Estonia is not subject to taxation in Estonia.
Was a non-resident, became a resident
If an employee was a non-resident, but became a resident of Estonia due to the time spent in Estonia or place of residence, then his income will be taxed in Estonia, regardless of the place of performance of labor functions.
Was a resident, became a non-resident
If an employee becomes a non-resident within a year, then his income is subject to income tax in Estonia only when performing labor functions in Estonia. Income of a non-resident working outside of Estonia is not subject to taxation in Estonia.
Was a non-resident, became a resident
If an employee was a non-resident, but became a resident of Estonia due to the time spent in Estonia or place of residence, then his income will be taxed in Estonia, regardless of the place of performance of labor functions.
IMPORTANT
In addition to the PIT, unemployment insurance premiums of 1.6% are withheld from the salary of employees in Estonia (both residents and non-residents).
In addition, insurance premiums for the mandatory funded pension - 2% - are withheld from the salary of resident employees.
The calculation and payment of contributions have a number of features.
When working abroad and / or for a foreign employer, it is possible to withhold social contributions in the respective country. However, they are not deductible from contributions paid in Estonia (exceptions are possible).
In addition to the PIT, unemployment insurance premiums of 1.6% are withheld from the salary of employees in Estonia (both residents and non-residents).
In addition, insurance premiums for the mandatory funded pension - 2% - are withheld from the salary of resident employees.
The calculation and payment of contributions have a number of features.
When working abroad and / or for a foreign employer, it is possible to withhold social contributions in the respective country. However, they are not deductible from contributions paid in Estonia (exceptions are possible).
Until 2023, a standard deduction of €1,848 per calendar year was provided, respectively, a deduction of 1/12 of this amount was provided for each month.
At the same time, there was a limit for deductions of €6,000 per year, that is, up to €500 per month, the use of a standard deduction depended on the amount of annual income. This procedure for calculating the standard deduction is used when filing a resident individual's income tax return for 2022.
Otherwise, the procedure described above is relevant both for the current tax period and for previous years.
At the same time, there was a limit for deductions of €6,000 per year, that is, up to €500 per month, the use of a standard deduction depended on the amount of annual income. This procedure for calculating the standard deduction is used when filing a resident individual's income tax return for 2022.
Otherwise, the procedure described above is relevant both for the current tax period and for previous years.
Changes are not expected.
Using the buttons below, you can check whether the conditions for recognizing you as a tax resident in the country where you actually work remotely are met, and whether you have an obligation to pay tax on your salary in this country. Also find out whether Estonia has a double taxation treaty (DTT) and its conditions in relation to wages.