Resident Tax Information
The taxation of expats in Estonia is similar to that for residents. All individuals are taxed on their worldwide income, while non-residents only have tax rules related specifically with the country they're living or working within at any given time (Estonia).
Income taxes in Estonia are of two types, which include —
- Active income
- Business income
- Employment income
- Passive income
- Rents and royalties
- Capital gains
- Interest income
- Certain types of insurance proceeds
- Dividends
- Scholarships
- Pensions Prizes and lottery winnings
- Grants
The Estonia government has introduced a new tax law which will affect all residents from 2018. From that year, fixed income and employment earnings are taxed at reduced rates of 14% instead 20%.
Certain social security contributions are subject to income taxes at 10%.
All employers must follow WHT of 7%.
Social Security
It is mandatory for employers operating in Estonia to enroll their employees in the Estonian social security. Such employers include Non-residents with a permanent establishment (PE) or Employees in Estonia
Social security in Estonia revolves around three areas that include —
- Health insurance
- Pension insurance
- Unemployment insurance
The social security contributions for both parties including —
Statutory Benefits
The employment laws of Estonia require that certain benefits be provided to employees. The statutory benefits include —
Estonia is known for its extensive three-tiered pension system, which includes
Pillar I: State pension
The general pensionable age in Estonia is 63. There are different types of pensions that
the state provides. The State pension covers
Old-age pension
Pension for the incapacity of work
Survivor's pension
National pension
Superannuated pension
The employer deducts social tax at the rate of 33% from your salary, which contributes to state health insurance and pensions.
Pillar II: Mandatory funded pension
The second pillar aims to direct a part of an employee's salary towards their pension
schemes.
The employee's mandatory 2% contribution to the state-provided pension fund is a crucial part of their benefits package. When they reach retirement age, this amount will be paid back with interest at an agreed upon rate per year after deductions for inflation and other factors such as investment growth or decline in value since it was contributed.
Pillar III: Supplementary funded pension
An employee has two options for subscribing to the supplementary funded pension by .
Making contributions toward the voluntary pension funds or, Concluding a pension insurance contract with a life insurance company Payments from this pillar has two options of receiving payments that include
From the voluntary pension funds or, Based on the insurance contract
Pillar III: Supplementary funded pension
The unemployment insurance system is designed to help employees who lose their jobs through no fault of their own. All workers must pay 1% for themselves and an employer can cover up 0-0.8%.
The unemployed person must have contributed for at least twelve months and thirty-six before their unemployment occurred.
However, unemployment allowance is paid to individuals who .
Do not qualify for unemployment insurance benefits .
Have an income less than the amount laid down by the regulations .
Has completed their full-time studies, or have worked previously .
Not actively looking for work
The unemployment allowances paid by the state include €9,42 per day (as of 2021)
for a maximum of 270 days.
As mentioned in the statutory leaves, employers must ensure that the leaves are
provided to the employees. The statutory leaves include .
- Maternity leaves.
- Paternity leaves.
- Sick leaves.
- Annual leaves or paid-time-off.
- Adoption leaves.
- Childcare leaves and parental leave.
- Study leaves.
- Public holidays
Working hours in Estonia are forty hours a week. Employees commonly work for eight hours a day for five days a week. Employers must provide overtime pay based on employment contracts and collective bargaining agreements.
Fringe Benefits
Fringe benefits are commonly provided to employees in addition to statutory benefits, statutory leaves, and gross annual salary. Commonly provided fringe benefits in Estonia include —
- Additional paid
- time-off
- House rent
- allowance
- Work from home
- benefits
- Flexible working
- hours
- Gym
- memberships
- Commuting
- expenses
- Meal vouchers or
- canteens at the office
- Expenses for
- business trips
- 13th-month pay
Exempt Benefits
Certain benefits are considered exempt as laid down by the income-tax regulations of Estonia.
The exempt benefits in Estonia are —
The contribution toward unemployment insurance, compulsory accumulative pension schemes and social security/foreign sponsors is a major part if you need to be insured. The exempt amount for Residents or permanent residents stands at just EUR 2160
House rent allowances are exempt up to 20% of the rent.
Personal expenses up to EUR 6,000 (i.e., EUR 500 per month) are exempt for individuals earning up to EUR 14,400.
For individuals earning an annual income between 14,401 -25199 the exempt amount can be calculated using this formula: 6000-6000 / 10800 x (sum of Income –14400).
For individuals earning over EUR 25,200, the exemptions are not valid.
Long-term Incentives
In order to retain their top talent, many employers offer long-term incentives (LTIs). These benefits can be a part of an employee's strategic plan and provide them with more opportunities for success in the future.
Commonly provided long-term incentives in Estonia include —
- Employer-sponsored pension plans
- Health insurance with dental covers for families
- Life insurance contributions
- Performance-linked incentives
- Certain employers provide employee stock options
- Personal accident insurance
