ACCOUNTING TO ESTONIA CHECKLIST
Tax return of income and social security tax
– The deadline is next month 10th day
– If the company is a VAT payer and there are no salary taxes to declare, although zero-return must be submitted.
– The deadline is next month 20th day
– If company has EU sales then must be submitted VD return where sales must be declared by customers’ VAT numbers.
Salary taxes in 2021
- 20% income tax
- 33% social tax
- 0.8% of gross salary the employer’s part of unemployment insurance
- 1.6% of gross salary the employee’s part of unemployment insurance
- 2.0% / 3.0% withhold the employee’s salary for pension insurance (optional)
- Income tax free 0-500 € / month (depends on the income) The minimum wage of 584 € / month, 3.48 € / h
It is not possible to agree net salary amounts with employee anymore because income tax free rate varies. It should be agreed gross salary with employee.
Payroll calculator- how to calculate net salary or find out what the employer’s total costs of employment are: www.kalkulaator.ee
The amount of VAT in Estonia is 20%, except for the exceptions that are provided for in the law on value added tax in Estonia (Estonian abbreviation KMS) section 15.
- Books, pharmaceuticals and accommodation services are subject to VAT 9%.
- Exports and EU VAT amount of internal revenue is 0%.
- Tax-exempt turnover (KMS § 16) – Postal services, health services, dental services, insurance services and other services.
Fringe benefits and representation expenses
- Representation expenses tax-free threshold amount – cumulatively 32 € + 2% of salary. Taxes of fringe benefits charged (the expenses relating to its own employees) 20% withholding tax (calculated on the net amount of up to 20/80) + 33% social tax.
- Example: fringe benefit is € 100, taxes are calculated as follows 25 € income tax + 41.25 € social tax.
- The foreign daily allowance is 50 € per month from the first 15 days, the excess of the allowance is 32 €.
- There is possible to compensate to employees tax free health and sport expenses per one employee 100 € per quarter. Health and sport expenses includes: training fees, visiting registered physical therapist, psychologist and the rehabilitation specialist. Once a year those expenses should be declared to the Tax Board.
Vehicles used in business
- Detailed drive report must be compiled for company’s cars in category M1 that are only in business use. We recommend using an electronic driver’s log to save time.
- It is required to make notation in Car Registry (www.mnt.ee) that car is used only for business rides. This is free of charge. This notation can be done by owner and the responsible user.
- Electronic driver’s log can be ordered for example here www.minitax.net
- Taxes of fringe benefit of M1 category cars will be calculated as follows: rate is 1,3 € per kW, for example 110kW car’s tax is 143 €. Tax rate for cars that are older than 5 years is 0,97 € per kW.
- Mentioned system can be used (but it is not required) also for cars in N1 category.
- Purchase invoices of fuel, maintenance, leasing: VAT can be reduced only 50% for M1 category cars.
- In case there are in use other vehicles and those are in personal use then should be paid taxes based on market price or employee should compensate those rides to company in the market price. It is possible to reduce tax risk if you keep detailed drive report.
- In case employee is using personal car in business activity – company can compensate max 0,3 € per km, max amount 335 € per month. Drive report and written order of manager is needed. Exemption: if employee is using personal car in business trip – then fuel costs can be compensated on basis of fuel purchase documents (checks).
- Tax rate of dividends in Estonia is 20%. The net amount is calculated as 20/80.
- € 100 000 Dividends (net amount) is charged at € 25,000.
- Since 2018 year is established tax rate 14% (calculated from net amount 14/86) for intercompany dividends in extent of last 3 years paid dividends (3 first year there is proportional calculation since 2018 year). 14/86 i.e. 16,28% is established only for dividends which are paid to legal persons (companies) from profit which company has earned itself (i.e. dividends which it has gained from daughter companies are not taking into account). For physical person who is Estonian resident is withheld additional 7% income tax. Non resident tax rate depends on double taxation act 10. First possibility to pay with tax rate 16,28% dividends will be in year 2019 for profit which is earned in 2018.
It is required to declare loans which are given to mother company and its daughter companies since 1.7.2017. Information that should be shown is: loan receiver, amount and interest rate. The purpose of this declaration is to tax loans which only reason is take profit out of the company.
The Law on the tax system (abbreviation in Estonian MKS) under charges for fines etc.
Charges under the Law on the tax systems of fines, forced the money, interest is taxed 20% income tax.
Estonian Accounting Act
- 7. The original document
(1) The original document is the proof of transactions, which shall include the following information:
1) the name and number;
3) the economic substance of the transaction;
4) trade figures (quantity, price, amount);
5) The names of the parties;
6) The addresses of the parties;
7) the signature of the person representing the company, who will confirm the transaction;
8) accounting register number.
(2) The above 6-8 moments do not apply to original documents, if on the basis of original documents are summarized in the reports.
(4) the original documents stored in electronic form must be printable.