From the new year, the tax-free income of all resident natural persons is EUR 6000 per year. This means that for a gross salary of EUR 1200, the tax-free income of a resident natural person is EUR 500 per month. Each increase of EUR 1.80 in the gross salary starting from EUR 1200 will reduce the tax-free income by EUR 1. In the case of gross salary of EUR 2100 per calendar month, the income tax-free minimum will be zero.
There is also a change in annual income accounting.
Tax-exempt compensations, grants and scholarships and other tax exemptions not declared in the income tax return of a natural person are not taken into account as annual income. For example, the sale of a dwelling or personal property (such as a car).
Pursuant to the amendment to the Income Tax Act, all loans granted to shareholders, partners or members of the company must be declared. The purpose of the amendment is to discover hidden profit distributions and to tax these.
Hidden profits can be referred to as unreasonably long-term loans, an unreasonable repayment schedule, a repeated extension of the repayment term, or a repeated increase in the amount of the loan, as well as irrational use of the loan. If the term of the loan is longer than 48 months, the tax authority may require proof of repayment ability and intent.
It is still important that these loans are given at an interest rate that is in line with market conditions. One possible basis for this is the Estonian Banks statistics database which you can find from the following page:
Estonian Banks statistics database
Loans must be declared quarterly; the first declaration must be submitted no later than 10.02.2018. It is important to note that the obligation to prove and declare applies to all loans granted from 01.07.2017 and also to loans where the loan amount is increased, the repayment term is extended or other essential terms are amended after this date.
In one quarter, an employer can reimburse an employee tax-free for sports expenses in the amount of EUR 100. It is a personal tax exemption that can not be passed on to other persons, nor can it be transferred from one quarter to another. Payment may be made once a year, but invoices must be drawn up at least quarterly. Payment is based on an invoice.
These expenses include:
This compensation does not include the purchase of sports equipment (including clothing, footwear) and the construction of new facilities. The exemption applies if the employer allows them for all employees. These compensations are to be declared once a year, using form INF 14.
If the company’s car is used for private purposes, it is a fringe benefit. From 01.01.2018, the basis for taxation is engine power, where 1 kW = EUR 1.96. Based on this amount, the fringe benefit taxes (income tax and social tax) on 1 kW are EUR 1.30 in total. Thus, in the case of a 100 kW passenger car, the fringe benefit is EUR 130 per month.
For cars that are more than 5 years old, a coefficient of 0.75 is used. Thus, in the case of a 100 kW passenger car over five years of age, the fringe benefit is EUR 97.50 per month.
It is not necessary to keep a diary for mixed use, but for a passenger car used entirely for work purposes, this is mandatory. In case of a passenger car used entirely for work purposes, it is also obligatory to make a corresponding entry in the Motor Vehicle Registration Centre (ARK); no state fee is charged for this entry. Information about whether the car is purely for work purposes or for mixed use is public.
If a passenger car used for work purposes becomes a mixed-use car, this proportion must be applied for at least one year.
There is no change in VAT.
The company has an obligation to pay compensation for incapacity for work to the employee for the 4th to 8th day, whereafter the Health Insurance Fund pays. From 01.01.2018, the employer has the opportunity to compensate for the 2nd and 3rd days of illness, withholding only income tax.
Income tax is not levied on a parking fee compensated to an employee in connection with the use of a private car in the performance of service, work or professional duties. An additional EUR 335 in parking fees may be paid income tax-free.