Law Changes 2019

Minimum wage

From 01.01.2019, the minimum wage increases to EUR 540 per month (EUR 500 in 2018). The minimum hourly rate is EUR 3.21 gross.

Social tax minimum

The social tax minimum in 2019 is EUR 165. This is the amount that must be paid monthly for employees under employment contracts, and for other contracts, it is the minimum amount required for valid health insurance.

Payroll taxes

No changes in payroll taxes in 2019. Withholdings remain 1.6% employee unemployment insurance (except for board member contracts), 2% funded pension (if joined), and 20% income tax. Additionally, the employer must pay 33% social tax and 0.8% employer unemployment insurance (except for board member contracts).

Share capital contribution

Good news for e-residents! Due to Commercial Code amendments, share capital no longer needs to be paid only into Estonian banks, but can also be paid into banks established in other European Economic Area member states.

Employment Register

From 01.01.2019, the Employment Register must include, in addition to current information, the employee's workplace and job title. The Tax and Customs Board has given until 30.04.2019 to update existing data in the Employment Register.

This only applies to employees working under employment contracts.

Here are some clarifications on how to determine the address:

  • The workplace address is the address of the company's place of business where the specific employee works, not the employer's legal address.
  • If an employee works at multiple locations for one employer, the address is the place where they work most of the time.
  • If an employee works from home (remote work) or the work address cannot be determined, the address is the employer's place of business from which the employee's activities are managed.
  • If work is performed outside Estonia, the name of the foreign country must be indicated.

For more information, you can read here: Workplace address guide

Employee job title:
The job title is selected from the Classification of Occupations, which is based on the international classification of occupations. The Classification of Occupations can be viewed and job titles searched here .

Reduced income tax rate for regular dividends between companies

From 01.01.2019, a new Income Tax Act amendment comes into effect, thanks to which it is possible to use a lower tax rate of 14%, i.e., 14/86 of the net dividend amount (16.28%) for regularly paid dividends. Thus, a resident company can apply both the lower rate 14/86 and the standard rate 20/80 when taxing dividends with income tax.

A resident company can apply the lower rate 14/86:

  • In 2019, to one-third of the profit distributed in 2018, on which the resident company has paid income tax;
  • In 2020, to one-third of the profit distributed in 2018 and 2019, on which the resident company has paid income tax.

MOSS special scheme minimum threshold applies

If a company's annual sales to private individuals in other EU countries are below EUR 10,000, the company does not need to apply the MOSS special scheme. This means that if a company has submitted an application to use the MOSS special scheme, it can now submit a termination application. However, note that for 6 months after the termination application, the company cannot submit a new application to use the MOSS special scheme.

Additionally, the principle of issuing invoices when using the MOSS special scheme changes. While previously the invoice had to follow the rules of the destination country, from 2019 the taxable person applying the special scheme only follows the invoice issuing rules of their registration country.

VAT Act amendment regarding vouchers

From 01.01.2019, the EU Directive 2006/112/EU amendment regulating vouchers comes into effect, the purpose of which is to simplify, modernize, and harmonize VAT rules applicable to vouchers (vouchers such as gift cards). As a result, vouchers are divided into two types: single-purpose vouchers and multi-purpose vouchers.

Defining and distinguishing between single-purpose and multi-purpose voucher concepts is necessary because the VAT logic differs for each. While previously a voucher invoice was always issued without VAT and VAT was added to the invoice and paid when the goods were redeemed or the service was provided, now the logic is split in two.

A voucher is single-purpose if the place of supply of goods or provision of services related to the voucher and the VAT amount payable on those goods or services are known at the time the voucher is issued (for example, a specific SPA admission that is always taxed at 20% VAT). A multi-purpose voucher is any voucher other than a single-purpose voucher (for example, a bookstore gift card where it is possible to buy products taxed at both 9% and 20% VAT).

If the company itself sells a single-purpose voucher, it is already considered a supply of goods or provision of services, meaning VAT must be added to the invoice. However, if the company itself sells a multi-purpose voucher, goods are not supplied and services are not provided, meaning VAT is not added to the invoice (the tax rate is not known because the customer may buy products with different tax rates). Therefore, VAT for a multi-purpose voucher is calculated upon delivery of goods or provision of services related to that voucher.

Lease accounting changes for IFRS companies

If a company uses IFRS, from 01.01.2019 there is an obligation to record all lease agreements as finance leases, except for a few exceptions for very small and short-term leases. However, this only affects companies that prepare their financial statements under IFRS; there is no change for Estonian financial reporting standards.