Law Changes 2020

Public transport between employee's home and workplace

Reimbursement of public transport ticket costs for travel between an employee's home and workplace is not taxed as a fringe benefit.

Tax-free income for resident foreigners

Residents' foreign-sourced income, including pensions, is entitled to deductions from taxable income equivalent to income earned in Estonia. Deductions can be made in full even if most of the income was received from a foreign country.

Tax and Customs Board interest rate

From the amendments to the Taxation Act and Income Tax Act adopted in November 2018, from 01.01.2020 income tax exemption applies to interest on deferred tax debt (except tax decisions), and the Tax and Customs Board has the right to reduce interest on deferred tax debt by 50% in exceptional cases retroactively from the date the tax debt arose. Interest amounts will be rounded to the nearest euro from next year. Currently rounded to the cent.

Exit tax

This affects Estonian entrepreneurs who wish to transfer assets located in Estonia to a permanent establishment in another country. This also applies in the reverse situation, when assets are transferred from a permanent establishment located in Estonia (such as a branch or representative office) to a foreign head office. Income tax must be paid based on the market value of the transferred assets.

Call-off stock

Cross-border goods taxation rules are simplified when dealing with call-off stock, i.e., when goods are delivered by agreement with the buyer to a warehouse in another member state to wait until the buyer purchases them from the warehouse. Under the simplified procedure, the entrepreneur does not have a tax or reporting obligation in the other member state when transferring call-off stock there. The transaction is declared and the tax obligation arises only when the goods are sold to the buyer in the seller's country of residence.

Chain transactions and VAT

Uniform rules are established for chain transaction taxation, as practices have varied quite a bit between member states until now. The tax obligation of companies does not change, rather it helps prevent double taxation or non-taxation that could accompany different practices. When goods are sold multiple times in succession, in order to apply the 0% VAT rate, the goods must be sold to a reseller who delivers them directly to the final purchaser located in another European Union member state.

Paternity leave

The previously 10-day paternity leave period extends from 01.07.2020 to 30 days. The second change is that the additional benefit is paid by the Social Insurance Board directly to the parent's bank account; previously it went through the employer. The period during which the father can use paternity leave also changes: going forward, paternity leave can be used 30 days before the expected birth and/or until the child turns three. This leave can be taken in one part or in several parts. While previously only fathers working under employment contracts had the right to paternity leave, now all fathers can use this leave.

Temporary work while registered as unemployed

Temporary work while registered as unemployed, or "work gig," is work that overlaps with the period of being registered as unemployed. From 01.09.2020, people registered as unemployed can do temporary work alongside looking for a main job without their unemployed status being terminated due to working. This allows job seekers to remain professionally active until they find a new main job.

Temporary work conditions (established in the Labor Market Services and Benefits Act § 42):

  • Effective from September 1, 2020.
  • Contract duration can be up to eight days.
  • The allowed number of working days per month is eight.
  • Type of work can be employment contract, civil law contract, public service.
  • Work overlaps with registration period.
  • Gross pay is one-time or a total of no more than EUR 233.60 per month, i.e., up to 40 percent of the current minimum wage.
  • Work gigs can be done for a total of up to 12 calendar months within a 24-month period during the time of being registered as unemployed.

Donating tax refunds from personal income tax returns

If a private individual has a refund claim when confirming their personal income tax return, they can now donate it to tax-exempt organizations (non-profit association, foundation, or religious association) if they wish. Previously, it was only possible to request it back to one's bank account or leave it in the Tax and Customs Board prepayment account.

Temporary suspension of funded pension contributions

From payments made from 01.12.2020, the 2% contribution withholding was suspended for employees who submitted an application for temporary suspension of contributions in October 2020. The 2% contribution withholding is temporarily suspended from 01.12.2020–31.08.2021. For those who continue their 2% payments during the time when the 4% from social tax is not being paid into the second pillar, this 4% will be compensated later.

Share sale without notary

From 01.08.2020, an amendment to the Commercial Code came into force that allows selling LLC shares without a notary in certain cases. This is permitted only if three criteria are met:

  • Share capital must be at least EUR 10,000 and must be paid in;
  • Articles of association must permit selling shares without a notary;
  • The sale agreement must be made in written reproducible form.