TAXATION OF NON RESIDENTS

ESTONIAN AND LATVIA

23. September 2015

Inga AllikLilita Berzina

FOREIGN EMPLOYER

• Employees on the foreign payroll – foreign employer’s tax liability.

• Registration of the foreign employer with the tax authorities.

• Required documents include: – Form R2– Certificate of Registration or Articles of Association (in

English)– Notarised and apostilled Power of Attorney issued to the

person submitting the documents– Additional documents, when using authorised tax

representative in Estonia.

REGISTRATION OF EMPLOYEES

• Register employees in Estonian Tax Board (employment register TÖR - Tax and Customs board, Harju County Department).

• Register non-resident employee – on the payroll of Estonina entity (Harju County Department, TÖR register).

• To be applied from :

oID code Harju County Department.

FORM R2

• Date of business started in Estonia;• Name, registration code and VAT number of the foreign company;• Address of the foreign company in its home country (country, city, street, zip

code; e-mail address, webpage);• Postal address in Estonia, if any;• Address of place of business in Estonia, if any;• Main business activity in Estonia;• Description of business in Estonia;• Personal data of the person responsible for the foreign employer (full name,

date of birth, ID code, country, city, street, zip code, phone number, e-mail address);• Personal data of the individual who may be contacted regarding tax matters

(full name, postal address, phone number, e-mail address);• Full name of the responsible or representative person who will submit the

application documents to the Tax and Customs Board (as well as his/her title, signature, name, number and date of validity of the document identifying that person, basis of the right for representation);• Full name and signature of the person who has prepared the application form

R2.

ADDITIONAL INFORMATION AFTER REGISTRATION

• Notification within five working days of the termination of the activities.

• Notification on changes in the register information in their home country, by using the official form R4.

• For deregistration from the tax register - a free form application to the Tax and Customs Board.

ESTONIAN TAX OBLIGATIONS

• Foreign employer (without a permanent establishment) in Estonia must generally:

•withhold 20% flat income tax, 1,6% employee’s unemployment insurance contributions and 2% or 3% compulsory accumulative pension contributions.

• if employee has no certificate A1 - to pay 33% social tax and 0,8% employer’s unemployment insurance contributions.

• fringe benefit taxes on benefits in kind furnished to employees (e.g. company car).

CERTIFICATE A1

• EU Regulation 883/2004/EC.

• Employee has certificate A1 - no Estonian social security contributions (i.e. social tax, unemployment insurance contributions, accumulative pension contributions, if applicable).

• The expatriate employee or the member of the board may apply the certificate A1 from the foreign social security authorities.

• The certificate A1 is generally valid for 24 months.

• Under certain conditions - the extension of the certificate.

EXEMPTION UNDER DOUBLE TAX TREATY

• Article 15 – employment income – exemption for short -- term employment. • Foreign employer has no Estonian tax or registration obligations, if –it has no permanent establishment in the meaning of the double tax treaty in Estonia and if –the remuneration is paid by the foreign company and if –the foreign company seconds employees (with certificate A1) for a short-term employment to Estonia.

• Under these provisions, short-term employment is defined as: –a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned)

• In such a case, all payroll taxation rights of such employment income will remain in the foreign country.

ESTONIAN TAX RESIDENCE

•Domestic law – –a permanent residence in Estonia or –stay in Estonia for at least 183 days during any 12 consecutive calendar months

• The double tax treaty residence rules - individual is resident of the other country (due to having there a permanent home, centre of vital interests (e.g. family) or habitual abode), regardless of the Estonian domestic residence criteria.• The individual is deemed tax resident of Estonia from the first date of the arrival to Estonia.• Change of tax residence to or from Estonia – notification on form R to be submitted.

ESTONIAN INDIVIDUAL INCOME TAXATION (1)

• Flat rate of 20% income tax.

•Monthly basic allowance - EUR 154 (from 2016 – EUR 170).

• Apart from unemployment insurance and accumulative pension contributions, no deductions can be made from monthly salary income of the resident individual.

• Employer’s unemployment contribution is 0,8% and employee’s unemployment contribution (withheld from salary) is 1,6% from the gross salary.

• Accumulative pension contributions at 2% or 3% rate.

ESTONIAN INDIVIDUAL INCOME TAXATION (2)

• Limited deductions (housing interest, education expenses, donations, voluntary pension contributions to the third pillar of the pension scheme).

• The above deductions and allowances are under certain conditions available also to qualifying EU resident individuals.

• Fringe benefits furnished to individuals are taxable on the level of the employer.

ESTONIAN INDIVIDUAL INCOME TAXATION (3)

• The annual tax return - by 31 March of the following year, at the latest.• No requirement to submit an annual tax return, if the income tax has been withheld at source and the individual does not claim any tax deductions. • The non-resident individual is required to submit Estonian tax return in respect of such Estonian source taxable income, which has not been subject to withholding tax at source.• Generally, the due date of final income tax is 1 July of the following year. • In case of certain types of income (e.g. gains from the sale of assets, foreign income, income derived by the individual engaged in business), the due date of final income tax is 1 October of the following year.

ESTONIAN PAYROLL AND FRINGE BENEFIT TAXATION

• The foreign employer is required to remit the taxes withheld to the bank account of the tax authorities by the 10th day of the following month.

• Also, the tax return TSD with its appendixes should be filed with the tax authorities by the same date.

SAMPLE ESTONIAN PAYROLL CALCULATION

• Estonian monthly payroll and fringe benefit tax calculation, when the gross monthly salary is EUR 1 000 and the employee is a local Estonian resident, who has joined the compulsory accumulative pension scheme and who is not an expatriate with the certificate A1:

•Gross monthly salary (in EUR) 1000 €• Tax exempt basic allowance 154 €•Unemployment insurance contribution 1,6%(employee's)16€•Accumulative pension contribution 2% 20 €• Taxable salary 810 €• Income tax 20% 162 €•Net salary 802 €

CONTACT

IMG Numeri OÜSõpruse pst 145

13417 Tallinn, EstoniaPhone +372 686 7110

E – mail: numeri@numeri.eewww.numeri.ee

Contact person: Inga Allikinga.allik@numeri.ee