We will highlight the main amendments of the Estonian Income Tax Act, the Health Insurance Act and the Labour Market Services and Benefits Act, which will come into force on 01.01.2016.
Daily allowance during assignments abroad will increase
The tax exempt limit of daily allowances during assignments abroad is 50 euros for the first 15 days of the assignment abroad, but for 15 days per calendar month at most and 32 euros for each following day (Income Tax Act § 13(3)(1)).
The basic exemption of a resident natural person will increase
In 2016 the basic exemption is 2040 euros or 170 euros per month (Income Tax Act § 23).
In the next years the basic exemption of a natural person will increase as follows:
- 2160 euros in 2017;
- 2280 euros in 2018;
- 2460 euros from 2019
.
If the person’s total income does not exceed 6000 euros per annum (500 euros per month), then an additional basic exemption will be applied in full (4152 euros per annum or 346 euros per month), in which case when adding the general basic exemption to it the person’s income becomes tax free in full.
If the person’s total income is between 6000-10152 euros per annum (500-846 euros per month), then each euro exceeding 6000 euros reduces the size of the additional basic exemption down to zero. If the person’s total income exceeds 10152 euros per annum, then he loses the right to the additional deduction but the general basic exemption will remain applicable to him, the size of which is 2040 euros per annum (170 euros per month).
The tax-deductible expense of a resident natural person will reduce
Pursuant to the Act in force a natural person may deduct housing loan interests, training expenses and charitable gifts and donations from the income of the taxable period in the sum of 1920 euros per annum. From 01.01.2016 a natural person may deduct the aforementioned expenses from its income in the sum of 1200 euros (Income Tax Act § 28²(1)).
Driving school and hobby school will not be considered as training expenses
Expenses paid for participating in a driving school and expenses paid for an adult studying in a hobby school can no longer be considered as training expenses. (Income Tax Act § 26(2¹)).
Taxation of income from rent in the extent of 80%
In an income tax return 20 per cent will be deducted from income received pursuant to a lease agreement to cover the expenses related to leasing without submitting expense receipts i.e. 80% of the income received by a natural person pursuant to a lease agreement of a dwelling is taxed with income tax (Income Tax Act § 39¹, § 44(1)(4)).
The procedure for social security will change
From 2016 the procedure for the social security protection of a board member of a legal person and persons receiving salaries or fees pursuant to a contract for services, authorisation agreement or another service agreement will change.
The Act in force prescribes that a person’s insurance cover commences as of the expiry of a waiting period of fourteen days from the date of commencement of work entered in the employment register and will terminate two months after the date of termination of work entered in the employment register.
From 01.01.2016 a person’s insurance cover commences from making an entry into the health insurance database if social tax has been declared for the person in one month in the sum of the minimum obligation of social tax. The insurance cover of the insured person will terminate on the following day after failure to declare social tax for the person in the extent of the minimum obligation of social tax by the deadline provided in § 9(1)(4) of the Social Tax Act according to the data received from the Tax and Customs Board (Health Insurance Act § 8).
Additional exemption from income tax
The income tax exemption set out at the Parliament elections by IRL has not been added to the Income Tax Act, from 01.09.2015 it has been regulated in the Labour Market Services and Benefits Act instead as a benefit.
The wording of the Act on the calculation of the benefit is unclear, The rate on the basis of which the amount of refund is calculated shall be established by the state budget for the year on the basis of which the refund is calculated, taking into account the estimated subsistence minimum and minimum monthly wage in the case of full-time employment. The specified rate shall not be less than the estimated subsistence minimum last published by the Statistics Estonia.
Formula for calculating benefits:
§ 37³. Calculation of Amount of Refund (Labour Market Services and Benefits Act § 37³)
(1) The amount of refund shall be calculated by deducting the amount received by multiplying the sum of income subject to income tax, income specified in subsection 44 (13) of the Income Tax Act and income specified in § 50 of the Income Tax Act, which is not additionally taxable at the level of a natural person, received by the natural person during the previous calendar year by the factor 0.35 from the amount received by multiplying the rate specified in subsection (3) of this section by factor 12. The obtained number shall be divided by 12 and multiplied by the number of the calendar months during which the natural person met the conditions provided for in § 37² of this Act.
Author: Katrin Allmäe, 1Office Estonia, lawyer
