TAXES
Summary of the tax amendments that will enter into force in 2021 is provided below. It is worth noting that not all amendments entered into force since 1 January, most of the amendments will be effective from 1 July 2021.
- Minimum social tax liability
Since 2021, the monthly rate, which is the basis for the minimum social tax liability, amounts to EUR 584 euros (in 2020, it was equal to EUR 540). Accordingly, the minimum social tax liability is EUR 192.72 per month, including the part-time employment. This amendment applies to employees who earn less than the minimum wage. It also applies to management board members of companies who want to secure their own hospital insurance.
- New rules on taxation of rented labour force
According to the amendments, which will enter into force on 1 January 2021, non-resident employers or temporary employment agencies that rent labour force to Estonian users in order to perform work in Estonia will be considered employers in Estonia and, as a result, they must: (1) register with the Tax and Customs Board as a non-resident employer; employees must register with the employment register and (3) pay the Estonian income tax on the wages of non-resident employees starting from the first day of their employment in Estonia.
Until 2021, Estonian companies could hire workers from third countries (for example, as is popular now, from Ukraine), with the help of an EU resident company (usually a Polish company) for up to 6 months. This model made it possible to avoid paying income tax in Estonia, because the employee was in Estonia on the basis of a rental relationship (i.e. did not have an employer here) for less than 183 days during the 12-month period and the agencies were not considered employers in Estonia.
- On 1 July 2021, changes to the value-added tax (VAT) rules of the countries of European Union enter into force
Changes to the MOSS system. The special VAT taxation procedure for digital B2C services (the so-called MOSS) applies to other services , and as well as to distance sales within the Community: from 1 July 2021, the MOSS system (OSS + since 01/07/2021) can be used for other services (1) which an Estonian VAT liable entrepreneur will provide to non VAT liable persons from other EU countries (B2C), (2) if the place of supply is the country of the recipient of the service. MOSS system could also be used for distance sales of goods within the EU, as well as on transactions concluded between non-EU sellers and EU consumers via Internet platforms.
Import of goods. From 1 July 2021, the VAT exemption for the import of goods with value less than EUR 22 will be abolished. This means that orders from all online stores from the third countries (China, etc.) will become 20% more expensive, and even low cost goods will have to go through customs bureaucracy, although in a simplified form.
Value-added tax liability is simplified for import of small parcels to which the special procedure of distance selling of imported goods from a non-Community state does not apply.
Distance sales threshold in the EU are changing. From 1 July, for distance sales of goods, a single sales threshold of EUR 10,000 is established. Until this threshold is reached, the place of supply will be deemed to be in the country of the seller’s location, applying the local VAT rate, and after exceeding this threshold – in the country of the buyer’s location. Sales to all EU countries are counted together, not separately for each country.
EU VAT liabilities will be shifted to marketplaces to be responsible for collecting VAT.
From 1 July 2021, the owners of such online platforms will need to collect and pay VAT from the sales concluded through these platforms (marketplaces). OSS could be used for goods imported to EU, and IOSS for not imported goods.
- Land Tax Act and Taxation Act
The land tax information system will be handed over from the Land Board to the Tax and Customs Board. In the future, a notice of land tax can be sent to heirs who have not changed the ownership of land in the land register – for this, data from the register of inheritance is used. In addition, all users of state land will have to pay land tax.
- Tax Information Exchange Act
Information on cross-border aggressive tax planning arrangements must be provided to the tax authority. The Directive (DAC6) requires intermediaries (primarily tax adviser) to notify tax authorities about cross-border arrangements which have hallmarks of aggressive tax planning, beneficial ownership concealment ,or undermining of the automatic exchange of information on financial accounts. Arrangement must be reported by the intermediaries (those who developed them, participated in their development, prepared for use, or participated in their use). In some cases, this must be done by the taxpayer himself.
BANKRUPTCY
- Amendments to bankruptcy legislation
On 16/12/2020, amendments to the bankruptcy law were adopted. If you look at the text of the changes, you will see that it is quite extensive. Below we prepared a short list of important changes is provided:
Change of jurisdiction for a legal entity. Earlier, there was a general rule of jurisdiction both for a natural person and for a legal entity, but now, according to the amendment, this procedure is valid for natural persons only. If the legal entity-debtor is located in Harju County, the bankruptcy petition is filed with Harju County Court. Otherwise, in case of the legal entity-debtor, the petition is filed with Tartu County Court.
Regulation of bankruptcy proceedings regarding the estate of the debtor was added.
When filing a bankruptcy petition, the creditor must indicate whether he wants the case to be considered at a court session or not. Without this clarification, he will be deemed to agree to the written court proceedings.
The term of responsibility of persons who are responsible for the economic activities of the company (management board members, procurists, accountants, liquidators) is increased. For example, according to the amendments to Part 3 of Article 19, the court can impose a fine or prohibition on departing from residence order or arrest on a member of the debtor’s management body, liquidator, procurist and accountant of the debtor, even if they are released from their duties within three years before the appointment of an interim trustee. There was 1 year before the amendments.
The possibility of an interim trustee to earn is reduced. Now, in addition to the payment set by the court, it is possible to claim reimbursement of expenses necessary to fulfill the duties. After the amendments enter into force, trustee can compensate for the necessary expenses that the payment does not cover.
The calculation of the maximum hourly salary of an interim trustee is changed. Instead of the current maximum of EUR 96 per hour, the maximum will be an amount corresponding to one-fifth of the lump-sum minimum wage established on the basis of Part 5 of Article 29 of the Employment Contract Act.
Preconditions have been added, according to which it is assumed that a legal entity is insolvent:
- during the enforcement procedure, the claim against the debtor is not satisfied due to the lack of property received within three months after the commencement of the enforcement procedure, or if it is found in enforcement procedure that the debtor does not have sufficient funds to fulfill all the obligations;
- a member of the debtor’s management board notifies the creditor, the court or the public that the debtor is unable to fulfill his obligations.
- a limited liability company (OÜ) has less net assets (total assets on the balance sheet minus the total amount of liabilities reflected in commitments) in comparison with the amount provided for in Paragraph 1 of Part 2 of Article 171 of the Commercial Code;
- a joint stock company (AS) has less net assets than provided for in Paragraph 1 of Part 1 of Article 292 of the Commercial Code.
Also, a specific time period has been introduced during which a judge participating in the general meeting of creditors must determine the votes of creditors in case of a dispute. Typically, the judge must do this at the same meeting, but in exceptional cases he or she may also distribute votes for the next working day. From now on, in case of the bankruptcy of a debtor who is a natural person, the ban on carrying out business activities will not apply to him or her automatically, but only by a court decision.
CONTRACTUAL RELATIONSHIP
- Amendments to rental relationships
The law cancels the prohibition on setting contractual penalties for dwelling and allows from the lessee to demand repairs to the rental housing. For example, the lessor will be able to require the lessee to change the wallpapers before moving out, and the lessee will also have to contribute to a home repair fund. But the new conditions must be specified in the contract. A fine can be demanded, for example, for violations of smoking ban or other.
However, in the future, lessee may exceptionally terminate the lease if the lessor unexpectedly decides to unilaterally increase the rent. In this case, an increase in rent before the end of the contract is also excluded.
The period of indebtedness for which the lessor can terminate the contract will be reduced. Instead of a 3-month debt, 2 months will be enough.
OTHER
- Minimum wage unchanged
The Estonian Employers’ Confederation and the Estonian Trade Union Confederation have agreed to freeze the minimum wage in 2021 at the current level of EUR 584.
- The second pension pillar will become voluntary
Since January, anyone can either join or leave the second pension pillar. As an additional opportunity, you can leave the accumulated money for growth in the second pillar, but stop making new contributions. As a new opportunity, you can start investing your accumulated pension money yourself by opening your own pension investment account and transferring your money there.
When withdrawing money from the second pillar before retirement age, you must pay an income tax of 20 percent. When withdrawing money at retirement age or five years before reaching this age, income tax shall be paid in the amount of 10 percent.
- Termination of the 3rd pillar benefit
Since 1 January 2021, the retirement age for the third pillar will be the same as for the second pillar. This means that you will be able to retire five years before the retirement age of the state pension, but before that you cannot use your third pillar savings as a source of additional income on a preferential basis.
If person joined with third pillar before 01.01.2021, the retirement age for the third pillar is 55 years. If person joined third pillar after 01.01.2021, the pension can be taken if person is in retirement age, the retirement age is less than 5 years or older. This means that when the contributor of the pension pillar reaches that age, he can withdraw all savings by paying 10% of income tax, or receive them in the form of regular payments that are not taxed. If you withdraw your third pillar savings before the age of 55, you will have to pay 20% of income tax (on the entire amount, not just on the accrued interest), as under the current system.
- Amendments to the payment of sickness compensations procedure
The Estonian Employers’ Confederation and the Ministry of Social Affairs have agreed to make temporary amendments to the payment of sickness compensations procedure. So, from 1 January to 30 April 2021, sick leave will be reimbursed from the second day. According to the current legislation, employers reimburse an employee from 4th to 8th day of sickness, then the compensation continues to be paid by the Health Insurance Fund. According to the new plan, the employer will reimburse from 2nd to 5th day of sickness, then the Health Insurance Fund will be responsible for the payments.
If you have any questions regarding the amendments being introduced or the need for tax and legal advice, Larssen specialists are happy to help you.
You can contact us by e-mail info@larssen.ee or by telephone + 372 61 43 090