October 27, 2011 kristi Blog: taxation of payments to individuals

Payments to individuals in Estonia may be taxable with income tax (tulumaks – TM), social tax (sotsiaalmaks – SM), unemployment insurance payment (töötuskindlustuse makse – TK) or funded pension payment (kogumispensioni makse - KP) according to the nature of the payment.

Taxation of individuals is cash-based. The income tax rate is flat and there is no progressive taxation, however Estonian tax residents are entitled to take advantage of annual tax-exempt amount.

Employer’s taxes are:

  • • Social tax 33%
  • • Employer’s part of unemployment insurance payment 1,4%

Employee’s taxes are:

  • • Income tax 21%
  • • Employee’s part of unemployment insurance payment 2,8%
  • • Funded pension payment 2% (if applicable)

If payment is made to a private person, who is not registered as self-employed entrepreneur, the payer is obliged to withhold and/or transfer to Tax Board all relevant taxes (both employee’s taxes and employer’s taxes).

Here are some examples of applicable taxes by income type.

TK 2,8% KP 1/2% TM 21% SM 33% TK 1,4% Note
Payment under the employment contract + + + + +
Board Member’s remuneration + + +
Sick days compensation +
Dividends +
Fringe benefits + +
Vacation compensation + + + + +
Compensation for child-related leave (4,25 EUR per day) +
Termination of employment contract: last salary and compensation for unused vacation + + + + +
Termination of employment contract: compensation for contract termination + + + +
Compensation for employment injury or occupational disease +
Rental income +
Interest income +
Licence fee +
Scholarship, cultural or science award, gambling winnings:
 - paid to non-employee +
 - paid to employee + + + + +
 - paid to member of Management of the company + + +
Other payments, taxable with income tax +
Payments to individual under other services, etc contract + + + + +

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