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 | + | + | + | + | + |
Lisa Kommentaar