Fringe benefits

General information

Employers shall pay the full amount of income and social tax calculated on granted fringe benefits. The taxable income of a natural person does not include fringe benefits.
 
A person who grants taxable fringe benefits is required to submit a tax return on form TSD with annex 4 to the Estonian Tax and Customs Board by the 10th day of the calendar month following the period of taxation.
 
It is preferred that tax returns will be submitted by electronic means – the Estonian Tax and Customs Board´s electronic service desk e-Tax Board/e-Customs.
 
The rate of income tax on fringe benefits granted to a natural person is 20/80 (in 2017) of the taxable amount.
 
The social tax shall be paid at a rate of 33% on fringe benefits and also on income tax calculated on fringe benefits.
 
For example
Price of fringe benefit (for example housing expenses) 1000 euros
Income tax 250 euros = 1000 x 20/80
Social tax 412,50 euros = (1000 + 250) x 33%
A total cost to employer is 1 662,50 euros = 1000 + 250 + 412,50


Who is an employer?

For the purposes of taxation of fringe benefits, an employer is:
  • a resident legal person
  • a resident natural person
  • a state or local government authority
  • a non-resident who has a permanent establishment in Estonia
  • a non-resident whose employees work in Estonia

Who is an employee?

For the purposes of taxation of fringe benefits, an employee is:
  • a person employed under an employment contract
  • a public servant
  • a member of the management or controlling body
  • a natural person who sells goods to an employer during a period longer than six months
  • a natural person who works or provides services on the basis of a contract for services, authorisation agreement or any other contract under the Law of Obligations Act
  • the spouse, parent or child of a person specified above
  • fringe benefits made by a person belonging to the same group with an employer are regarded to be benefits granted by the employer
However, the term of an employee depends on the type of the fringe benefit.
 

Please note

The fringe benefits granted to the abovementioned persons shall be taxable irrespective of the period of granting the benefits. Thus, when a person has left the job, a gift from a former employer shall be regarded to be fringe benefit for taxation purposes.
 
In general, the price of a fringe benefit shall be determined on the basis of the market price of the goods or services provided as a fringe benefit.
 
When a fringe benefit is a transfer free of charge or a sale or an exchange at a price lower than the market price, of a thing, security, proprietary right or service (except a motor-car), the price of the fringe benefit shall be regarded the market price or the difference between the market price and preference price of the rent.
 
Fringe benefits for taxation purposes do not include cash payments ordinarily regarded as salary, wages, additional remuneration, additional payments, remuneration of a member of a management or controlling body, or payments for goods or services and on which income tax shall be withheld upon making the payment.
 

Taxable fringe benefits include for example (the list is not final):

  • full or partial covering of housing expenses
  • payment of insurance premiums, unless such obligation is prescribed by law
  • compensation for use of a private automobile in so far as it exceeds the limits established by the Income Tax Act.
    The maximum price of a fringe benefit for the use of an automobile of the employee free of charge or at a preferential price for activities not related to employment or service duties or to the employer's business, if records are maintained, is 0.30 euros per km, but maximum 335 euros per month for each employer.
  • the use of a vehicle or other property of the employer free of charge or at a preferential price for activities not related to business. If no records are maintained, the maximum price 256 euros per month for each automobile shall be taken as the basis for taxation.
  • loans given with lower interest than the minimum rate (0% from 1 July 2016). The price of the fringe benefit shall be calculated as a difference between the interest of the minimum rate and the amount specified as interest according to the loan agreement.
  • transfer free of charge or sale or exchange at a price lower than the market price, of a thing, security, proprietary right or service
  • purchase of a thing, security, proprietary right or service at a price higher than the market price
  • waiver of a monetary claim, unless the estimated reasonable costs of collecting the monetary claim exceed the claimed amount
  • coverage of expenses relating to formal or informal education acquired in the adult education system except for the expenses relating to the employer´s business
  • birthday presents (in spite of the cost)
  • catering provided for the employees free of charge or at a preferential price
  • coverage of expenses for the employees’ clothing unless such obligation is prescribed by law
  • coverage of expenses incurred to transport employees between their residence and their place of employment unless it is impossible to make the journey using public transport with a reasonable expenditure of time and money, or if handicapped employees are unable to use public transport or if use of public transport would cause an essential decrease of the persons' ability to move or work
  • employee´s study loan or interest on it covered by the employer
  • penalties and fines paid for employees by the employer (parking fine)
  • etc.

Exemption of fringe benefits from taxes

The following tax exemptions are applicable in relation to persons employed under an employment contract, public servants and members of the management or controlling bodies:
  • coverage of expenses incurred to transport employees between their residence and their place of employment are not classified as fringe benefits if it is impossible to make the journey using public transport with a reasonable expenditure of time and money, or if handicapped employees are unable to use public transport or if use of public transport would cause an essential decrease of the persons' ability to move or work;
  • compensation for the use of a private car upon business trips at the amount maximum 0.30  euros per km, but not exceeding 335 euros per month, if there is a written calculation about the journey, a decision or regulation by the employer, where personal data of the recipient, the amount of compensation and the purpose and date of the journey shall be indicated.
  • The expenses relating to the formal education in connection with an employment or service relationship or with membership of the management or controlling body of a legal person or a permanent establishment of a non-resident legal person.

Amounts of compensations exceeding the limits shall be regarded fringe benefits.
 
This guideline is to be considered as unofficial and informative and should not be treated as final. In specific cases one must act according to law. In case of questions, you are welcome to contact the Estonian Tax and Customs Board.

 

02.08.2007, amended in January 2017

16.01.2017