For employers of Ukrainians

What must an Estonian employer take into account when recruiting refugees who have arrived in Estonia because of the war situation in Ukraine?

An Estonian employer (company) has the obligation to register all persons who are employed on the basis of an employment contract or persons working for remuneration according to a contract under the law of obligations in the employment register before starting work.

According to the laws in force in Estonia, only these unemployed persons may be on a trial day, who are registered with the Estonian Unemployment Insurance Fund and who have been subject to a labour market measure pursuant to subsection 1 of § 41 of the Labour Market Services and Benefits Act and § 20 of the regulation of the Government of the Republic of Estonia “Employment Programme 2017–2020”. No other trial days are foreseen, a probationary period is provided for in the Employment Contracts Act.

This means that a person registered as unemployed who has been subject to the labour market measure can only have one trial day and it does not have to be registered in the employment register. However, even on that day, the person must be instructed in accordance with the Occupational Health and Safety Act before taking up work.
According to subsection 2 of § 4 of the Employment Contracts Act, all other persons authorised to work but without a contract are regarded as employees working on the basis of an employment contract and their employment must be registered accordingly.

Personal identification code issued to a person in Estonia is used when registering an employee. If a person has no personal identification code and he or she is unable to apply for it before taking up work, the employer has the possibility to register employment for up to five days by using the date of birth of the person. If the person receives a personal identification code, the employer changes the entry in the employment register and replaces the date of birth with the person’s Estonian personal identification code.

The entry in the employment register and the obligation to pay social tax (at least on the monthly rate) guarantees the person health insurance in Estonia.

 Additional information on the Health Insurance Fund website

An Estonian employer declares and pays taxes beginning from the first day of a person (including a war refugee from Ukraine) taking up employment in Estonia.

The tax treatment of the employee’s wage or salary differs if the person is:

  • an Estonian resident for tax purposes or
  • an Ukrainian resident for tax purposes.

Estonian personal identification code is issued to war refugees coming from Ukraine and their personal data is entered in the Estonian Tax and Customs Board’s register of taxable persons.

Initially, the person’s data in the register of taxable persons has the status of “non-resident”, but the person can submit an application for determination of residency of a natural person to the Estonian Tax and Customs Board (the digitally signed (form R should be sent to the e-mail address emta@emta.ee or submitted on paper in the nearest service bureau).

The Estonian Tax and Customs Board determines the residence for tax purposes of a natural person on the basis of the place of residence of the person or the time of his or her stay in Estonia. Both conditions do not need to be met at the same time.

Since war refugees do not have the opportunity to return to their former place of residence in Ukraine and it is not known whether and when a person will have this opportunity, the Estonian Tax and Customs Board can consider his or her place of residence to be Estonia, where the person currently lives and works, and take into account his or her intention to stay in Estonia. On the basis of the submitted form R, the Estonian Tax and Customs Board changes the residency for tax purposes in Estonia and indicates the status “resident” in the register of taxable persons.

Taxation and declaration of a person’s wage or salary on a monthly basis depends on the person’s tax residency. A person’s wage or salary is declared in annex 1 if he or she is a resident, or annex 2 if he or she is a non-resident, of the form TSD.

An Estonian employer declares (in annex 1 of the form TSD) and pays from the wage or salary of an Estonian resident employee:

  • income tax 20% (employee is entitled to the basic exemption of up to 500 euros per month)
  • social tax 33%
  • unemployment insurance premiums (employee’s rate is 1.6% and employer’s rate is 0.8%)
  • funded pension payment 2% (in case of obligated person)

An Estonian employer declares (in annex 2 of the form TSD) and pays from the wage or salary of a Ukrainian resident employee:

  • income tax 20% (employee is not entitled to the basic exemption)
  • social tax 33%
  • unemployment insurance premiums (employee’s rate is 1.6% and employer’s rate is 0.8%)

The employer must take into account that the basic exemption of up to 500 euros per month applies to Estonian resident employees if the wage or salary does not exceed 1200 euros per month, but it does not apply to a resident of Ukraine.

The employer must also take into account that if people born in 1983 or later become Estonian tax residents, they will immediately automatically join the funded pension, i.e. the second pillar.

If a person born in 1983 or later becomes an Estonian tax resident, he or she will immediately automatically join the funded pension, i.e. the second pillar. Therefore, the person has to decide whether he or she wants to have the second pillar and pay funded pension contributions.

If the person does not want to join the funded pension, it is very important that he or she submits an application (separate form — application for exemption from contributions) in the online services environment “My Pension Account” of the Estonian Funded Pension Registry, in the internet bank or in a bank office.

The obligation to withhold the contributions to the funded pension may change three times a year: 1 January, 1 May and 1 September. Person-based information on the obligation to withhold contributions can be obtained according to a person’s personal identification code by using the subscription simple or mass query of the Estonian Funded Pension Registry:

  • applications submitted in the period from 1 April 2021 to 31 July 2021 suspend the contribution obligation on 1 January 2022; this information has been included in the subscription simple query as of 1 December 2021;
  • applications submitted in the period from 1 August 2021 to 31 November 2021 suspend the contribution obligation on 1 May 2022; this information has been included in the subscription simple query as of 1 April 2022;
  • applications submitted in the period from 1 December 2021 to 31 March 2022 suspend the contribution obligation on 1 September 2022; this information will be included on 1 August 2022.

As the applicant has the right to withdraw the application no later than one month before the suspension of the contribution obligation, the Estonian Funded Pension Registry will not receive information on the contribution obligation earlier than one month before the due date of the suspension. Therefore, we recommend that accountants review the obligation to withhold employees' funded pension payments in December, April and August.

Additional information on the Estonian Funded Pension Registry's website

The employer’s business-related expenses for the accommodation of an employee working on the basis of an employment contract are not regarded as fringe benefits if both conditions are met (basis: subsection 56 of § 48 of the Income Tax Act):

  1. the place of residence of an employee is located at the distance of at least 50 kilometres from the place of work and the employee does not own any immovable property used as a housing, which is located closer to the place of work, and these conditions are met throughout the period of accommodation;
  2. the expenses per employee accommodated are up to 200 euros per calendar month in case of accommodation in Tallinn or Tartu and up to 100 euros in other cases.

The tax exemption for accommodation costs applies to both resident and non-resident employees.

The employer therefore has the right to pay or compensate accommodation costs within these limits:

  • in case of war refugees coming from Ukraine who are taking up work or are already working under a contract of employment; and
  • in case of employees from Ukraine who were already employed and are working under an employment contract but with whom family members from Ukraine have also come to live with.

This is because the homes (places of residence) of war refugees and people who came to work in Estonia from Ukraine still remain in Ukraine, and when the situation changes, people can return to Ukraine.

All other expenses incurred by the employer in connection with his or her employees or their family members, such as transport expenses to Estonia, catering expenses and expenses on essential necessities in everyday life (food, medicines, clothing and other basic consumer products), are taxable as fringe benefit.

Last updated: 27.04.2022

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