Registration in the field of construction

1. What will change with the introduction of the new rules?

A new e-service has been created, where the main contractor registers the construction and indicates its subcontractors. Each link in the subcontracting chain (construction company) in turn indicates its subcontractors at the construction. Each construction company performing work on the construction will indicate its employees who are allowed to the construction.

Drawing the transaction chain from the first link to the last is necessary to get an accurate overview of the companies involved in the construction. The main contractor is responsible for the construction. The main contractor and the subcontractor ordering construction work can shape (e.g. through the terms of the contract) a law-abiding environment for construction work.

Employees at constructions must register their arrival and departure electronically, either using a special standard smart card (employee card) issued by the Estonian Tax and Customs Board’s (ETCB) contract partner, or another solution, e.g. a mobile application. It is important to point out that it is the presence at the construction that is recorded and not, for example, the performance of work outside the construction. Registering the arrival and departure of all persons working at the construction helps to ensure that only people who have been properly registered for work and in the necessary registers (employment register, register of residence and work permits, database of registration of short-term employment of aliens in Estonia or database of posted workers) work at the construction.

The data is transmitted automatically by machine-to-machine interface on a daily basis for persons present at the construction and three times a week for each person's stay at the construction in a non-personalised form (pseudonymised). This is necessary to prevent fraud, as it makes data manipulation more complicated and easier to detect.

The automatic system compares the data transmitted about construction with other data collected and known to the ETCB. If contradictions appear, the ETCB can start an inspection to determine the reasons for the differences in the data. The automated collection and electronic comparison of data allows to save both the state funds and the time of entrepreneurs, which would be spent on providing explanations within the so-called occasionally initiated tax proceedings (including enduring an inspection).

2. Why were such arrangements established?

The primary goal is to ensure fair competition in the construction sector. As the sector has a high percentage of envelope wages and VAT fraud, entrepreneurs who are honest and correctly pay compulsory taxes suffer the damage.
From the perspective of the Estonian Tax and Customs Board, the aim is to reduce the risk of VAT and labour tax fraud. From the point of view of the Police and Border Guard Board, more effective supervision of compliance with the requirements established for foreign employees is important. Supervision over ensuring the requirements of the working environment will become more effective from the perspective of the Labour Inspectorate.

The main contractor also has an overview of the persons present at the construction and their proper registration. Every construction company and employee will have access to the data collected about them in the TTKI system at the e-services environment e-MTA.

3. Will the Tax and Customs Board start tracking builders and monitoring their location?

Data collected on constructions and employees is similar to the data already being collected (e.g. location of work). No sensitive personal data is collected.

The main contractor must submit to the Estonian Tax and Customs Board (ETCB) once a day the summarised time of each person's stay at the construction on the previous day and, up to three times a week, the time of entry and exit of each person from the construction in an impersonalised form.

The ETCB will not track people, data will be checked automatically. If the automatic check detects anomalies (for example, an employee card has been used in several places at the same time or for a period significantly longer than working hours, etc.), only then is the data checked on a company or individual basis.

4. Does the construction have to be registered even if construction work lasts less than 30 working days or there are always less than 20 builders at the construction at the same time?

In this case, the overall building volume of the construction must be monitored. If the total volume is more than 500 man-days, the construction must be registered and the corresponding requirements apply. The work volume is calculated based on the total work volume of all workers participating in construction work.

Examples

• 10 builders work at the construction for 51 days. In total, it is 510 man-days and the construction must be registered.
• 5 builders work at the construction for 101 days. In total, it is 505 man-days and the construction must be registered.

Even when building in stages, the total volume must be followed, not, for example, the contractual volumes of different stages. For example, if building the construction is divided into three stages and the volume of each stage is 200 man-days, then the total work volume of the construction is 600 man-days. This is even if, at each stage, the construction work is carried out by different companies under contract and there is a break between the stages.

5. What to do if the planned volume of construction work is below the threshold for registration, but during construction work it becomes clear that it will still be exceeded?

If the planned volume is below the threshold, but it is still exceeded, then the construction must be registered at the moment when it becomes clear that the actual volume will exceed the threshold. If it is later possible to prove that exceeding the threshold was known from the beginning or obvious, and if the construction was not registered or it was done too late, then it is a violation of requirements.

6. How should the data be submitted if a construction has several main contractors?

Reporting is based on constructions, and main contractors do not have to submit the same data twice for one construction. In the TTKI information system, we recommend indicating the roles of the main contractors according to how the contractual obligations between them and the customers are structured. One of the main contractors should be the main contact person and data provider, but legally both main contractors are jointly and severally responsible for reporting.

If the customer pays both main contractors separately for the construction work, we recommend that one of the main contractors be marked as the main contractor (subcontracting chain of the main contractor) and the other as a contractual partner of the customer (subcontracting chain branching from the customer).

If the customer pays one of the main contractors for construction work and the main contractors then settle between themselves, we recommend listing the other contractor as a subcontractor of that main contractor. In both cases, the main contractor performing the so-called representative function marks as its subcontractors the persons from whom it, alone or together with another main contractor, buys construction work (pays itself or together with another main contractor). The second main contractor indicates in the subcontracting chain the subcontractors to whom it pays itself for the construction work. To put it very simply, we recommend that the subcontracting chains be indicated in the TTKI information system according to the movement of funds, which should reflect the structure of contractual relations as closely as possible.

7. How much taxes are outstanding in the construction sector due to violations?

The estimated tax loss in the construction sector has been over 20 million euros per year for years. The practice of the Estonian Tax and Customs Board shows that interest in keeping the price of construction low significantly inhibits the desire of main contractors to check which legal and natural persons operate at constructions. Abuses and tax offences (including the use of informal labour) often take place in the remotest links of the subcontracting chain. Upper links may not be directly involved in violations, but they may be aware of it or at least acknowledge the existence of violations and, for one reason or another, agree to such conduct on its constructions. At the same time, until the introduction of TTKI, there was also no tool that would allow an entrepreneur interested in higher tax compliance to easily make sure that the requirements related to the use of labour were met in the entire subcontracting chain and to avoid the choice of risky business partners more consciously and confidently.

8. What is the cost for construction companies for complying with the new rules and who will pay for it?

The costs for the main contractor are estimated at 100–1,000 euros per month per construction, depending on the size of the site, the number of employees and the functionality of the software used. The cost/rent of a turnstile, gate, etc., the presence of which is not mandatory, but recommended (already in use at many sites today), may be added to this. The exact prices are determined by the respective service providers and they are formed under conditions of competition.

If the main contractor has its own electronic registration system in use, this can continue to be used if an interface with the TTKI system is developed.

Other construction companies (and general contractors) have a cost of up to 6.67 euros (plus VAT) per employee for obtaining employee cards. Employee smart cards will be issued by the Estonian Tax and Customs Board’s contract partner Hansab AS based on the public contract. The cost must be borne by construction companies.

If the employee has several employers, one valid employee card is sufficient. If the employer changes, and there already is a valid existing card, a new card does not have to be ordered – the employer's information is changed in databases.

9. Who are the service providers offering electronic registration systems?

The electronic registration systems interfaced with the TTKI system, are provided to construction companies by the following service providers (in the list at their own request):

• Remato Solutions OÜ, [email protected]
• Cramo Estonia AS, [email protected]
• Ramudden OÜ, [email protected]
• AS G4S Eesti, [email protected]
• IDsys OÜ, [email protected]
• OÜ Hardmeier (FoxSec), [email protected]
• OÜ Rapid Security, [email protected]
• InfraFLY OÜ, [email protected]
• Wemply OÜ, [email protected]
• Valvekoondis OÜ, [email protected]
• Ramirent Baltic AS, [email protected]
• Tehnoloogia Rakenduskeskus OÜ (Terake), [email protected]
• ID Network OÜ, [email protected]

If there are other service providers who plan to start offering electronic registration systems compatible with TTKI and would like to be included in this list or wish to receive the documentation of the interface with TTKI, please contact the Estonian Tax and Customs Board by e-mail at [email protected].

10. Who needs to enter and transmit information to the TTKI system?

The main obligation to submit data lies with the main contractor. However, it is worth keeping in mind that entering most of the information is a one-time activity. As much data as possible is uploaded to the TTKI system from other national databases (based on the entered registry code/personal identification code) and the information about time of stay the at construction is automatically received in the TTKI system.

However, all persons who perform and order construction work must register their subcontractors and employees allowed at constructions in the TTKI system, as well as, for example, the owner supervision.

11. What happens if the construction does not have an internet connection (for example, the construction is in an area with insufficient mobile coverage) and daily submission of data to the system is not possible?

In this case, the data will arrive in the TTKI system when the internet connection is established/restored, and late data exchange is understandable for objective reasons (lack of internet).

12. Do guests and people who bring materials to the construction also need to be registered?

The time of entering and leaving the construction must be fixed for all people allowed at the construction who are:

1. people doing construction work;
2. visitors who do not perform construction work;
3. people who are not doing construction work but are at the construction in connection with work tasks.

The only exception is transport workers. People who deliver goods or materials necessary for construction work to the construction do not need to be given a card as a means of identification and the time of their stay at the construction does not have to be recorded. However, if the person bringing the materials also participates in the construction work, he or she must be registered. For example, if the driver of a concrete truck only delivers concrete and starts the pump, he or she can be considered a person delivering materials. However, if he or she, in addition to transporting concrete, directs the concrete jet to the structure according to the project/instructions, then this must be considered construction work and the person a person performing construction work.

Guest cards can be used to register guests. Visitors are not considered to be people who pass through an open construction site (e.g. drivers passing through the area during the construction of an intersection and residents moving in and out of the house during the renovation of an apartment building).

13. How to register workers in the construction of roads and other infrastructure?

Infrastructure objects and other open objects are subject to the same requirements as other constructions. However, in the construction of roads and infrastructure objects, instead of registering with cards, it is more reasonable and convenient to use, for example, mobile phone-based registration systems.

14. How to act in the case of a construction of a national defence or security institution?

The construction of a national defence building and a building of a security institution and its subcontractors are registered in the TTKI system in the same way and on the same basis as other constructions, but the workers allowed at the construction are not indicated in the system. No electronic registration system will be installed on such a construction, and information about the stay at the construction will not be collected or transmitted. A construction can be registered as a national defence or security institution building in the TTKI system only if its customer is a corresponding state agency.

15. What happens if the obligation to report the subcontracting chain and duration of work is not fulfilled?

The law provides for commencement of misdemeanour procedures and the possibility of applying a non-compliance levy.

16. Are there similar rules for construction companies in other countries?

Yes, similar information systems are in use and the registration obligation applies in several countries. The requirement to register the employees of larger constructions and the time they stay at the construction has been established, for example, in Finland, Sweden and Latvia. In preparing the Estonian rules, we have studied and considered the experiences of other countries.

17. Which interest groups have been involved in the discussions about establishing the new rules?

The Estonian Association of Construction Entrepreneurs, Estonian Chamber of Commerce and Industry, Estonian Trade Union Confederation, Estonian Infra Construction Association have been involved in the discussions.