Pursuant to subsection 1 of § 48 of the Income Tax Act, employers pay income tax on fringe benefits granted to employees.
Based on clause 7 of subsection 1 of § 2 of the Social Tax Act, social tax is paid on fringe benefits within the meaning of the Income Tax Act, expressed in monetary terms, and on income tax payable on fringe benefits.
Declaration
The period of taxation of fringe benefits is one calendar month. The employer declares the fringe benefits granted to employees and income and social tax calculated on fringe benefits during a calendar month in Annex 4 of the form TSD, which must be submitted together with the form TSD to the Estonian Tax and Customs Board by the 10th day of the month following the calendar month in which the fringe benefit was granted. The tax amount is paid to the bank account of the Tax and Customs Board by the same date at the latest.
Legal basis
Handbook “Fringe benefits”
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Share options
The Estonian Tax and Customs Board defines a share option in the meaning of subsection 53 of § 48 of the Income Tax Act as a derivative contract concluded with the employer, which gives the employee the right (not the obligation) to buy options from the issuer or to sell options to the issuer at the exercise price specified in the contract of the underlying asset and within the term fixed in the contract.
The underlying asset of the share option is a holding in the employer or in a company belonging to the same group as the employer. The purpose of share options is to include employees in the circle of partners/shareholders and thereby increase their productivity and efficiency and reduce staff turnover.
It is not considered a share option if, when granting the option, it is known in advance that the employee will not receive a share in the employer or in a company belonging to the same group as the employer, but the employer will pay the employee the price of the underlying securities. In this case, the payment is treated as wages, salaries, or additional remuneration, from which all labour taxes are payable.
The granting of a share option is not considered a fringe benefit. No tax liability arises when a share option is granted.
Last updated on 08.01.2025
Last updated: 05.11.2025