For war refugees from Ukraine

28.03.2022 | 09:49

Registration of employment and taxation of wages in Estonia.
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Due to war in Ukraine, refugees have arrived in Estonia from Ukraine and are ready to work in Estonia. There are also employers in Estonia who want to offer work in Estonia to people who have arrived from Ukraine.

The Estonian Unemployment Insurance Fund will help you find a job. Information on the website and in the e-environment of the Estonian Unemployment Insurance Fund is available in Estonian, English and Russian. Some information is also available in Ukrainian.

Employment registration

The Estonian employer registers you in the employment register before starting work. For this purpose, the personal identification code issued to you in Estonia will be used. If you do not have a personal identification code and it is not possible to apply for it before starting work, the Estonian employer can register your employment with your date of birth for up to five days. If you receive an Estonian personal identification code, the employer will change the entry in the employment register.

The Labour Inspectorate, the Estonian Unemployment Insurance Fund, the Estonian Health Insurance Fund, the Social Insurance Board and the Police and Border Guard Board have the right to use the data of the employment register.

An entry in the employment register guarantees you health insurance in Estonia.

Taxation of salary

Your salary is declared and taxes are paid by the Estonian employer from the first day of employment in Estonia. Taxation of your salary is different if you are

  • a resident of Estonia or
  • a resident of Ukraine.

Residency is determined by the Estonian Tax and Customs Board. To do this, you must submit an application form for determination of residency (form R). The application can be conveniently submitted in the e-services environment e-MTA or you can send the form R digitally signed to the e-mail address emta@emta.ee or submit it to the most suitable service bureau.

As a war refugee, you do not have the opportunity to return to your former permanent residence in Ukraine and it is not known if and when this opportunity will reopen for you, the Estonian Tax and Customs Board considers your place of residence to be Estonia, where you live and work. Therefore, you have the opportunity to submit a form R and you will be appointed a resident of Estonia.

As an Estonian resident, your employer declares and pays your salary on a monthly basis:

  • income tax 20%,
  • social tax 33%,
  • unemployment insurance premium (employee rate 1,6% and employer rate 0,8%), and
  • contributions to mandatory funded pension 2%.

As an Estonian resident, your current general tax-free income of up to 500 euros per month applies to you if your salary does not exceed 1200 euros per month. This means that if your salary is up to 1200 euros per month, 20% income tax will be levied up to 700 euros per month (1200 – 500 = 700).

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As a non-resident (as a resident of Ukraine), your employer declares and pays your salary on a monthly basis:

  • income tax 20%,
  • social tax 33%,
  • unemployment insurance premium (employee rate 1,6% and employer rate 0,8%).

NB! As a resident of Ukraine, you are not entitled to general tax-free income and it is not possible to join a funded pension, i.e. Pillar II.

Estonian pension system and payment of funded pension 2%

Estonian pension system consists of the so-called three pillars:

  • state pension or Pillar I. 33% of the social tax paid by the employer is 20% of the state pension, ie the share of the first pillar (16% for people who have joined the second pillar) and 13% of the the health insurance.
  • funded pension or Pillar II. In the case of people who have joined the second pillar, 2% of the funde pension tax is deducted from their salary, and 4% is added to it at the expense of the first pillar or social tax.
  • supplementary funded pension or Pillar III.
     

Payment of funded pension payments (Pillar II)

As an Estonian resident, people who were born in 1983 and later will immediately join a funded pension, i.e. the second pillar.

If you do not want to join a funded pension, i.e. Pillar II, it is very important that you submit an application (separate form – application for non-payment) in the self-service environment of the Pension Center "My pension account“, in the internet bank or at a bank branch on the spot.

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You do not have the possibility to use an ID card or Mobile ID or Internet banking, it is necessary to go to the bank branch on the spot. You can also find the bank branches of larger centers from the link above, where you can go to apply even if you are not a customer of a specific bank.

If you submit a non-payment application, you will only be able to re-join the funded pension, i.e. Pillar II, after 10 years.

The withholding and termination of the funded pension, i.e. the payment of the second pillar, starts and ends 3 times a year: from 1 January, 1 May or 1 September (depending on when you submit a non-payment application). You can read more at the website of the Pension Center (in Estonian).

Frequently asked questions on tax residency

Residency for tax purposes (tax residency) is a term used when determining whether a person pays income tax in that country on his or her worldwide income or only on that country’s income.

The Social Insurance Board or the Estonian Unemployment Insurance Fund will also verify the recipient’s tax residency when deciding on granting benefits and supports.

The amount of income tax calculated on a person’s income also depends on tax residency, because non-residents have a different income tax rate for some types of income (licence fee, performance fee 10%) or there is a different tax exemption (interest).

For example, a non-resident cannot deduct the basic exemption (up to 6,000 euros per calendar year) from his taxable income in Estonia if he or she is not a resident in a country that is a member of the European Economic Area (European Union Member States, Iceland, Liechtenstein, Norway).

Tax residency does not depend on or alter the citizenship of a person, i.e. residency does not residency grant citizenship or take it away.

A resident of Estonia is a person whose permanent place of residence is in Estonia or who stays in Estonia for at least 183 days within 12 consecutive calendar months. Double residency is also avoided; i.e. if a person is a tax resident in another country, it is important to consider whether the person has a place of residence only in Estonia, where is his or her family, where he or she is spends more time.

Tax residency cannot be decided by a person himself or herself, because it depends on his or her connection to Estonia: where is his or her home, family, and where does he or she spend more time.

Since all these circumstances need to be considered as a whole, but not all this information is available in the state databases, the person must contact the Estonian Tax and Customs Board and submit the application for determination of residency (form R).

The determination of residency is important for income tax to be calculated on the income of a person correctly and in the right country, and it determines the entitlement to some benefits or supports.

Estonian residents pay income tax in Estonia on their worldwide income, double taxation is avoided, foreign income tax reduces the Estonian income tax amount (if a certificate is available) or, depending on the type of income and circumstances, income taxed abroad is exempt from taxation in Estonia. On the basis of a one-time application, the basic exemption of up to 500 euros per calendar month can be deducted from payments made to an Estonian resident, depending on the amount of the person’s income.

A funded pension contribution is withheld from the salaries and wages of a resident if the recipient is of the corresponding age and has joined the second pillar pension. The contribution to the funded pension will not be withheld from a non-resident’s salaries and wages.

At the same time, for example, if a non-resident works outside of Estonia, his or her salaries and wages are not subject to any income tax at all in Estonia.

Since the amount of income tax depends on residency, in the case of incorrect data on residency in the database of the Estonian Tax and Customs Board, taxes on salaries and wages or other payments may be calculated in a higher or lower amount than required by law.

Thus, the application for determination of residency must be submitted both upon arrival in Estonia and upon departure.

In order to determine residency, one must fill in the application for determination of residency (form R) and answer the questions in it regarding arrival in Estonia; then sign and submit it to the Estonian Tax and Customs Board. Send the digitally signed form R by e-mail to emta@emta.ee, submit it in the Estonian Tax and Customs Board’s e-services environment e-MTA (select Registers and inquiriesRegistrationDetermination of residency from the menu) or submit it on paper in a service bureau.

A notation on the residency is made to the database of the Estonian Tax and Customs Board according to the answers of the person, which allows payers to obtain this information about the recipient’s tax residency status and to calculate the taxes correctly on payments made in Estonia.

If a person leaves Estonia, he or she must submit an application for determination of residency on departure from Estonia.

Useful to know

Since in Estonia the basic exemption depends on the person’s worldwide income, the final tax amount is calculated on the basis of the income tax return submitted by the person per calendar year. Some people, therefore, receive a refund of part of the income tax withheld on their wages and salaries and some have to pay additional income tax.

During the year, it is possible to check in the e-services environment e-MTA:

  • the taxes paid on your salaries and wages (Registers and inquiriesMy inquiriesMy employments), and
  • the use of basic exemption (Registers and inquiriesMy inquiriesMy income) because the person himself or herself can submit a request for the application of the basic exemption to one employer.

It is possible to check in the e-services environment e-MTA (My employments) whether an entry of employment has been made in the employment register. It should be noticed that the tax calculation is cash-based, i.e. if a person starts working in January and receives a salary in February, the data on the taxes paid on the salaries and wages will be visible after 10 March.