15 Important Amendments That Entered Into Force In 2018
At the beginning of 2018, over 400 legal acts entered into force, including various changes in taxes that have an impact on entrepreneurs. From 1 January 2018, the rules for the taxation of company cars changed, certain sports expenses were exempt from the fringe benefit tax, fuel excise duties were increased and road use fee was established for trucks. The packaging tax, sweets tax and pledge income tax that were discussed a lot during the first half of 2017 did not materialise at least at the beginning of the new year as a result of the pressure from the Chamber.
The Chamber has prepared an overview of the most important amendments for entrepreneurs, which entered into force on 1 January 2018.
Changes in Company Cars’ Taxation
From 1 January 2018, there is an obligation to pay road use fee for trucks with full load of 3.5 tons that are driving on Estonian public roads. Starting from the new year, the use of company cars for personal purposes is taxable based on the vehicle’s capacity. For vehicles that are up to 5 years old, the fringe benefit price rate is 1.96 euros per kW, for vehicles older than 5 years, the rate is 1.47 euros per kW. As a result of such calculation, the obligation to keep logbooks for company cars was abolished, which will decrease the administrative burden on companies as well as the Tax and Customs Board. However, the positive impact is reduced by the too high fringe benefit price. During the processing of the draft, the Chamber proposed establishing a lower tax rate, but this proposal was unfortunately not taken into account.
If a company car is not used for non-business related trips at all, the company must inform the Road Administration thereof when taking the vehicle into use. In such case there is no obligation to pay the fringe benefit.
Procedure for using personal passenger cars for work did not change.
Sporting Expenses Exempt From Fringe Benefit
From 1 January 2018, expenses made for the promotion of an employee’s health will not be taxed as fringe benefit to the extent of 100 euros per quarter per employee. The Chamber also contributed to realising this important and positive amendment. However, not all expenses related to sports and health promotion are exempt from tax, but only some of them. Exempt from the fringe benefit tax are the participation fee in a public sports event; expenses directly related to the regular use of a sports or exercise location (e.g. monthly fee of a sports club); expenses made on the upkeep of the employer’s existing sports facility; expenses on the services of rehabilitation physician, physiotherapist, activity therapist, clinical speech therapist or clinical psychologist and insurance payments of the medical insurance contract.
Income Tax Act
Increased Excise Duties
Despite of the opposition from the Chamber, the excise duty on natural gas and liquid gas increased by 25 percent from 2018. The excise duty on petrol increased by 10 percent. A good news is that the initially planned 10-percent increase of diesel fuel will not come to effect in 2018.
As a result of the negative impact of the border trade, the Chamber proposed to not to realise the increase of the alcohol excise duty planned for the new year. However, the excise duty will be increased from 1 February, but to a smaller extent than planned. The excise duty of beer and wine, and fermented drinks the ethanol content of which is six percent will be increased by 9 percent instead of the previously planned 18 percent. The excise duty of other alcohol is planned to be increased by 5 percent instead of the previously planned 10 percent.
From 1 January, e-cigarettes are taxed with a 0.2 euro excise duty per one millilitre of liquid. Both e-liquids with nicotine content and without nicotine content are taxed with the excise duty. Additionally, the excise duty rate of the cigarettes was increased by 8 percent.
Road Use Fee Imposed On Trucks
From 1 January 2018, there is an obligation to pay road use fee for trucks with full load of 3.5 tons that are driving on Estonian public roads. The fee is applicable for vehicles registered in Estonia as well as those registered abroad and its amount depends on the laden mass of the truck and its trailer, number of axis, exhaust gas class of the truck and for which period the right has been purchased. The daily fee is within 9-12 euros, 30-day fee 50-120 euros and 365-day fee 500-1,300 euros. The obligation to pay the fee lies with the owner or if an authorised user of the truck has been entered into the traffic register, on the authorised user. However, the user is obliged to check before driving if the fee has been paid. If the fee has not been paid, the supervisory authority is entitled to stop the vehicle until the fee is paid and impose a fine for the driver as well as the person who allowed the vehicle to be driven.
Board Members Can Register As Unemployed
From 1 January 2018, the possibility of board members to register themselves as unemployed and receive unemployment insurance benefit was restored. For that, a board member has to meet the three requirements:
- they do not receive a fee for being a board member;
- they have paid the unemployment insurance payment for at least 12 months during the 36 months prior to registering as an unemployed person;
- they have not left the last place of employment or service on their own initiative or by an agreement between the parties not have they caused the loss of the job themselves.
Additionally, sole proprietors and spouses participating in the activities of the company of the sole proprietor can register as unemployed if the activities of the sole proprietor’s company have been suspended or seasonal activities have stopped and they meet the conditions for receiving unemployment insurance benefit.
See more: Labour Market Services and Benefits Act
Minimum Salary Increased To 500 Euros
From 2018, the minimum salary for full-time employment increased from 470 euros to 500 euros per month. The minimum limit of hourly salary is 2.97 euros (previously 2.78 euros) from 1 January.
Minimum Social Tax Obligation Increased To 155.1 Euros
The monthly rate on which the minimum social tax obligation is based increased to 470 euros in 2018. This means that employers are required to pay at least 155.1 euros of social tax per month in order for the employee to have social insurance.
Procedure For Concealed Profit Distributions Clarified
As a result of the pressure from the Chamber and other business organisations, the state gave up the idea of the pledge income tax, which would have brought along income tax on loans given inside group companies. Instead of this initiative, the Income Tax Act now includes a principle according to which a company must pay an income tax on the loan granted to a shareholder, partner or member of the company if the circumstances of the transaction reveal that it might be concealed profit distribution.
Additionally, companies are now obliged to submit to the Tax and Customs Board a declaration on the loans granted to and repaid by the abovementioned persons during the previous quarter.
Income Tax Act
Lower Income Tax On Regular Dividends
From 1 January the amendments of the Income Tax Act establishing a 14-percent income tax rate on regular dividends entered into force. The lower tax rate can be used only if profit is distributed to legal entities. If the dividends are distributed to individuals, the company has to withhold an additional 7 percent of income tax.
Regular dividends are distributed profits that are smaller than or equal to the average taxed distributed profit of the three previous calendar years. Upon calculating the average dividends of the previous three years, the first year is considered to be 2018. This means that in 2019, one-third of the profit distributed in 2018 can be taxed with the lower tax rate in 2019. The 14-percent tax rate can be fully applied in 2021.
Income Tax Act
Tax-Free Income Increased To 500 Euros Per Month
From 2018, the tax-free income increased to 500 euros per month and in order to deduct it from the salary, each person has to submit a respective application to the employer. With salary up to 1,200 euros, the tax free income is 500 euros, when the salary increases from 1,200 euros to 2,100 euros, the tax free income rate is decreased by 1 euro per each 1,80 euros that exceed the 1,200 payment. For salaries that exceed 2,100 euros, the tax-free income is 0.
For employers, the application of the new tax arrangement will become significantly more complicated, especially in areas where the salary can be very fluctuating or irregular bonuses are paid. In order to avoid negative surprises, the employer should have a very clear understanding of the calculation of the tax-free income and explain it thoroughly to the employees. At that, the tax free income should be calculated individually for each employee and the employer should take into account that each employee may submit the application for tax free income each month. Additionally, the employers are recommended to review the applications for calculating tax free income submitted by their employees previously and give the employees recommendations for calculating smaller tax-free income or not calculating it at all. Although different programmes are of help in carrying out the more complicated payroll calculations, the new procedure presumes monthly communication with the employees and in the case of companies with a larger number of employees this might prove to be a great challenge.
See more: Income Tax Act
Changes In Tax Declaration Forms
From the new year, the forms of several tax declarations were amended in order to ensure their accordance with the amendments of the Income Tax Act, which entered into force in 2018. For example, the form INF 14 has been updated with the third and fourth part. In the third part, the employer is required to indicate the sum of tax free expenses made to promote the health of employees. Additionally, the number of employees to whom such expenses have been compensated without the fringe benefit during the year has to be indicated. In the fourth part of the form INF 14 the sums of loans given and repaid during the quarter must be declared.
See more: Updated forms of tax declarations
Limit For Value Added Tax Obligation Increased
From 1 January 2018, registration as an entity subject to taxation with the value added tax is obligatory for companies whose taxable income from the beginning of a calendar year exceeds 40,000 euros instead of the previous 16,000 euros.
See more: Value Added Tax Act
New Labour Disputes Settlement Act Entered Into Force
From 2018 it will be possible to settle all claims arising from an employment relationship at the labour dispute committee and there are no more restrictions such as the claim having to arise from an employment contract. This means that the labour dispute committee can now settle disputes that arise from other legal acts that regulate the relationship between the employer and employee. For example, disputes arising from collective agreements can be settled there.
Starting from this year, the maximum limit for financial claims was abolished, which was 10,000 euros. Furthermore, the law extends the period for the review of the application, which will be 45 days. This means that when an application is taken in, the labour dispute committee has to reach a conclusion during that time. The law also amends the time when the decision has to be announced, which from the new year will be 10 working days instead of the previous 5 working days.
Additionally, the competence of the chair of the labour dispute committee was increased, giving them the possibility to settle the issue by written procedure, conciliation procedure or with a compromise. Furthermore, the chair of the labour dispute committee was given the authority to settle the disputes of up to 6,400 euros sitting alone and in writing.
See more: Labour Disputes Settlement Act
Tax Environment For Sole Proprietors More Favourable
As one of the most important amendments, the maximum limit of the social tax obligation for the sole proprietors was decreased to the annual sum of the 10-time minimum wages. The rules for the social tax minimum obligation and advance payment calculation for sole proprietors became more flexible. For example, sole proprietors now have the possibility to decrease the minimum obligation of social tax due to temporary incapacity for work. Several tax benefits established for employees were extended to the sole proprietors. For example, from 2018, the sole proprietors have the possibility to make tax free expenses on sports and health promotion to the extent of 100 euros per quarter. From 2018, the period of transfer of loss was extended for sole proprietors from the current seven years to ten years.
New Form Of Business – Business Account
From 2018, people will be given a legal basis to be engaged in small business without the burden of bureaucracy. For that, one has to open a business account at the bank, and the sums received there will be automatically taxed with 20 percent, which will be collected by the Tax Board. This tax will cover income tax, social tax and funded pension payment. However, no expenses made to earn the revenue received to the business account can be deducted. At the same time it is positive that the owner of the business account does not have to submit tax declarations to the Tax and Customs Board and they have no accounting obligation.
If a person is rendering a service to a legal entity via a business account, legal entities should pay corporate income tax on the sum of the service. The aim is to avoid situations where employment on the basis of an employment contract is replaced with rendering a service via a business account in order to decrease tax burden.
Although the legal basis for creating a business account exists from now on, people will not be able to open the business account at the beginning of the year. Presumably, at least one bank will be offering the business account service in the second half of 2018.
See more: Business Income Simplified Taxation Act
Should you have any questions regarding the legal acts that entered into force at the beginning of the year 2018, please contact the jurists of the Chamber by writing to juristid[at]koda.ee.