Social tax amendments effective from 2027

•    The current tax regulation, according to which a resident individual, when purchasing a service from another individual (unless that individual is a self-employed person or a person using an entrepreneurship account) on the basis of a contract under the law of obligations, had to enter the individual providing the service in the employment register, submit the income and social tax declaration form TSD and pay social tax and social insurance contributions (mandatory funded pension and unemployment insurance contributions) on the remuneration paid to the person, will be abolished. However, under current tax rules, the obligation to withhold income tax did not arise in such a situation and the obligation to declare income remained with the individual providing the service.
•    From 2027, the individual paying the service fee will be exempted from the obligation to pay social tax and social insurance contributions (mandatory funded pension and unemployment insurance contributions), submit the TSD form and enter the service provider to the employment register. The new law amendment imposes the obligation to pay social tax and social insurance contributions on the recipient of the service fee, which is similar to the tax treatment of the income tax liability on that fee.
•    In addition, the tax regulation will be amended in a situation where a non-resident employee from a so-called third country works in Estonia for a short period of time for a non-resident employer. According to the current tax rule, a non-resident employer would be liable to pay social tax and unemployment insurance contributions in Estonia and to register as a non-resident employer from the first day of the employee's work-period in Estonia.
•    The fulfilment of Estonian income tax liability on salary income will not be changed and it will still arise for a non-resident employee in this situation only if he or she has stayed in Estonia for at least 183 days during 12 consecutive calendar months.
•    According to the amendment to the law, the non-resident employer from a third country (which is not a tax resident in the European Economic Area, the Swiss Confederation or a country that has concluded a social security agreement with Estonia and who does not have in these countries a permanent establishment, through which or on account of which the remuneration is paid) will be exempted from 2027 onwards from the obligation to pay both social tax and unemployment insurance contributions in case of up to 183 days stay of its non-resident employee in Estonia and will be also not liable to register as a non-resident employer in Estonia.
•    As an additional condition, the non-resident employee must have a valid health insurance contract during his stay in Estonia, which ensures that in the event of illness or injury, his medical expenses incurred in Estonia will be paid.
•    The purpose of the amendment is to facilitate the possibility of non-resident employees from a third country to work remotely in Estonia, but the described tax exemption does not apply in a situation where a non-resident individual is paid for hiring out of labor in an Estonian user company or if the third-country employer creates a permanent establishment as a result of the activities taking place here.
•    The payment of social tax is also specified in a situation where, in the case provided for in § 331 of the Employment Contracts Act, the obligation to pay remuneration to the employee is transferred from the employer to the person who ordered the subcontract. In such a case, from 2027, the obligation to pay taxes will also be transferred to the person who ordered the subcontract.