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Hiring in Estonia

Estonia, officially known as the Republic of Estonia, is a country in Northern Europe. Tallinn is the capital and the largest city of Estonia. Some of the major sectors of Estonia are oil shale energy, textiles, banking, services, electronics, transport, fishing and telecommunications. Estonia’s main trading partners are Finland, Sweden, Germany, Russia, and Latvia. Global PEO or Employer of Record (EOR) play a pivotal role in providing companies with services related to hiring employees, and ensuring compliance with Estonia’s legal and tax regulations. Employment regulations including probation, holidays and termination are covered by the Labor Code. The Labor Code stipulates that employees are entitled to 28 calendar days of paid annual leave. Estonian residents are taxed on their worldwide income. Non-residents are taxed on their Estonian-source income. Global PEO’s or Employer of Record (EOR) facilitate companies by ensuring compliance with Estonia’s Labor Code and tax laws.

statutory labor requirements

Probation Period

  • Estonia offers the possibility of probationary period that cannot be longer than 4 months

Annual Leave

  • The employee's annual leave entitlement is 28 calendar days.

Public Holidays

  • Public holidays in Estonia consist of religious and national holidays observed by Estonians across the country
    1. New Year’s Day (1st January)
    2. Independence Day (24th February)
    3. Good Friday (10th April)
    4. Easter Sunday (12th April)
    5. Spring Day (1st May)
    6. Pentecost Sunday (31st May)
    7. Victory Day (23rd June)
    8. St. John’s Day (24th June)
    9. Independence Restoration Day (20th August)
    10. Ethnicity Day (17th October)
    11. Christmas Eve (24th December)
    12. Christmas Day (25th December)
    13. Boxing Day (26th December)

Maternity Leave

  • Mothers in Estonia are given 140 days of fully paid pregnancy and maternity leave, which may begin 30-70 days before the expected delivery date

Paternity Leave

  • Fathers in Estonia are given two weeks of paid time off to promote extra bonding with their child.

Sick Leave

  • In case of sickness, the employee can be given up to 182 calendar days of paid sick leave (max 250 days per year). 
  • The gross wage during this period is 70% of his or her last years` average salary. 
  • The employer pays the wage from the 4th to 8th day of sickness and the state starting the 9th day.

Work Hours

  • The standard working week is 40 hours with an 8-hour day.
  • Business hours are Monday to Friday, from 9 a.m. to 6 p.m. with an hour for lunch.

Overtime

  • Overtime is compensated by granting time off, which must be granted to the employee as soon as possible after working overtime. 
  • Time off is granted from the employee’s working time to the extent equal to the overtime and must be remunerated as normal working time. 
  • The employee and employer may agree that overtime is compensated by 1.5 times of the wages.

Notice Period

  • An employer must give an employee advance notice of extraordinary cancellation which depends on the time the employee’s employment relationship with the employer has lasted:
    • less than one year of employment – no less than 15 calendar days
    • one to five years of employment – no less than 30 calendar days
    • five to ten years of employment – no less than 60 calendar days
    • ten and more years of employment – no less than 90 calendar days.

Severance

  • In cases of termination of the employment contract due to redundancy, the employer must pay compensation in the amount of one month's average wage of the employee calculated on the basis of the previous six months' wage.
  • In case the cancellation of a fixed term contract due to redundancy, the employer must pay compensation to the extent that corresponds to the wage that the employee would have been entitled to until the expiry of the contract term. No compensation shall be paid if the employment contract is cancelled due to force majeure.
  • If an employer gives advance notice of cancellation later than provided by law or a collective agreement, the employee has the right to receive compensation to the extent to which he or she would have been entitled to upon adhering to the term for advance notice.
  • If the employer wishes to terminate the employment contract with immediate effect, the employer may choose to remunerate the advance notice period in money. 
  • Those employed with the same employer from 5 to 10 years are entitled to an additional one month's salary from the Unemployment Insurance Fund. For persons who have been working for the same employer 10 or more years, two months' salary is added by the Fund.

13th / 14th Month Pay

  • No
  • There is no statutory requirement to pay the 13th or the 14th month salary.
  • It is not customary for those to be paid.
  • Employees give benefits in the form of health insurance or other non monetary means.

income tax

  • An individual who is a resident of Estonia is liable to tax on worldwide income, irrespective of the origin of the income. Non-residents are taxed on their Estonian-source income.
  • Taxable income includes both active income, such as employment and business income, as well as passive income, such as capital gains, rents and royalties, interest, dividends, certain insurance proceeds, pensions, scholarships, grants, prizes and lottery winnings, etc. This list is not exhaustive; consequently, any income derived by a resident individual not falling within the above categories is taxable, unless a tax exemption is available.
  • Most items of personal income are taxed on a gross basis, mainly through withholding at source, whereas business income and capital gains are taxed on a net basis subject to certain conditions.
  • There are no special taxation rules for expatriates.
  • Estonia has a proportional (i.e. flat) tax rate of 20%, which applies to all items of income derived by a resident taxpayer. From 2018 onwards, dividends that have been subject to the reduced rate of 14% at the level of the distributing Estonian company will have WHT of 7% levied. Certain pension payments are subject to 10% income tax.
  • There are no local taxes on income.

Income Tax Rate

Standard Flat Rate

20%

Reduced Rate (Dividends)

14%

Reduced Rate (Pension Payments) 

10%

deductible expenses

Personal Allowances and Deductions

  • Resident individuals are allowed to make certain deductions from their annual gross income. These include the basic personal allowance of EUR 6,000 (i.e. EUR 500 per month), which, from 2018, only applies to the full extent if annual income is up to EUR 14,400. For annual income over EUR 14,400, the yearly allowance is calculated under the following formula: 6,000 - 6,000 / 10,800 x (sum of income - 14,400). For annual income exceeding EUR 25,200, the basic allowance will be zero.
  • In addition, deductions are allowed for certain personal allowances, as well as certain deductible documented expenses, which fall into two categories.
    1. The first category includes certain mandatory payments, which can be deducted without any limitations, including unemployment insurance contributions, contributions to compulsory accumulative pension scheme, and certain obligatory contributions to foreign social security schemes.
    2. The second category includes deductions that are allowed for tax policy reasons and which have various limitations on deductibility. The second category includes certain bank and leasing interest paid in relation to acquiring personal residence, certain educational expenses, certain gifts and donations, and certain payments to personal pension schemes.
  • A resident individual has the right to deduct an additional amount of EUR 2,160 for one's resident spouse, provided that their total combined taxable income does not exceed EUR 50,400.
  • As of 2016, a 20% deduction is available for income from renting out immovable property. 20% is an estimate of incurred expenses related to the property; these expenses do not have to be documented.

Business Deductions

  • Business deductions can only be made from business income by individuals registered as sole proprietorships. For income tax purposes, sole proprietorships must follow cash basis accounting for their income and expenditure.
  • Sole proprietors have a right to open a special bank account where they can carry all their business income during the ten days after they have received it. The increase of the amount in that bank account is deducted from the taxable income of the sole proprietor and the decrease of the amount in the account is added to their taxable income.

Deductible Expenses

Personal Allowance

  • Basic personal allowance of EUR 6000 for annual income up to EUR 14,400
  • For annual income over EUR 14,400, the yearly allowance is calculated under the following formula: 6,000 - 6,000 / 10,800 x (sum of income - 14,400).
  • For annual income exceeding EUR 25,200, the basic allowance will be zero.

Personal Deductions: -

Category 1

  • Certain mandatory payments, which can be deducted without any limitations
  • It includes the following: -
  • unemployment insurance contributions
  • contributions to compulsory accumulative pension scheme
  • certain obligatory contributions to foreign social security schemes.

Category 2

  • Deductions that are allowed for tax policy reasons and which have various limitations on deductibility.
  • It includes the following: -
  • certain bank and leasing interest paid in relation to acquiring personal residence, 
  • certain educational expenses, 
  • certain gifts and donations, 
  • certain payments to personal pension schemes.

Other

  • A resident individual has the right to deduct an additional amount of EUR 2,160 for one's resident spouse, provided that their total combined taxable income does not exceed EUR 50,400.
  • As of 2016, a 20% deduction is available for income from renting out immovable property.

Business Deductions

  • Business deductions can only be made from business income by individuals registered as sole proprietorships. For income tax purposes, sole proprietorships must follow cash basis accounting for their income and expenditure.

immigration

  • Citizens of the EU, the EEA and Switzerland can stay Estonia and work here without a visa or residence permit. If they want to work in Estonia for more than 3 months, they just need to register as an Estonian resident in the Population Register of Estonia during the first 3 months of their stay.
  • If citizens of a non-EU country want to stay and work in Estonia for a longer time (longer than one year), they shall apply for a residence permit. At first, they have to apply for a temporary residence permit (for work up to 2 years with the first permit). After having lived in Estonia for 5 years on a temporary residence permit, they can then apply for a long-term residence permit.
  • The residence permits to the third country nationals and persons with undetermined citizenship are issued under the Aliens Act. Residence permit may be temporary (validity period up to five years) or long-term. Temporary residence permit may be issued to a foreigner: 
    1. for settling with a spouse; 
    2. for settling with a close relative
    3. for settling permanently in Estonia; 
    4. for study; 
    5. for employment; 
    6. for business 
    7. to participate in Criminal Proceedings.
  • Foreigners, residing in Estonia on the basis of residence permit, are, in general, permitted to work in Estonia. Separate work permits are not issued.
  • In addition to the employment in Estonia on the basis of a residence permit, a citizens of a non-EU country may work in Estonia temporarily for up to 365 days during a 455-day period if 
    • he/she stays legally in Estonia on the basis of visa or on the basis of visa-free stay and
    • whose employment has been registered prior to the commencement of work. 
  • Short-time employment for participation in seasonal work can be registered for up to 270 days during a year.

EU Blue Card

  • Highly qualified non-EU citizens can apply for a EU Blue card they must submit application for temporary residence permit (blue card) with the Police and Border Guard Board.
  • Applicants must hold a university or college diploma from an educational programme that lasted three years or more. 
  • Alternatively, you may prove your qualifications by showing at least five years of professional experience.
  • The potential employer must contact the Estonian Unemployment Insurance Fund for consent. The consent of the Estonian Unemployment Insurance Fund is not required for certain employment categories and in case of renewal. 
  • An applicant’s salary must be at least 1.5 of the most recent annual average monthly wage in Estonia

 

Type of Visa

Documentation

Validity

Eligibility

Temporary Residence Permit

  • Application forms
  • an application for temporary residence permit, when temporary residence permit is applied for
  • an application for the extension of temporary residence permit, when the extension of temporary residence permit is applied for
  • data of close relative and family members, when temporary residence permit is applied for and upon extension of residence permit, if the data has changed.
  • an identity document
  • 1 digital color photo
  • a document certifying the payment of the state fee

5 years (can be extended to

10 years)                                                                                                                                                                                                                                           

  • An alien may apply for residence permit for employment with an employer registered in Estonia and for scientific or research works, if the institution has been entered with the register of science and development institutions.
  • Temporary residence permit can be attained on the basis of the following
  1. EU Blue Card
  2. Scientific Research
  3. Employment as a top specialist
  4. Employment as a temporary agency worker
  5. Working at a start up 

EU Blue Card

  • Provide an assessment of a competent agency as regards the attestation of a professional qualification or documents or data that prove that the alien has at least five years of professional experience.
  • By signing the invitation, you confirm that you have concluded with the alien an employment contract that is valid for at least 1 year or made a binding job offer
  • Application forms
  • an application for temporary residence permit, when temporary residence permit is applied for
  • an application for the extension of temporary residence permit, when the extension of temporary residence permit is applied for
  • data of close relative and family members, when temporary residence permit is applied for and upon extension of residence permit, if the data has changed.
  • an identity document
  • 1 digital color photo
  • a document certifying the payment of the state fee

5 years (can be extended to

10 years)

  • High Skilled worker
  • An applicant’s salary must be at least 1.5 of the most recent annual average monthly wage in Estonia

value added tax

  • VAT is levied on the sale of goods and the provision of services within Estonia, intracommunity acquisition of goods, the import of goods and the provision of services that are taxable in Estonia and supplied by a foreign taxable person
  • The standard VAT rate is 20%
  • A reduced rate of 9% is available on items such as books, newspapers, medicines and accommodation.
  • Zero-rated items include exports, intracommunity supplies of goods, the sale of certain services to foreign persons and goods supplied on vessels and aircraft.

VAT Rates

Standard Rate

20%

Reduced Rate

9%

Zero-rated

0%

withholding tax

Dividends

  • Estonia does not levy withholding tax on dividends

Interest

  • Estonia does not levy withholding tax on interest other than interest derived by a nonresident investor from an Estonian contractual fund or other pools of assets.
  • This exception applies to contractual funds or other pools of assets only if more than 50% of the assets at the time the interest is paid, or at any time during the previous two years, consist, directly or indirectly, of Estonian-situs real property and the nonresident held at least 10% in the fund/pool at the time of payment

Royalties

  • A 10% withholding tax generally applies to royalties paid to nonresidents, unless the rate is reduced or an exemption applies sunder an applicable tax treaty.
  • Royalty payments to qualifying EU or Swiss-resident companies may be exempt if they meet the requirement for application of the EU interest and royalties’ directive

Technical Service Fees

  • A 10% withholding tax applies if technical services are rendered in Estonia.
  • Withholding tax is not applicable if the services are performed outside Estonian or if there is a tax treaty between Estonia and the service provider’s country of tax residence that provides for an exemption

WHT

Dividends

Estonia does not levy withholding tax on dividends

Interest

Estonia does not levy withholding tax on interest other than interest derived by a nonresident investor from an Estonian contractual fund or other pools of assets.

Royalties

10%

Technical Service Fees

10%

termination

  • An employment contract may be terminated by a declaration of termination made in a format which must be reproduced in writing. 
  • A declaration of termination made in breach of the formal requirement or a contingent declaration of termination is void. 
  • An employer shall justify termination. 
  • Before termination of the employment contract with the employees’ representative the employer shall seek the opinion of the employees who elected the person to represent them or the trade union about the termination of the employment contract. The employer shall take the opinion of the employees into account to a reasonable extent. The employer shall justify disregard for the opinion of the employees. 
  • The employer must also give communication to the Unemployment Insurance Fund within 5 days of termination if the employee job tenure is at least 5 years (art. 100 Employment Contracts Act, ECA hereafter, and Art. 14.1 and 14.3 of the Unemployment Insurance Act).
  • An Estonian work contract will be terminated if both parties have agreed to it. In case of a temporary contract, when the contract reaches the expiration date. The labor contract can terminate at the initiative of the employer or the employee.
  • In case the employer decides to terminate the labor contract, the notice must be given according to the employment period and varies between 15 days for persons with less than a year working period, and 90 days for persons that have worked for over 10 years in a company.
  • In case the employee decides to terminate the work relations, he or she must present a 30 days’ notice.

statutory benefits

  • These are mandatory benefits as prescribed by law
  • These benefits include annual leave, public holidays, sick leave, maternity leave, paternity leave, sick leave, notice period, severance pay.
  • Statutory benefits also include social security benefits such as unemployment insurance and pension fund.

Statutory Benefits

Annual Leave

Public Holidays

Sick Leave

Maternity Leave

Paternity Leave

Notice Period

Severance Pay

Social Security Benefits (e.g. unemployment insurance and pension fund)

 payments and invoicing

  • The tax year in Estonia is the calendar year. 
  • An individual must file an income tax return if his or her annual income exceeds the amount of the basic exemption applicable to him or her and if he or she would be required to pay additional income tax based on the income tax return or if he or she would like to claim applicable tax deductions. 
  • Resident individuals also need to submit a tax return to report their foreign income. Individual income tax returns must be filed by 31 March of the year following the tax year. Individuals must pay income tax due by 1 July of the year following the tax year. 
  • Resident individuals who declare business income, foreign income or gains from the transfer of property are required to pay any additional amount of tax by 1 October of the year following the tax year. 
  • Spouses cannot file a joint tax return.

ease of doing business

  • The ease of doing business index is an index created by Simeon Djankov, an economist at the Central and Eastern Europe sector of the World Bank Group.
  • Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
  • According to the World Bank Estonia ranked 18th in the World in 2019 in terms of ease of doing business.

employee accruals

   
Christmas Bonus%

0%

Christmas Bonus Over Vacations %

0%

Severance per Year %

Employees are entitled to severance pay that equals one month's pay after one year of service (8.33% of annual salary)

Vacations % The employee's annual leave entitlement is 28 calendar days (7.26% of annual salary)
Notice %

Employees are entitled to 14 days of notice period for one year of service or more (3.84%)

Christmas Bonus Over Notifications% 0%
Vacations Plus% 0%
Total percentage of Salary (yearly) The total employment accruals as a percentage of salary per anum are equal to 19.71%

employer accruals

Additional information (Country Accruals)

   
Pension insurance 20.00%
Health Insurance 13.00%
Unemployment 0.80%
Maternity 140 days a year
Vacations 8.49%
Severance per year of service 8.33%
Descritption:  Employers operating in Estonia (including non-residents having a permanent establishment [PE] or employees in Estonia) must pay
social tax on certain payments to individuals at the rate of 33% (whereof 20% is used for financing public pension insurance and 13%
for financing public health insurance). Social tax paid by employers is not capped and mainly applies to salaries, directors’ fees, and
service fees paid and fringe benefits granted to individuals. The period of taxation is a calendar month.
The net business income derived by individuals registered as sole proprietorships is also subject to 33% social tax (capped). Sole
proprietorships are required to make quarterly advance payments of social tax in fixed amounts, which are credited against the final
annual social tax liability.

 

Employer Accruals Additional information

    Employment Accruals
Annual Leave The employee's annual leave entitlement is 28 calendar days. This equals 7.67% (28/365 days) of annual income
Maternity Leave Mothers in Estonia are given 140 days of fully paid pregnancy and maternity leave, which may begin 30-70 days before the expected delivery date. This equals 38.3% (140/365 days) of annual income
Paternity Leave Fathers in Estonia are given two weeks of paid time off to promote extra bonding with their child. This equals 3.84% (2/52 weeks) of annual income
Sick Leave In case of sickness, the employee can be given up to 182 calendar days of paid sick leave (max 250 days per year).
The gross wage during this period is 70% of his or her last years` average salary.
This equals 70% of 49.8% (182/365 days) of annual income
Overtime The employee and employer may agree that overtime is compensated by 1.5 times of the wages. Depends on the number of overtime hours worked
Severance In cases of termination of the employment contract due to redundancy, the employer must pay compensation in the amount of one month's average wage of the employee calculated on the basis of the previous six months' wage. This equals 8.33% (1/12 months) of annual income
Social Security Social tax is levied on employers at a rate of 33%. The unemployment insurance rates are 0.8% for employers This equals 33.8% of annual income

 

 

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