The Parliament has adopted on April 15 the tax measures related to relieving economic impact of corona crisis.
The measures include reduced interest rates on tax debts, abolishing minimum liability of social tax payments, corporate income tax relief on gifts and donations, personal income tax incentive for income from forestry, suspension of mandatory pension fund contributions, reduced value added tax rate on electronic publications, 0% value added tax on and goods needed to combat COVID-19 and reduced excise duties on fuel and electricity.
Interest on tax arrears
Interest calculation from tax arrears has been suspended for the period of 1 March until the end of emergency situation for both current and previous tax arrears. After the end of emergency situation, the interest rate will be reduced from 0.06% to 0.03% per day until the end of December 2021. In addition, the tax authority has the right to reduce the interest rate to 0% in relation to the payment of tax arrears in instalments until 31 December 2021.
Considering the increase in the number of applications submitted for paying tax arrears in instalments, the tax authority proceeds in the first place applications from tax payers participating in public procurements or applying for grants and permits, who need a certificate on the absence of tax arrears. In order to draw tax authority’s attention to the urgent need, the tax authority should be notified and information on public procurement (including procurement number) or grants/permits must be added to the application.
It should be noted that the interest rate on the decisions made before May 1st may include 50% interest reduction instead of 100% reduction due to technical reasons, since according to the law, the tax authority has the right to reduce the interest rate up to 100% as of 1 May 2020. In such case it is recommended to contact the tax authority again after May 1st, to review the applicable interest rate.
Social tax and health insurance
In March, April and May 2020, employers are not required to pay minimum social tax liability (EUR 178.20) on employees who are on unpaid leave or work part time. This means that social tax must be paid on actual pay-outs made to the employee. Therefore, in case the employee has been on unpaid leave for the whole month, there is no need to pay the minimum social tax liability.
Even if the minimum social tax liability is not paid, the health insurance will continue for the employees as well as for the management board members and persons working under service agreements.
The state will pay the first quarter social tax advance payments for sole proprietors and the sole proprietors are not required to pay minimum social tax liability in March, April and May for their spouse participating in sole proprietor’s business activity.
Income tax incentives
In the period 12 March until 1 July 2020 the companies may donate or make gifts free from corporate tax for charitable purposes to the hospitals, Estonian state or local government authorities or social welfare institutions located in Estonia.
In order to facilitate forest management, the individual forest owners and sole proprietors may deduct additional 5000 EUR per year from the income derived from the sale of timber and the transfer of the right to cut the standing crop as well as Natura 2000 support for private forest and land.
Suspension of mandatory pension fund contributions
As of 1 July 2020, until 31 August 2021 the state will temporarily suspend its payments to the II pension pillar (4%) and the persons can choose as of 1 October 2020 whether to continue with their part of payments (2%) or not. The payments are not suspended for those born in 1942-1960 unless the person himself decides to stop his payments. In order to stop the payments an application must be submitted in the bank (at the office or through web) or at the webpage of Pensionikeskus and the mandatory pension fund contributions stop in such case as of 1 December 2020 until 31 August 2021.
It should be noted that it is not possible to withdraw the submitted application. Considering the long term decreases in pension savings compared to short term marginal increases in salary pay-outs, it should be considered carefully whether submitting an application to stop the contributions is a good idea.
The employers need to check the status of employees as at 1 December to see whether the mandatory pension fund contributions are to be withheld from the salary or not.
The state will compensate in 2023 and 2024 double sum of payments made by persons who continued their part of contributions, and if the average performance of all mandatory pension funds in Estonia are positive in the period 1 July 2020 until 31 December 2022, the sum will be increased by the average performance.
Value added tax reliefs
The goods needed to prevent and combat COVID-19 and sold or donated to the hospitals, Estonian state or local government authorities or social welfare institutions are taxed with 0% value added tax and exempt from import VAT and custom duties. The relief applies retrospectively as of 30 January 2020 until 30 July 2020. Precise instructions on which goods and under which conditions the relief applies can be found on the tax authority’s webpage.
As of 1 May 2020, reduced value added tax rate (9%) is applied on electronic (and other physical medium) versions of printed publications and literature to unify the taxation of publications and literature which differ only by form of publishing. In case the electronic version contains additional functions or elements, then standard rate (20%) applies.
Lower excise duties
In the period 1 May 2020 until 30 April 2022 the excise duties on electricity and fuel will be reduced to alleviate the impact of crisis for consumers. For instance, the excise duty on diesel will decrease from 493 EUR to 372 EUR (per 1000 litre), excise duty on natural gas will decrease from 79.14 EUR to 40 EUR (per 1000 m3) and excise duty on electricity will decrease from 4.47 EUR to 1 EUR (per 1 MWh).
Nothing in this alert should be construed as expert advice. This alert is a generalized summary. Professional counselling should therefore be sought before any action is undertaken.