Fringe benefits

By its nature, fringe benefit is the income of the recipient (employee), but paying income and social tax on the fringe benefit is the obligation of the person granting the benefit (employer). Fringe benefits i.e. benefits provided by the employer to the employee are subject to income tax at a rate of 22/78 and social tax at a rate of 33%.

Pursuant to subsection 1 of § 48 of the Income Tax Act, employers pay income tax on fringe benefits granted to employees.

Based on clause 7 of subsection 1 of § 2 of the Social Tax Act, social tax is paid on fringe benefits within the meaning of the Income Tax Act, expressed in monetary terms, and on income tax payable on fringe benefits.

Declaration

The period of taxation of fringe benefits is one calendar month. The employer declares the fringe benefits granted to employees and income and social tax calculated on fringe benefits during a calendar month in Annex 4 of the form TSD, which must be submitted together with the form TSD to the Estonian Tax and Customs Board by the 10th day of the month following the calendar month in which the fringe benefit was granted. The tax amount is paid to the bank account of the Tax and Customs Board by the same date at the latest.

Form TSD and Annex 4 of the form TSD Instructions for filling in Annex 4 of the form TSD (in Estonian)

 Legal basis

Income Tax ActProcedure for determining the price of fringe benefitsRegulation No. 110 of the Government of the Republic “Procedure for the payment of compensation for the expenses of a business trip and the minimum daily allowance for a business trip, the conditions and procedure for payment” of 1 July 2009Regulation No.164 of the Government of the Republic “Procedure for keeping account of and payment of compensation for the use of personal passenger cars in the performance of service, employment or official duties” of 14 July 2006

Handbook “Fringe benefits”

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    Fringe benefits and value added tax

    A person liable for value added tax (VAT) can deduct input VAT from goods or services used for taxable supply in its business. Input VAT cannot be deducted from employees' personal expenses, even if the corresponding expense is covered by the employer or the employee is compensated, but according to the Income Tax Act, there is no fringe benefit.

    Input VAT cannot be deducted from train, bus or other public transport tickets used by employees to travel between the place of work and home, nor from the costs of employee health promotion. Also, input VAT cannot be deducted from cut flowers bought as a gift to an employee (although gifting flowers to an employee is not considered a fringe benefit), because buying flowers to give to an employee is not an expense incurred for taxable supply.

    If goods that are part of the company's assets, on acquisition of which input VAT has been deducted, are transferred without charge, or given for personal use without charge to an employee, official or member of a management or controlling body of a taxable person, self-supply taxable with VAT arises from it. In the case of self-supply, the taxable value is the purchase price or, in the absence thereof, the cost price of the goods.

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