Submission of declaration form TSD

Employee with an employment contract, wages or salaries or other similar payment between 1200 to 2100 euros (payment type 120)

Maris is a Latvian tax resident receiving remuneration for work according to an employment contract in the gross amount of 1300 euros per month. In addition, he received 500 euros of performance pay in March. A total of 1800 euros was paid to Maris in connection with employment in March.

Maris has submitted an application to the employer for the application of the basic exemption in the amount of 654 euros per month. He is not of Estonian retirement age.

Mandatory funded pension contributions (II pillar) cannot be withheld from payments made to a non-resident recipient.

NB! In case the total monthly income increases from 1200 euros to 2100 euros, the applicable basic exemption amount decreases according to the following formula: 654 – 654 ÷ 900 × (payment amount – 1200).

Although the employee has applied for 654 euros of basic exemption, the employer has to decrease the amount as prescribed by law.

In this example, the basic tax exemption amount is 218 euros (654 – 654 ÷ 900 (1800 – 1200)).

Since Latvia is a Member State of the EU, the Estonian employer has the right to deduct the Estonian basic exemption pursuant to Estonian legislation when calculating the income tax amount on payment subject to income tax made to a non-resident in Estonia, provided that a valid certificate of tax residency confirmed by the Latvian tax authorities has been submitted to the Estonian Tax and Customs Board.

Tax calculation

• Social tax 1800 × 33% = 594 euros
• Withheld unemployment insurance premium 1800 × 1.6% = 28.80 euros
• Employer´s unemployment insurance premium 1800 × 0.8% = 14.40 euros
• Withheld income tax (1800 – 28.80 – 218) × 20% = 310.64 euros

Net payment of 1460.56 euros (1800 – 28.8 – 310.64) is made to Maris´s bank account.

DECLARATION IN ANNEX 2 OF FORM TSD

Exceptions in tax calculation

• If an employee is of the Estonian retirement age, unemployment insurance premium (code 2130) is not withheld at the rate of 1.6% from payment (28.80 euros in the example).

• If form A1 “Certificate concerning the social security legislation which applies to the holder” has been issued to an employee from a foreign country (country of the European Economic Area (Member State of the EU, Iceland, Liechtenstein, Norway) or Switzerland; Latvia in the example) the country has to be indicated in code 2060 and Estonian social tax is not calculated in code 2110 (594 euros in the example) nor unemployment insurance premiums in code 2130 (28.80 euros in the example) nor in code 2140 (14.40 euros in the example).
  If work was done in Estonia, the payment type has to be 121.

Basic exemption cannot be applied

• If there is no valid certificate of tax residency certified by the tax authorities of a country of the European Economic Area (Member State of the EU, Iceland, Liechtenstein, Norway; Latvia in the example), it is not allowed to apply the basic exemption amount in codes 2154 and 2155 (218 euros in the example).

• Upon calculating the withheld income tax in Estonia, the basic exemption cannot be applied (in codes 2154 and 2155) on payments made to tax residents of third countries (countries not mentioned in the previous clause).

Tax calculation

• Social tax 1800 × 33% = 594 euros
• Withheld unemployment insurance premium 1800 × 1.6% = 28.80 euros
• Employer´s unemployment insurance premium 1000 × 0.8% = 14.40 euros
• Withheld income tax (1800 – 28.80) × 20% = 354.24 euros
• Basic exemption of 654 euros cannot be applied and codes 2154 and 2155 are not filled in on annex 2.

Net payment of 1416.96 euros (1800 – 28.80 – 354.24) is made to Maris´s bank account.