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 20/80 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 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 - taxation of fringe benefits

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Compensation for the use of personal cars

Who can be paid tax-exempt compensation?

According to the Regulation No. 164 of the Government of the Republic of 14 July 2006 (hereinafter the Regulation), compensation can be paid for the use of a passenger car for business trips:

  • to officials (within the meaning of the Income Tax Act, the persons specified in subsection 3 of § 2 of the Civil Service Act, such as members of local government councils, members of rural municipalities or city governments, judges, members of the Riigikogu, etc., are considered to be officials);
  • to employees (within the meaning of the Employment Contracts Act) and
  • to members of management or controlling bodies of legal persons (within the meaning of § 9 of the Income Tax Act).

Thus, for example, tax-exempt compensation cannot be paid, based on the Regulation, to owners of companies or to persons who provide services based on contracts under the law of obligations. However, it is possible for them to be reimbursed for expenses incurred in the interest of legal persons based on subsection 3 of § 12 of the Income Tax Act, if these expenses are documented.

Last updated: 08.04.2024

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Last updated: 09.04.2024

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