18.03.2021 Tax and Customs

Taxation news as of January 2021

Taxation of the cross-border employment. According to an amendment, a non-resident who has leased its employee to an Estonian company must withhold income tax on remuneration paid to that employee for work performed in Estonia. The non-resident will incur that obligation from the day the alien starts working in Estonia. For example, if a Polish company leases Ukrainian employees living in Ukraine to an Estonian company, the Polish company will have to pay income tax to Estonia on the wages of the Ukrainian employees. Before starting the activity, a non-resident company must register as a non-resident employer in Estonia and enter the hired employees in the employment register. This must be done by the time the leased employee starts work.

Initially, the State came up with a proposal that an Estonian company must pay income tax on the remuneration of its foreign temporary agency employee if the foreign lessor of that employee has not paid the tax in Estonia. As a result of the opposition of the Chamber of Commerce, the State abandoned this proposal. Thus, the amendment that comes into force from the coming year does not impose an obligation on Estonian companies using alien temporary agency employees to pay income tax on the remuneration of those employees. For example, if a Polish company does not pay income tax in Estonia on the remuneration of Ukrainian temporary agency employees, it will not entail an additional tax liability for the Estonian company using the employees.

Information on cross-border tax schemes needs to be provided to the tax administration. The Tax Scheme Directive requires tax advisers to notify the tax authorities of cross-border schemes that allow for aggressive tax planning, concealment of the beneficial owner of assets or make it more difficult to exchange information on bank accounts. Schemes must be notified by those who have developed them in the course of their business or who have participated in their development, both by the companies themselves and by tax advisers and lawyers.

“Therefore, for the first time on 28 February 2021, the Tax and Customs Board must be notified of schemes that were implemented between 25 June 2018 and 30 June 2020. Schemes started between 1 July 2020 and 31 December 2020 must be notified within 30 days from 1 January 2021”. Says Jaak Siim Head of Practice at Cuesta.