Taxation of Foreign Workers in an Estonian Company

Taxation of foreign workers in an Estonian companyThe employment of foreigners in Estonian companies raises a number of issues, including the payment of income and social taxes.

For example, an employee from Poland (EU) comes to work in Estonia for one month, but for three years. He has an A1 certificate that he is a resident of Poland. The Estonian company pays his salary and declares in Annex 2 a declaration on the TSD form, withholding 20% of the income tax, but does not pay social tax. How long can a social tax not be paid if the A1 certificate is constantly updated and confirmed as valid?

So the employee works for two different employers, mostly in Poland, and one month a year for an Estonian in Estonia. In this case, according to Regulation 883/2004 of the European Parliament and of the Council on the coordination of social systems, we are dealing with a worker in several countries of the European Economic Area at the same time.

According to the basic rule of Regulation 883/2004, if a substantial part of the work (at least 25 per cent) is performed in the worker’s country of residence, the legislation and the social insurance system of the worker’s country of residence shall apply. In this case it is the social insurance system of Poland, the relevant public institution of which issues the worker with a certificate A1. The certificate confirms that all social insurance contributions are paid for an employee in Poland.

In the case of workers who are regular workers in several countries of the European Economic Area, there are no time limits for issuing an A1 certificate, in any case so stated in regulation 883/2004. This regulation is mandatory for implementation in Poland, so that the Polish public institution must follow the same principles. That is, once the form expires, it may be extended or a new extradition request may be made.

The A1 certificate is limited to 24 months (renewable for an additional year) only in the case of seconded workers, that is, when the employee is sent to another country by his employer and performs work there for the benefit of the employer who seconded him. Accordingly, the 24-month limit does not apply.

Thus, as long as the employee has a valid A1 certificate, taxes and social insurance contributions are not paid in Estonia. Nevertheless, as Polish law is applied, the Estonian employer is most likely obliged to declare and pay social insurance contributions in Poland. This point should be clarified by Polish tax specialists.

With regard to income tax, since the work is performed in Estonia and the employer is an Estonian person, income tax is subject to deduction in Estonia.

LKS Consult OÜ offers private tax consultations for non-residents when declaring their income in Estonia. Our team will be pleased to advise on tax-related issues in Estonia and provide accounting services. Contact our specialist and get a price offer as soon as possible.