Social tax revenues are used to fund public health care and pension insurance. Social tax is paid by the employer for the employee. The social tax rate is 33% of the employee’s gross income.
The tax period is a calendar month: by the 10th day of the following month, the tax is declared in a tax return (TSD) and paid to the Tax and Customs Board. The declaration can be submitted electronically at the e-Tax and Customs Board (e-MTA) or by contacting the regional tax office of the Tax and Customs Board.
The employer is obliged to pay social tax on wages and additional benefits. In some special cases, the Estonian state pays social tax, e.g. for various persons receiving caregiver’s allowance and families with many children. The state also pays social tax for employees of companies who have been assigned an incapacity for work of 40% or more.
Compensation of social tax to persons with reduced work ability
An employer who hires an employee with reduced work ability (who has a partial or no work ability or at least 40% permanent incapacity for work) can apply for social tax benefits from the Unemployment Insurance Fund. In this case, the state will continue to pay social tax for an employee with reduced work ability through the fund at a monthly rate.
For an employee with reduced work ability, the employer pays social tax on an amount exceeding the monthly rate, which is the basis for calculating the social tax paid by the fund. If the employee’s actual salary is below the monthly rate (for example, the person is working part-time), the fund will still pay social tax calculated at the monthly rate.
The state pays social tax only for an employee working on the basis of an employment contract. The state does not pay social tax for a person who receives remuneration on the basis of an employment contract, agency or other contract under the law of obligations. The state pays social tax if the employer is a company, non-profit association, foundation or individual entrepreneur.
Social tax for a sole proprietor (FIE)
A sole proprietor (FIE) is obliged to pay social tax on business income. The social tax rate for the FIE is 33% of business income.
Unlike companies, the tax period for the FIE is a calendar year since taxable income is determined once a year on the basis of an income tax return. The sole proprietor must pay social tax as advance payments four times a year by the 15th of each quarter. If the income is high enough for a year, the Tax and Customs Board will send a tax notice of the additional amount of social tax to be paid.
The Tax and Customs Board refunds the overpaid amount of social tax by October 1 of the year following the taxation period.