As always, the new year arrives with a new state budget and tax changes. Major tax changes have been minimal in recent years and next year will be no exception. So what are the tax changes for next year?
The major changes for 2023 we are addressing are:
- Minimum wage increase
- Tax-free income and retirement pension tax exemption
- Disclosure of income received via platforms
- Determination of employment chain and working time (construction sites)
- Evaluation of land and its effect on land tax
Minimum wage increase
Let’s start with the good news for lower-income workers. On 1 January 2023, the minimum wage will rise to 725 euros per month or 4.3 euros per hour. In 2022, the minimum wage was 654 euros per month and 3.86 euros per hour.
Other important tax rates remain the same:
- the unemployment insurance premium for employers is 0.8%;
- the unemployment insurance premium for employees is 1.6%;
- income tax is 20% – the lower end tax rate 14% (14/86 of the net amount for regularly paid dividends);
- social tax is 33%.
Since the state budget for 2023 has not yet been approved, information about the minimum rate of social tax is not completely certain. It will most likely be derived from the minimum wage of last year, i.e. the amount will be 215.82 euros per month.
Rate of tax-free income
In addition to the minimum wage, the rate of tax-free income will also go up. This change will help many manage the rising prices in the world.
In 2023 the general tax-free income will be up to 654 euros. Tax-free income decreases as the income of a person increases. In this case, a person earning up to 1200 euros per month will earn 370 euros more per year.
Updates
Retirement pension tax exemption
In a world that is rapidly becoming more expensive, relief will also be brought to people of retirement pension age. From 1 January, the tax-free income no longer depends on the income of a person at the age to receive retirement pension, but is always 704 euros. This change applies to both working and retired pensioners.
The Social Insurance Board calculates tax-free income for retirement pension. If the pension is smaller than the tax-free income, based on the application of the person receiving retirement pension, the employer will count the unused surplus to the salary or other income.
Tax-free income is also valid for the whole year if the person reaches retirement pension age within the year.
The rights to receive tax-free income during retirement age are reserved for residents of Estonia and residents of the European Economic Area (members of the European Union, Norway, Iceland, Liechtenstein) who receive income from Estonia.
Residents of the European Economic Area must provide proof of residency. Residents of countries from third countries do not have the rights to receive tax-free income in general or during retirement age.
Read more: Tax-free income during retirement age | Tax and Customs Board (emta.ee)
Disclosure of income received via platforms
Offering a service or selling products online is becoming increasingly more popular. Up until now, it has been the responsibility of the seller to report revenue. Starting 1 January 2023, platform managers such as AirBnB, Amazon, Bolt, Uber, Booking.com, Etsy, etc. must start collecting information about the identity of sellers or service providers operating on the platform and the income they earn.
The platform managers must send the collected information to the TCB by 31 January 2024. Until now, information had to be provided about sellers who gave their consent based on the agreements concluded with the tax authority.
What to provide information about?
About persons from local and EU member states operating on the platform and about taxpayers of those countries with which Estonia has concluded an agreement for the automatic exchange of tax information.
If the seller does not submit this information to the platform manager, the manager closes the account of the seller and blocks them from registering again. Another option is to withhold payment to the seller until the requested information is provided.
If the data is not provided, the TCB has the right to block the domain name of the platform as a last resort after the additional deadline (90 days).
Determination of an employment chain and working time in the construction sector
In order to prevent maltreatment in terms of paying taxes, complying with working environment requirements and determining working hours of employees, stricter check-ups will be implemented in the construction sector starting from the new year. Starting 1 October 2023, a mandatory procedure for determining the employment chain and the time spent on the construction site will take effect in the construction sector.
What will this look like?
The main contractor must first identify their subcontractors. Then, based on the pre-filled data in the online environment of the Tax and Customs Board, they must confirm a report for the construction work that is covered under the obligation and the data of the contractor for the construction work.
The main contractor must introduce an electronic system for determining time spent on the construction site. Helmes and Wisercat will create employee cards that work via a unified IT-solution. Employees must register with a special smart card when coming to and leaving work.
The TCB will start comparing the data provided in the tax declarations with the data provided on the construction sites. In case of data discrepancy, a tax audit is possible.
The obligation to provide data applies to construction sites on which:
- the expected duration of the ongoing construction works exceeds 30 days and which have at least 20 persons working at them at the same time
Or
- the expected amount of work exceeds 500 human work days.
In case of breach of obligation, the TCB may initiate misdemeanour proceedings or impose a fine.
The registration obligation applies to construction works that commence on 1 October 2023 or later. The obligation also extends to construction works that have commenced before 1 October 2023 if the expected completion date of the construction works is 1 October 2024 or later.
Evaluation of land and its effect on land tax
2022 periodic land evaluation
The periodic land evaluation is a market-based land evaluation, as a result of which the approximate market value of the land, i.e. the tax price of the land, is determined for each cadastral unit. This is a mass evaluation, the result of which is a statistical generalisation.
The results of the periodic land evaluation started in 2022 will be utilised starting 1 January 2024. The new land tax rates will be established by the local government by July 1, 2023 at the latest.
The maximum tax rates have been reduced by 2.5 to 5 times by law. In addition, the law has set a growth limit for land tax – land tax may not increase by more than 10% per year. For example, a land unit with a land tax of 100 euros in 2022 with land the value of which increases 10 times will have a land tax increase to 200 euros with 10% steps and only starting in 2024.
Read more: Read more: 2022 periodical evaluation of land | Land Board (maaamet.ee)