--- title: Tax-free daily allowance as taxable salary income date: 2011-09-22T11:05:08Z modified: 2011-09-22T11:05:08Z permalink: "https://grow.ee/paevaraha_maksutamine/" type: post status: publish excerpt: "" wpid: 810 timestamp: 2011-09-22T11:05:08Z tags: - Accounting --- Recently, there have been more and more requests from the tax authorities to treat tax-free daily allowance paid for a foreign mission as taxable wages. The latter may result in additional costs for the company in the range of **75-80%** the amount of the daily allowance paid, and in some cases even more. **The interpretation of the daily allowance depends on the content of the economic transaction** The basis of the tax request in question is the claim that the employee was not on a "business trip", therefore the payment of tax-free daily allowance is not justified. In this case, all payments made to the employee must be treated as wages. The difference between an employee on a business trip and a posted employee is described in more detail in the Labour Inspectorate's information letter (see [http://uudiskiri.ti.ee/files/august2011\_juristannab2.pdf](http://uudiskiri.ti.ee/files/august2011_juristannab2.pdf)). Essentially, the employee's **place of usual work** must be taken into account. For example, if an employment contract has been concluded with the employee to perform work in Finland, then the place of usual work is Finland and tax-free daily allowance cannot be paid for the time spent there. **What is stated in the employment contract does not help change the content of the transaction** As an objection to the taxation of daily allowances, employers have submitted employment contracts according to which the employee's place of work is Estonia. However, this is not sufficient to calculate tax-free daily allowance if the tax authority can prove that the place of actual work is outside Estonia. Here, the form A1 (E101) of the certificate of validity of Estonian health, pension and unemployment insurance during the period of work abroad, the turnover shown by the company in the VAT return and several other circumstances play an important role. **In summary** The reclassification of tax-free daily allowance as wages may come as an unpleasant surprise to many entrepreneurs actively operating in neighboring countries. Due to the additional tax liability, the associated tax interest and the income tax requirement calculated on the tax interest, the company may find itself in payment difficulties. To avoid this, we recommend that before calculating the tax-free daily allowance, make sure that it complies with the content of the transaction. If necessary, we will help our clients here.