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Social tax compensation for a person with decreased working ability

Prindi

Lisatud 28.04.2016 | Uuendatud 03.01.2017

On 1 July 2016, the procedure for the compensation of social tax by the state for a person with decreased working ability will change. An employer who employs an employee with decreased working ability (who is established as having partial or no working ability or at least 40% permanent incapacity for work) can apply for a social tax incentive from the Unemployment Insurance Fund.

At present, applications for the payment of social tax must be submitted every month, but as of 1 July 2016 you will only need to submit one application per person with decreased working ability. The application cannot be submitted retroactively; for example, if the employer submits the application for the payment of social tax on 10 August 2016, the fund will start paying social tax for the person with decreased working ability as of the same date. This means that the date on which the state becomes obliged to pay the social tax is the date of submission of the application to the fund, which may not be earlier than the date of commencement of the employment relationship or the date of establishment of partial or no working ability or at least 40% permanent incapacity for work of the employee. 

The state will continue to pay social tax for an employee with decreased working ability via the fund pursuant to the monthly rate (430 euros in 2016). An employer pays social tax for an employee with decreased working ability on the amount of remuneration that exceeds the monthly rate which forms the basis for the calculation of the social tax paid by the fund. If the actual remuneration of the employee is lower than the monthly rate (e.g. they are employed part-time), the fund will still pay the social tax calculated on the monthly rate.

In order to obtain the social tax incentive, the following conditions must be met:

  • the employer is a company, non-profit association, foundation or sole proprietor;
  • the employee is established as having partial or no working ability or at least 40% permanent incapacity for work;
  • the employee is working for the employer under an employment contract. (The state does not pay social tax for those with decreased working ability who receive remuneration under a contract for services, authorisation agreement or any other contract under the law of obligations.)

If an employee with decreased working ability has employment relationships with several employers, the state pays social tax for the employer who, for the purposes of withholding income tax, calculates the basic exemption. If the employee has not submitted an application for calculating the basic exemption to any employer (e.g. the application has been submitted to the payer of the pension), the employee completes a written declaration selecting one employer for whom the state pays the social tax.

Example

  1. An employee with decreased working ability is in an employment relationship with employers A and B.
  2. As the employee has submitted an application for calculating the basic exemption to the Social Insurance Board (i.e. the payer of the pension) and not to either employer, they must select the employer for whom the state will start paying the social tax.
  3. The employee selects employer A as the employer for whom the state will start paying the social tax. This requires the employee to submit a (digitally) signed application to employer A stating the following: I have selected employer A as the employer who has the right to apply for a tax incentive from the Unemployment Insurance Fund on my behalf.

 

The right to have the state pay social tax is verified every month, with the Unemployment Insurance Fund paying the tax for employees meeting the conditions automatically each month without the submission of an application. The fund transfers the social tax paid for an employee with decreased working ability to the Tax and Customs Board by the 10th of the month following the reporting month.

An application for the transfer of social tax by the state submitted by an employer to the fund must show the name and surname, personal identification code and commencement date of the employment relationship of the employee with partial or no working ability or at least 40% permanent incapacity for work and confirmation that the employer, for the purposes of withholding income tax, calculates the basic exemption, or if the person has not submitted an application for calculating the basic exemption to any employer, they have completed a written declaration selecting one employer for whom the state pays the social tax. The application form will be available on the fund’s website as soon as the amendment enters into force. The application may be submitted by post, in digitally signed form by e-mail, in person at an Unemployment Insurance Fund county office or via the self-service portal at www.tootukassa.ee/iseteenindus.

 

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