Amendment to the Income Tax Act to Punish Those Who Use Agency Workers

The Chamber does not support changes to the Income Tax Act that imposes an obligation on Estonian companies to pay income tax on the salary of the agency worker, if the foreign agency has not done that.

Draft would hinder the development of Estonian economy

The aim of the draft is to make the foreign agencies who broker workers to Estonia, to pay income tax on the salary paid to the employee. The Chamber supports the goal related to the collection of taxes, but is against the proposed measure, because they do not help to fulfil the desired goal.

The draft has been drawn up in a hurry and as a result, the measures contained in the draft are unclear. There is absolutely no impact analysis that would assess the impact of the tax regime on the inclusion of the agency workers. In the worst case, it will be hindering competitiveness of Estonian economy, because there is not enough free local labour force.

The fact that non-resident agency workers are not taxed currently from day one does not mean that the agency workers are harmful for the Estonian economy. On the contrary, agency workers help alleviating the current complicated situation on the labour market.

Main contractors would be responsible for the inaction of third persons

The draft means that many companies would be responsible for third persons. For example, main contractors who are not renting foreign labour directly, but who according to the wording of the draft could be classified as ‘user operators’ must check the salary and tax accounting of the sub-contractor, which is a very inefficient process. Furthermore, it is unclear if the user operator can protect themselves against the inaction of the non-resident.

According to the draft, the user operator would be responsible for tax arrears in solidarity with the non-resident. However, this may bring additional costs to the company and efficiency of that method cannot be assessed today.

Draft should be started over

The Chamber is of the opinion that the current draft is not of good quality and in order to achieve the goal of the draft, it would be reasonable to start the legislative drafting process over, i.e. the first step should be to draw up the intent to develop. During that process, the impact of the amendment on Estonian economy as a whole should be analysed.