New Year Brings Several Law Changes
Good news for small businesses is that drawing up of the annual report will become simpler. Accommodation companies should be happy to know that the plan to increase the value added tax for accommodation services has been set aside. The negative amendments are mostly related to tax laws. The government has made a last minute decision not to decrease the social tax by 0.5 percent. Additionally, from new year the excise duty of natural gas will increase by 20 percent and the excise duty on diesel fuel and petrol will be increased by 10 percent from 1 February.
The Chamber of Commerce has prepared an overview of the most important amendments that concern entrepreneurs.
Preparing Annual Reports Becomes Easier
From 1 January, micro and small business are allowed to prepare their annual reports under simplified terms. Micro businesses are obliged to prepare only two main reports: short balance sheet and income statement. If a micro company wishes to take a loan from the bank, needs leasing or credit card, it would be wise to still prepare the annual report in its current form. Small businesses must prepare and submit to the commercial register at least the balance sheet, income statement and the maximum of 9 notes. Small businesses are still required to prepare and publish their activity report. Micro and small businesses are no longer required to prepare the cash flow reports or the statement of changes in owner’s equity. Due to these changes, the annual report forms prepared on the basis of taxonomy have been updated.
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Social Tax Not Decreased
It was planned to decrease the social tax from the current 33 percent to 32.5 percent from 1 January. As a result, employers would have saved in total approximately 42 million euros. However, in December the Parliament passed the so called cluster draft act for tax amendments, which sets the planned decreasing of the social tax aside. This means that the 33 percent social tax will apply in 2017.
In the Chamber’s opinion, the decision to set the decreasing of the social tax aside at such a short notice is in contradiction with the six month rule set out on the Taxation Act. Therefore the Chamber made a proposal to the President to not to proclaim the amendment. By now the President has proclaimed the Act.
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Amendments
Fuel Excise Duties Increased
From 1 January, the excise duty for natural gas will be increased by 20%. Initially the government wanted to increase the excise duty for petrol, diesel fuel, diesel fuel for special purposes and light heating oil by 10 percent from the new year. However in December the Parliament passed the cluster draft act for tax amendments, which postponed the excise duty raise to 1 February 2017.
The 10 percent increase of the alcohol excise duty, which was supposed to enter into force in January will also be applicable from February. The excise duty on beer will additionally be increased by 70 percent in July 2017.
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Minimum Salary Raised to 470 euros
From new year, the minimum salary for full time employment will be increased from the current 430 euros to 470 euros per month. The minimum rate for hourly pay will be 2.78 euros (currently 2.54 euros) from 1 January.
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Obligatory Transfer to E-invoices Postponed
Previously the government wished to make it obligatory for businesses to submit invoices to the public sector only as e-invoices (machine-readable invoice, not a PDF invoice) from the new year. However, the state postponed the entry into force of this obligation at the last minute without a specific term. The reason for it was that the market was not yet ready for the changes. This means that in 2017, the companies can still submit invoices to the public sector in paper as well as PDF format. According to the Accounting Act, the public sector must be ready to accept e-invoices from 1 March 2017. Additionally, the Act sets out the requirements for e-invoices sent to the public sector, which the e-invoices must comply with from 1 July.
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Amendments
Restrictions on Employment of Aliens in Estonia Simplified
From mid January, several important amendments of the Aliens Act will enter into force. These amendments will simplify employment and entrepreneurship in Estonia of citizens from third countries. The amendments include several proposals made by the Estonian Chamber of Commerce. For example, the requirement to pay foreign employees a salary that is 1.24 times the Estonian average will be abolished from 17 January. This will be replaced with the obligation to pay the average Estonian salary. Major investors, i.e. aliens who have invested at least one million euros to Estonia, will have the opportunity to apply for the residence permit under simplified terms from 18 January, and such investors will also be exempt from the annual immigration quota. Additionally, aliens who work in Estonia in the ICT sector or in a start-up will also not be included in the immigration quota. As proposed by the Chamber, from 18 January aliens will no longer be required to register their absence from Estonia that is longer than 183 days at the Police and Border Guard Board. Furthermore, aliens will have the right for short-term work of up to 270 days a year without a residence permit. Previously, the period was 180 days. The list areas of activity for seasonal work will be extended significantly. While so far the seasonal work was mostly limited with the area of agriculture, from January on the list will be updated with works in the accommodation, catering, food production and forestry sectors.
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Amendments
Social Tax Free Sickness Benefit for the Second and Third Sickness Day
From the new year, employers will have the opportunity to pay social tax free sickness benefit for the second and third sickness day in the amount of up to 100 percent of the average salary of an employee. This means that an employer can decide if and how much they will pay as a benefit for the second and third sickness day. Employers will still be obliged to pay sickness benefit for the forth to eight sickness day in the amount of at least 70 percent of the average salary of the employee.
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Important Changes in the Income Tax Act
The income tax free minimum will be increased from the current 170 euros to 180 euros per month (2160 euros a year). The tax free income limit will be increased to 6000 euros a year or 500 euros a month from 2018. The housing loan interests can be deducted from the taxable income only to the extent of 300 euros from the new year.
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Amendments
Value Added Tax on Accommodation Services Not Increased
The plan to increase the valued added tax on accommodation services to 14 percent will be set aside. The Parliament passed this decision on 19 December and it will enter the Value Added Tax Act. This means that the decreased valued added tax rate of 9 percent on accommodation services will remain in force. As a result of the amendment the tourism sector and its visitors will not be facing an additional tax burden of approximately 11 million euros a year.
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Minimum Social Tax Obligation Increased to 141.9 Euros
The monthly rate on which the minimum social tax obligation is based will be increased to 430 euros in 2017. This means that employers are required to pay at least 141.9 euros a month in order to ensure an employee with social security.
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Reverse Taxation on Certain Metal Products
For the purposes of preventing tax fraud, the new year will see extending the list of goods subject to reverse taxation featured in the Value Added Tax Act. This list will be updated with various metal products, which are mainly used for the provision of construction services and in the machinery industry, such as construction reinforcement, sheet metal in balls and sheets, water and gas pipes, square pipes, beams. As proposed by the Chamber, welding wire and welding rods were excluded from among the metal products subject to reverse taxation.
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Amendments
Fees on Food and Veterinary Supervision Increased
From 1 January, the hourly rate for food and veterinary supervision will be increased from the current 11.1 euros to 11.5 euros. The reason behind the increase is mainly the salary increase of officials, change in the number of officials and changes in building-related expenses. The increase will affect approximately 6,400 businesses.
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New Earth’s Crust Act Enters into Force
With the entry into force of the new Earth’s Crust Act, the Mining Act will become void and several other acts will be amended. With the Earth’s Crust Act, mineral deposits will no longer be classified as mineral deposits of local and national importance. This means that from now on the classification of such natural resources as sand, gravel, peat etc. will depend on who owns the land. Additionally, changes are foreseen for granting, extending and declaration of invalidity of mining permits. For example, an application for mining permit must feature more accurate information on what will happen to the mined land after the mining ends. From now on, an permit for mining peat can be applied for only in peat areas damaged by mining or peat areas, which have been abandoned, or in peat deposits entered into the list of peat areas suitable for mining.
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Atmosphere Air Protection Act Enters into Force
In 2017, the Air Protection Act will enter into force to replace the current Ambient Air Protection Act. A significant change, which the new law will bring along is that from now on it is obligatory to apply for the air pollution permit even when none of the threshold quantities of the pollutants in the industrial production or combustion process are exceeded, but when upon assessing the air quality exceeding of a limit or target value of air quality caused by a pollution source is identified. At the same time, it is no longer necessary to apply for special pollution permit together with the air pollution permit.
The new act will clarify and amend also the regulations related to the pollution of ambient air. For example, in some areas of activity (e.g. fuel business, pig, cattle or poultry farming, combustion plants) the thresholds from which a business is required to apply for an air pollution permit for the activities of its operation, will be increased. This means that smaller operators are no longer required to apply for the air pollution permit, instead they will be obliged to register, which is a faster and simpler procedure. Furthermore, the requirements for the application for air pollution permit and project, and the data to be submitted in the annual report by the holders of the air pollution permit and integrated environmental permit.
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Should you have any questions regarding the legal acts that enter into force in 2017, please contact the legal department of the Chamber by e-mail juristid[at]koda.ee.