What if expenses covered are actually benefits for me or my employees?

Part of keeping your staff and yourself happy involves offering certain perks or benefits, perhaps covering sports costs and organizing company events. If you go to client meetings or dinners, this also incurs a cost for the company. Under Estonian rules, however, expenses which are also for the benefit of the employee must almost always be taxed as fringe benefits. For the purposes of fringe benefit taxation, the concept of “employee” has a broad definition. In addition to employees working under an employment contract, it also includes management board members and immediate family members of employees and management board members. In addition, individuals providing services for more than 6 months as well as individuals working under other types of agreement provided by the Law of Obligations Act are considered employees for the purpose of fringe benefit taxation.

Technically, fringe benefits are any goods, services or monetarily appraisable benefits which are given to an employee (as understood above) in connection with an employment or service relationship.

The law gives some examples of what should always be taxed as fringe benefits:

• full or partial covering of housing expenses;

• the use of a vehicle or other property of the employer free of charge or at a better price for activities not related to the employer’s business;

• payment of insurance premiums, unless such an obligation is prescribed by law;

• compensation for use of a private car, insofar as it exceeds limits provided by law;

• loans granted with an interest rate below market conditions, except if the interest at the time of the payment is at least twice the interest rate last published under the Law of Obligations Act;

• transfer free of charge, or the sale or exchange at a price lower than the market price, of a thing, security, proprietary right or service;

• purchase of a thing, security, proprietary right or service at a price higher than the market price;

• waiver of a monetary claim, unless the estimated reasonable costs of collecting the monetary claim exceed the claimed amount;

• covering of expenses for formal education or in-service training, except if these are directly related to the employment and service relationship and the functions of a member of the management board of a legal person.

Further reading – taxation of fringe benefits
Price of fringe benefit (for example a restaurant dinner) EUR 100

Income tax EUR 25 = 100 x 20/80
Social tax EUR 41.25 = (100 + 25) x 33%
Total cost to employer EUR 166.25 = 100 + 25 + 41.25