The Riigikogu on Wednesday adopted a bill of amendments to the Income Tax Act and Social Tax Act, the aim of which is to improve the tax environment of self-employed persons, increase local governments' income as well as change the rules of income tax exemptions for employed pensioners.
The amendments will establish for self-employed persons a tax environment similar to that of companies, making it more favorable than the existing one, and to expand the tax incentives or social guarantees set for employees to include self-employed persons. Pensioners may file a tax-free income application to both income tax-withholding agents, if they receive a pension and income that are both less than €500, Riigikogu spokespeople said.
Self-employed persons must pay social tax on earned business income , for which both a lowest and highest limit has been set. According to the bill, the maximum rate of social tax of self-employed persons will be decreased from the 15-fold annual amount of minimum wage rate to a 10-fold minimum rate. This year, the maximum rate is €27,918; once the law is amended, this will be decreased to €18,612.
In the event of illness, self-employed persons will be given the opportunity to decrease their minimum social tax liability by the number of days that they were temporarily unable to work. Self-employed persons will also receive the right to calculate for themselves an estimated sickness benefit from the second to the eighth day and deduct it from the business income to be taxed with social tax.
Self-employed persons who are involved in education as their main responsibility will be released from the minimum liability of social tax and from paying social tax in advance. As a result of the amendment, they will lose the responsibility to fulfill the minimum liability of social tax and when earning business income they have to pay social tax on the income they actually earn. Self-employed persons will be given the opportunity to deduct up to €100 per quarter from business income as expenses made to promote their health.
Another amendment first and foremost concerns pensioners. If a person receives a pension as well as income, both of which are less than €500, they may file a tax-free income application to both income tax-withholding agents. When doing so, it must be noted that the total of the tax-free income written on the applications submitted to the employer and the Social Insurance Board must not exceed €500. The Social Insurance Board will apply tax-free income automatically for pensioners who have not worked during the previous year and a separate application for that is not needed.
Another important amendment is that as of the new year, 11.86 percent instead of the current 11.6 percent of the taxable income of a resident physical person will be paid to the local government unit of the taxpayer's residence.
Altogether 81 MPs voted in favor of adopting the law; two MPs abstained frowhile 2 MPs remained impartial.
Editor: Aili Vahtla