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Adopted amendments to law prevent disregard for rules of employment in Estonia

25. June 2020 - 8:37

The Riigikogu approved amendments to the Aliens Act, the Income Tax Act and the Taxation Act, the aim of which is to prevent disregard for the rules of employment in Estonia. The amendments will also ensure that the income tax payable on the salary of the foreigners working in Estonia is received in Estonia and can be used for the benefit of the Estonian society.

Compared to 2015, the number of registered cases of short-term employment has increased by nearly 4 times. The amendment passed in the Riigikogu will ensure fair competition in the labour market and encourage employers to prefer Estonian residents as workforce. According to the Minister of the Interior Mart Helme, the increased demand for foreign labour has created a situation where some employers do no comply with the conditions established in the Aliens Act. “We often saw a situation where employers tried to find ways not to pay the Estonian average salary in order to gain an unfair competitive advantage, seemingly creating a situation where by European Union law a lower salary could be paid than the one required by Estonian law – currently 1,407 euros. Such unlawful conditions impair the competitive advantage of Estonian residents in the labour market, to which they are entitled,” said the Minister of the Interior Mart Helme.

Pursuant to the amendment, the lawfulness of the employment of a foreigner is the responsibility of the company in Estonia that gains actual benefit from the foreigner’s work, e.g. a company using temporary agency staff. This means that if the principal of a job or any other company responsible for the performance of work does not prove that it has the right to use a more favourable European Union scheme, i.e. to pay a third country national working in Estonia on a short-term basis a lower salary than stipulated by law, the foreigner has to discontinue his or her employment. The foreigner has to discontinue the employment until the employer has registered his or her employment on the right basis, which means the payment of the Estonian average salary to the foreigner.

Upon violating the requirements for employment in Estonia and paying a salary lower than prescribed or failing to pay a salary, tax obligations to the Estonian state are also not fulfilled. “Upon the requirement to pay the Estonian average salary being disregarded, Estonia does not receive revenue on the salary of a foreigner working here, from which, among other things, the social security system is financed,” the Minister of the Interior added. According to the Tax and Customs Board, the estimated tax loss arising from the evasion of labour taxes amounted to over 17.7 million euros in 2019.

In 2017, the Police and Border Guard Board issued 7,509 short-term employment permits, while in 2018 the number of permits grew steeply to 19,805. In 2019, as many as 32,262 cases of short-term employment were registered in Estonia.

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