Amendments to the Aliens Act, the Income Tax Act and the Taxation Act, aimed at preventing disregard for employment rules in Estonia enter into force as of today. The amendments also ensure that the income tax payable on the salary of 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. In 2017, the Police and Border Guard Board issued 7,509 short-term employment permits, while in 2018 the number of permits leapt to 19,805. In 2019, a record number of 32,262 cases of short-term employment were registered in Estonia.
According to the Minister of the Interior Mart Helme, the increased demand for foreign labour has created a situation where some employers do not comply with the conditions established in the Aliens Act. “The number of violations related to the employment of foreigners determined by the Police and Border Guard Board has been growing since 2014. In order to gain an unfair competitive advantage, employers try to find ways not to pay the salary of 1,407 euros required by Estonian law. 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. Thus, the obligation to ensure and prove the lawful grounds of employment also extends to companies 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 grounds, which means the payment of the Estonian average salary to the foreigner.
According to the Minister of the Interior Mart Helme, tax obligations to the Estonian state are also not fulfilled in the case of violations of the conditions stipulated in the Aliens Act. “Upon the Estonian employment rules being violated and a lower than prescribed salary being paid or a salary not being paid at all, the Estonian state does not receive the revenue from which, among other things, the social insurance system is financed,” said the Minister of the Interior. 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.