Social tax from 01.01.2027: on fees received from a private individual, the recipient pays the tax

From 01.01.2027, a natural person who is not a sole proprietor (FIE) no longer has to pay social tax on a fee they pay another natural person under a contract for work, an authorisation agreement or another contract for services (SMS § 9 lg 1 p 2¹) [1]. Social tax on such a fee is now paid by the recipient (SMS § 2 lg 1 p 6¹) [2]. From the same day, fees paid by a non-resident employer for the first 183 days of work in Estonia are, in certain cases, also exempt from social tax (SMS § 3 p 21) [3].

What changes

• SMS § 9 lg 1 p 2¹ (new): the employer must pay social tax on fees paid under a contract under the law of obligations, „välja arvatud juhul, kui tasu maksja on füüsiline isik, kes ei ole füüsilisest isikust ettevõtja“ (translation: except where the payer is a natural person who is not a sole proprietor) [1].
• SMS § 2 lg 1 p 6¹ (new): social tax is charged on fees received „füüsiliselt isikult töövõtu-, käsundus- või muu teenuse osutamiseks sõlmitud võlaõigusliku lepingu alusel“ (translation: from a natural person under a contract for work, an authorisation agreement or another contract for services), except where social tax on the fee is paid under point 6 [2]. The fee is taxed under the rules on a sole proprietor's business income (SMS § 2 lg 1⁵) [2].
• Until now, the payer paid social tax unless the recipient was a sole proprietor (FIE) (SMS § 9 lg 1 p 2) [4].
• SMS § 3 p 21 (new): social tax is not charged on fees a non-resident employer pays for the first 183 days of work in Estonia to a non-resident employee who has health insurance covering medical costs for the stay in Estonia; the exemption does not apply, among other cases, if the fee is paid by a resident of a European Economic Area state, the Swiss Confederation or a state with a social security agreement with Estonia [3].

According to the explanatory memorandum, the duties of a natural person paying for a service are significantly reduced: „Esiteks ei tule edaspidi teenustasu maksjal tasuda nendelt tasudelt sotsiaalmaksu ega sotsiaalkindlustusmakseid.“ (translation: first, the payer of a service fee will no longer have to pay social tax or social insurance contributions on these fees) [5]. According to the memorandum, the exemption does not apply where the fee is paid by a sole proprietor buying the service for their business [5].

Who is affected

Private individuals who order a service from another private individual (for example, repairs or cleaning) under a contract for work or an authorisation agreement, and private individuals who provide such services [1] [2]. Also foreign employers whose non-resident employee works in Estonia for a short time [3].

What to do

If from 01.01.2027 you pay another private individual for a service and are not a sole proprietor, you do not have to pay social tax on that fee (SMS § 9 lg 1 p 2¹) [1]. If you receive a fee from a private individual, note that you pay the social tax on it yourself under the rules on business income (SMS § 2 lg 1 p 6¹ ja lg 1⁵) [2]. If the fee is paid by a sole proprietor for their business, the obligation stays with the payer [5].