As of January 2019 individuals have the option of opening a entrepreneur account in LHV Bank and using it to perform their business income related tax obligation under the Simplified Business Income Taxation Act.
In other words, a holder of a entrepreneur account is not required to register as an economic operator or keep record of their revenue and expenditure. Taxes are deducted from their income automatically. More information about the entrepreneur account is available on the website of the Tax and Customs Board.
As to benefits it is important to know that receiving an income through one’s entrepreneur account is considered equal to working. It means that if working affects your benefits in some way, the same rules apply when you receive an income through your entrepreneur account.
Having a entrepreneur account affects your parental benefit.
The receipt of other family benefits is not affected by having a entrepreneur account and receiving an income through such an account.
When calculating the amount of your parental benefit,
your income received through your entrepreneur account is also taken into account but it does not count based on its amount as it does in the case of regular wage. This is because your income received in your entrepreneur account is subject to a lower tax rate and less social tax is paid. But parental benefit is calculated on the basis of the total social tax calculated for all income.
In order to find out which amount of your income received in your entrepreneur account is taken into account when calculating your parental benefit, we will divide the social tax paid on the income received in your entrepreneur account by the usual social tax rate applicable in Estonia (33%).
- For example, if 1000 euros is paid into your account one month, the total amount deducted as taxes is 1000 x 20% = 200 euros. This includes income tax, social tax and mandatory funded pension contribution if you have joined the II pillar.
The social tax out of that amount is: 200 x 33 / 55 = 120 euros (if you have joined the II pillar of the mandatory funded pension. If you have not joined the mandatory funded pension, the following formula applies: 200 x 33 / 53 = 124.53 euros).
In order to find the amount used in calculating your parental benefit we will divide the result by 33% and we get: 120 x 100 / 33 = 363.63 euros. And this is the amount we will take into account when calculating your parental benefit. (If you have not joined the II pillar, the following calculation applies: 124.53 x 100 / 33 = 377.36 euros).
Read more about the calculation of parental benefit
If you are earning an income while being paid parental benefit,
the income received through your entrepreneur account is also taken into account at a lower rate.
In order to find out which amount is taken into account as income earned while being paid parental benefit, we will once again divide the social tax paid on the income received in your entrepreneur account by the usual social tax rate applicable in Estonia (33%). (See the example next to the calculation of the amount of parental benefit.)
The total gross income received in one month is added up and if it is less than one-half of the maximum parental benefit (1659.90 euros in 2019), it will not affect your parental benefit. We will only recalculate the amount of your parental benefit if your gross income in 2019 exceeds 1659.90 euros.
Read more about earning an income while being paid parental benefit
Your income received through your entrepreneur account is also considered equal to income received from working in connection with pensions.
In the case of old-age pension the income received through your entrepreneur account affects the amount of your pension.
On 1 April each year we recalculate pensions and take into account any income from work received by an old-age pensioner in the previous year. Any income received in one’s entrepreneur account is also taken into account. And one’s pension increases on the basis thereof. Read more about working while being paid old-age pension
Early retirement pension, survivor’s pension and national pension in the case of loss of a provider is not paid
Any income received through your entrepreneur account affects the receipt of early retirement pension, survivor’s pension and national pension in the case of loss of a provider.
If you are paid early retirement pension before you reach the retirement age and you start receiving an income from working (including income received through your entrepreneur account) at the same time, we will stop paying you the pension.
Survivor’s pension and national pension paid in the case of loss of a provider is also not paid at the same time as you receive an income from working or a business income. Unless those types of pension are received by children (up to 18 years of age or, if the person is engaged in studies, up to 24 years of age). They are entitled to concurrent wage and pension.
We will stop the payment of said types of pension starting from the month following the receipt of such an income.
In other cases pensions are not affected by having a entrepreneur account.
Holding a entrepreneur account only affects one’s health insurance if it is applied for by a person who:
- Is not working and is raising three or more children under 19 years of age residing in Estonia, at least one of whom is under 8 years of age (§ 6 (1) 11) of the Social Tax Act);
- Is not working but whose spouse is working and the spouse’s employer pays social tax for the spouse, provided there is at least one child under 8 years of age in the family or at least three children under 16 years of age (§ 6 (1) 8) of the Social Tax Act).
In those cases the health insurance is conditioned upon the person not working. Since having a entrepreneur account is considered equal to working, one is no longer entitled to state health insurance after a business account has been opened. Health insurance is thereby provided through the social tax paid on the business income.
Please note that the mere fact of having a entrepreneur account does not automatically give health insurance. To be eligible for health insurance social tax is required to be received through one’s entrepreneur account to the extent of at least the minimum liability. In 2020 the minimum social tax liability is 178,20 euros per month.
- For example, if a person only operates through their entrepreneur account, they must receive at least 1485 euros per month in their entrepreneur account to be eligible for health insurance. The relevant business income tax is 297 euros (1485 × 20%) and the social tax paid on that amount is 178,20 euros (297 × 33/55 in the case of a person subject to funded pension).
Read more about health insurance on the website of the Health Insurance Fund under “Working adults”.
Other options for state health insurance are not related to working or non-working and are therefore not affected by having a entrepreneur account.
If a person receives an income through their entrepreneur account for services they regularly provide in another EEA State (EU Member States, Norway, Liechtenstein and Switzerland), rules similar to engagement as an economic operator apply here.
In the case of secondment to another state or concurrently working in several states one is required to apply for Form A1 to determine in which state the person’s social security contributions are paid and in which state the person is eligible for benefits. Read more about working in the European Union.
Form A1 must be applied for only if the holder of a entrepreneur account physically travels abroad to provide a service. This does not concern a situation where, for example, something is sold to another state but the holder of a entrepreneur account does not leave Estonia to do so.
An application is required for Form A1. Read more about applying for Form A1.