Issuing company loans to employees in Estonia
The ruling regarding minimum rate of interest on fringe benefits from the Minister of Finance was nullified and staring from 2015 issuing loans on market terms to the employees or persons equal to employees will not be considered as fringe benefits.
Conditions of the loans
In order not to pay fringe benefit tax on the loan, it needs to be issued on market terms. It is set that a loan will not be considered as fringe benefit if it is issued with the interest rate of European Central Bank multiplied by 2. According to the Estonian Bank the interest rate before 1st of January was 0,05 %, therefore the interest rate of a loan issued to an employee will have to be at least 0,1 %.
Fringe benefit tax
If the loan is issued without any interest or with a smaller percentage, it will be necessary to pay fringe benefit tax. The price of the fringe benefit will be calculated as follows, the amount of the interest rate of European Central Bank multiplied by 2, minus the amount of the interest rate agreed and paid according to the loan agreement.
As an example
Fringe benefit amount is 1000 EUR.
- Income tax on it is 250 EUR
- Social tax is 412,50 EUR
- Fringe benefit tax in total 662,50 EUR.
Kati Kruut, lawyer of the Gencs Valters Law Firm in Tallinn.
Practising in fields of Taxation in Latvia, Lithuania, Estonia.
T: +372 61 91 000
F: +372 61 91 007