News about Law “On Personal Income Tax”

1. Income from credit reduction or repayment

Until now, the tax was not imposed on an individual’s income received by reducing or repaying individual’s mortgage credit assumed by the individual until 1 January 2009 and repayed or reduced during the period from 1 January 2011 until 31 December 2016 inclusive. The law had set a condition that the person applying for an exemption at the moment of credit reduction or repayment could have only one residential real estate.  

Amendments provided for in the period of application of the exemption to be extended for one more year, i.e. tax exemption will also apply to the income from the credit reduction or repayment, received until 31 December 2017 inclusive. The conditions for application of the exemption have also been changed – the exemption will also apply to the mortgage credit that the individual incurred after 1 January 2009 and regardless of the number of the individual-owned residential real estate.

2. Annual taxable income reduction – eligible expenditure

The taxpayers will be entitled to reduce their taxable annual income for expenses of acquisition of children’s interests education and the amount of the donation or gift transferred to registered political parties or coalitions of political parties. The maximum payment amount for political parties, that can be related to the eligible expenditure, cannot exceed 213.43 euros per year, or 20% of the taxpayer’s taxable income amount.

3. Labour force provisioning services ensured by micro-enterprises

The law stipulates – if there is at least one condition referred to in the Article 172 (2) the compensation for the micro-enterprise taxpayer’s services rendered to the merchant may be reclassified as employment income. With the amendments to the law, the list of conditions is updated with one more condition, namely, such retraining can be made if according to the nature of the transaction it can be concluded that the aim is to replace labor legal relations with other legal relations in order to reduce the amount of personal income tax and state social insurance contributions paid for the employees to the state budget.

In accordance with the amendments to the law, such an aim, in particular, may indicate the fact that micro-enterprise taxpayer has previously been an employee in the same enterprise or micro-enterprise taxpayer on behalf of the same company has provided services and represented this company.

Amendments to the law in respect of this paragraph shall enter into force on 1 July 2015 or 1 January 2016 (if the contract is concluded until 30 June 2015).

If you are interested in the news of tax, employment and other business-related legislation in Estonia and Lithuania, please visit Estonian news and Lithuanian news.

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