Basic exemption as personal tax incentive

The calculation of basic exemption is one of possible tax incentives for a natural person. All income is subject to basic exemption rate up to 6000 EUR a year or 500 EUR per month.

Income includes the salary, the income subject to the income tax (including income from abroad), the pension, the parental benefit, the compensation for damage, the holiday pay, the sickness benefit, the maternity benefit, etc. The annual income does not include tax exemptions (e.g. housing loan or the sale of movable used by the person), not declared in the natural person’s income declaration, and tax exempts of payments from the mandatory funded pension (column I) and the supplementary funded pension (column III).

Upon the calculation of a person's basic exemption, the person’s total taxable income per year is taken into account, as the sum of basic exemption depends on it. When the income increases, the basic exemption decreases or in other words –it is important to know how the sum of the basic exemption is influenced by the amount of salary, pension, benefits and other income. The dependence of the basic exemption on total income is illustrated by Figure 1. During the year the accounting of the basic exemption can be monitored in the e-service environment in the section “My Income" of the Tax and Customs Board www.emta.ee.

Basic exemption is calculated as follows:

• if the annual income is up to 14 400 EUR, the basic exemption is 6000 EUR a year;
• in case the annual income increases from 14 400 EUR to 25 200 EUR, the basic exemption decreases according to the formula 6000 – 6000 ÷ 10 800 × (income sum – 14 400);
• incase the annual income is over 25 200 EUR, the basic tax exemption is 0.

In order to use the basic exemption, a corresponding application has to be submitted to the employer. It has to be taken into account that the basic exemption can be implemented on the basis of the application only by one employer/income tax accountant. An employee, who is employed in several enterprises, has to take into account that he/she has the right to apply the basic exemption only in one institution. If the limit of the basic exemption is surpassed, the natural person has to pay additional income tax on the basis of the tax declaration.

A written and signed application for the basic exemption has to be submitted to the employer/ income accountant. The employer may already have an application for the calculation of the basic exemption, so it is a good idea to ask it from the employer. If there is no application available, it has to be compiled by adding the enterprise’s requisites, the applicant’s first and surname, the ID code, date, since when the basic exemption should be calculated and the rate of the calculated basic exemptions (maximum rate or a certain sum). The application form has to be filled out and be submitted to the employer also in case no basic exemption is calculated.

To become familiar with the basic exemption, its calculation and examples, please visit the section “Calculation of basic exemption“ on the homepage of the Tax and Customs Board: www.emta.ee.

Photo: Maitree Rimthong