The Covid-19 pandemic has made home office work the new normal in many places. However, legal regulations for this form of working can differ from country to country. Experts from the German-Baltic Chamber of Commerce’s fiscal department (the chamber’s name is easily abbreviated as ‘AHK’) have summarised what you need to know if you have home office employees in Estonia, Latvia, or Lithuania.
By Līva Melbārzde
Estonia
1. Reimbursing communal costs
The tax-free reimbursement of communal costs (such as heating, water, communal costs, and internet bills) is possible only with a percentage calculation of the workplace which can be compared to the total available floor space for the flat or house. A 50/50 arrangement is possible if there is no separate study. It is important to calculate how long any work is being done in the home office. The tax office also recommends that a written agreement be concluded between the employee and the employer regarding any home working.
It is also possible for the employee to rent a room in their home to the employer. However, any rent must correspond to the prevailing applicable market price.
Construction work in the flat or on the house can generally not be reimbursed unless it is fully and completely related to the work.
2. The use of personal equipment and inventories for work
If the employee and the employer agree that the work will be carried out in the home office, then agreement must also be reached regarding whether any work-related equipment (such as a computer, or a desk) will be brought home or whether new equipment will be purchased. It is possible to reimburse these costs on a tax-free basis only if the owner of the equipment remains the employer.
3. Input tax on home office invoices
It is possible to deduct input tax only in the case of invoices being issued to the employer and not to the employee. Otherwise any costs are to be reimbursed to the employee as gross amounts.
If any invoices are issued to the employer (such as, for example, an invoice regarding internet provision), but the employee also uses the invoiced item for personal purposes, then a percentage share must be taxed in the form of a special remuneration.
4. Health protection and accident prevention in the home office
Employers must ensure that working conditions in the home office also comply with applicable legal acts (covered by the ‘Occupational Health and Safety Act’). A risk analysis is also necessary for the home office.
5. Home office abroad
If the employee works in a home office which is located in another country, and on a temporary basis, such remote working may cover a period of time which is generally no longer than six months in any given year, otherwise income tax must be paid in that country. Such an arrangement also depends upon any double taxation agreement (DTA) between the specific countries. Such employees are to be classified as expatriates abroad, and A1 health insurance must be applied for at the EU level.
There are more and more companies which are making use of employees in a back office in other countries.. As long as such employees are only carrying out support work (and are not involved in not preparing invoices or concluding contracts), it is only necessary to pay income tax in Estonia.
The AHK provides payroll services for foreign companies which have employees in Estonia, Latvia, and Lithuania.
Latvia
1. According to the ‘Labour Code of Latvia’, the employer is obliged to reimburse the employee for expenses which are necessary for the due performance of their work under the applicable employment contract or which are incurred with the employer's consent, including expenses which are incurred by the employee for wear and tear on work-related equipment which belongs to the employee and which is being used for the purposes of work under the terms of the employment contract. Such expenses are to be justified by appropriate documentation and are not subject to the payment of income tax.
2. In 2021, income tax is also not levied on an employee's expenses where these are related to remote work which is covered by labour agreements in accordance with the ‘Labour Code’. Such compensation can amount to as much as €30 a month. The current scheme for the reimbursement of remote work expenses is, for the time, being limited to the year 2021.
3. Input value added tax can only be deducted if an invoice is issued to the company and not to the employee. Otherwise any costs are to be reimbursed to the employee as gross amounts. If an invoice is issued to the company, but the service is also used on a personal basis by the employee then a percentage share must be taxed in the form of special remuneration.
4. According to the ‘Labour Code’, an employee must provide the employer with all of the necessary information which will allow a full evaluation of remote working conditions and any risks which may be posed by working environment. The employer has the right to establish internal rules for any remote work.
5. Home office abroad- the same as in Estonia.
Lithuania
The ‘Labour Code’ stipulates that remote work can be carried out at the request of the employee. The employer will then assess whether the employee can work remotely. Those work functions which are carried out by the employee, and any specific details regarding such work functions, are to be fully assessed.
In the case of teleworking, the following points should all be agreed in written form:
- those requirements which are inherent within the workplace (if any),
- the work equipment which is being provided for the work,
- the procedure for providing such work equipment,
- the rules for the use of the work equipment, and
- the person responsible within the business to whom the employee is accountable.
If the employee incurs any additional costs in connection with their work, or in relation to the acquisition, installation, and use of work equipment, during the period in which they are required to carry out remote working then any such costs are to be reimbursed. Any financial compensation and payment terms are to be agreed between the parties to the employment contract.
Any additional costs which are directly related to the work and the use of work equipment must be economically justified and must not be abused for tax purposes. For example, a calculation must be carried out to show how long a particular item of work equipment is being used for work.
Expenses which are incurred by the business when its employees work from home - such as in terms of electricity, telephone, and internet costs - and which are to be reimbursed through the payment of a fixed monthly benefit, are included in deductible deductions as employee benefits which are subject to income tax.