What Is the Daily Allowance for My Estonian Company?
The Daily Allowance is a travel allowance granted to the members of the board or employees of a company. They can be paid to them from the corporate bank account for free as they are not subject to taxes.
They work like any other work allowance for a business trip. For example, if you, as the board member or employee of a design agency, travel to a designers’ conference in San Francisco, United States, for one week, you can claim one week of Daily Allowance for the trip.
To enjoy the Daily Allowance, you need to be a member of the board of the company or an employee with a valid contract. Contractors cannot benefit from daily allowance. Only regular employees.
Some people ask if they can pay themselves a “salary” made of Daily Allowance if they travel constantly as digital nomads. That’s not the case. You should not see the daily allowance as a tax-free salary. The business trip must have a very clear purpose and a specific duration. You can visit a customer for a month or go to a summit for one week, but you cannot use it to travel to Chiang Mai and live there for three months. It needs a specific reason.
The law specifies that the maximum you can pay yourself is 50 euros for the first 15 days of the month of travel, and € 32 for the rest of the month:
The tax-exempt limit of daily allowances during assignments abroad is 50 euros for the first 15 days of the assignment abroad (15 days per calendar month at most) and 32 euros for each of the following days (Income Tax Act § 13 (3) ( one)).
How Do I Use the Daily Allowance?
In order to make use of the Daily Allowance, the first thing is to inform us of the trip beforehand. We need the appropriate documentary support for the trip, including if possible flight tickets, accommodation (Airbnb for example), and the justification of the trip (the tickets of the conference, a signed document from the customer certifying your visit, etc).
Then, after the trip, you can transfer that amount of money to your personal bank account. Specify “Daily Allowance” in the transfer concept, and make sure the amount of money is correct. Another option is getting the money from an ATM using your corporate debit card. In that case, you need to let us know so we can match the payment to the Daily Allowance.
I’ve Read Somewhere That I Can Get a Tax-Free Salary of €1230 Every Month. Is That True?
No, it is not. You may be referring to the Daily Allowance. The Daily Allowance is an amount that you are allowed to take out of your business account, tax-free, when you do business trips. It is supposed to cover your expenses when traveling for work (such as meals, WiFi access, etc).
In order to do this, you need to declare (let us know about) the trip, including dates, in advance, and add the appropriate documentation (flight tickets, Airbnb receipts) and also a document that justifies the trip and its duration (tickets to a conference, a signed agreement with a customer to work there for two weeks, etc). Then, you can transfer up to 50€ the first 15 days of the month plus 32€ for the rest of the month to your personal account.
The Daily Allowance can only be claimed for a business trip with a very specific purpose, though! Some blogs depict this basically as if it was a tax-free, 1230€ salary. It is not. You cannot travel to Thailand to live there for one year and claim the Daily Allowance every month. You will need to justify the purpose of this trip, why it is required by the business, and it must have a reasonable duration, according to its purpose.