One of the most frequent questions that our clients ask about the management of their companies in Estonia is how to pay service providers, freelancers, and professionals, but also people who, although not registered as such, occasionally perform services for the company. Is it legal? How does it work?:
«I have some doubts about my company. I will have to make specific contracts for hours or service/activity to my consultants and collaborators, but they will work in small, even temporary, projects. Some are registered as freelancers and others are not. How does this work?”
In this article, we explain how to pay contractors, freelancers, professionals, and even individuals for services they perform for your company in Estonia.
How to pay professionals and individuals for their services
The first thing to consider is the status of these people. Are they professionals, or are they somehow registered to carry out a professional activity? Or are they just individuals?
Freelancers and professionals
The first case, which constitutes the ideal situation, is people who are registered as freelancers, professionals, or even one-member companies. In that case, it’s as simple for them as issuing an invoice to your Estonian company. Our suggestion is, if they are Europeans, that they obtain a VAT number. Then, if your Estonian company has a VAT number too, their invoice will indicate VAT 0%.
In the case of people who are not registered as professionals or freelancers, charging for services offered to your company, depending on the country, may not be allowed for individuals. For example, in Spain, to carry out an activity and charge for it, you need to be registered in the RETA/freelance registry from the first activity you do, and the first euro you charge.
However, many people are willing to take the risk of not being registered if the amount is small or the activity eventual. For the company to prevent any problem, a work or services agreement must always be signed with them. This contract must include at least the following elements:
- The complete information of the provider of the service, including full name, full address, and (important) tax identification number.
- The service to be performed.
- The hours to be allocated, either periodic (ex: 2h / week) or total (a total of 30 hours).
- A clause that clearly specifies that the provider of the service is responsible for declaring and paying the taxes corresponding to that activity in their country of residence.
This contract should be written in English, as far as possible, to be able to integrate it into your company’s accounting and show it to the authorities if required.
Is accepting services from individuals problematic for my company?
Not for your company. If you follow the instructions that we have specified for the contract, your company has made a correct agreement, according to Estonian law. This person, depending on their country of residence and applicable legislation, may or may not have problems with the local tax office, but that is their responsibility, of course. Our interest is the strict compliance of your company to the legislation.
Sometimes a company hires the services of an individual (not a freelancer), due to their refusal or inability to register as a professional, and this can generate some doubts for the company that receives the service. If you don’t know how to create these invoices, or how to pay your contractors, do not hesitate to contact us.