Operating in the Construction Sector in Estonia: A Guide for Foreign Companies

In recent years, Estonia has affirmed itself as an increasingly attractive destination for foreign construction companies. However, in order to operate legally in the Estonian construction sector, it is essential to comply with a series of regulatory and procedural requirements.

Foreign companies are subject to the same requirements as Estonian companies, particularly with regard to the registration of construction sites, the management of subcontracting chains, and the authorization of workers to access construction sites.

1. Registration of non-resident employers in Estonia

According to the Taxation Act, issued in 2002 and subsequently amended in 2022, it is mandatory for companies to register themselves before starting any activity in Estonia. Employers must register in the Estonian Commercial Register or, alternatively, in the Tax and Custom Board’s Register of non-residents.

As laid down in the Taxation Act, the following entities must register themselves with the Tax and Custom Board, before commencing activities in Estonia:

• non-resident employers, included temporary employment agencies;
• self-employed individuals;
• foreign diplomatic missions and other entities of foreign states;
• international organizations and their representations.

In addition, foreign companies and self-employed individuals conducting business in Estonia, as well as temporary employment agencies, may be required to comply with Estonian tax regulations regarding tax liability. This may entail the need to open a tax position in order to fulfill the tax obligations associated with fiscal responsibility in Estonia.

For the purpose of registration in the Register of non-residents, an application must be submitted to the Tax and Customs Board containing specific information and documentation related to the company, including, for example:

1. the name of the non-resident employer;
2. the employer’s address in the country of establishment;
3. a copy of a document proving the lawful business activity of the non-resident employer;
4. a sample signature of the representative, notarized or officially certified by the tax authority;
5. in the case of fiscal representation, a copy of the written agreement between the tax representative and the non-resident employer.

2. Registration of the construction site and of the subcontracting chain

Data related to activities carried out on construction sites must be submitted to the TTKI Information System (Contract Chain and Duration of Employment Information System), which is managed by the Estonian Tax and Customs Board.

The TTKI system collects information regarding:

• the main contractor commissioning the work;
• the subcontractors;
• the construction site in question;
• the workers employed on the site.

Article 25(10), paragraph 3 of the Taxation Act specifies that registration of the construction site in the Information System is mandatory if:

• the construction works last more than 30 working days and involves at least 20 employees;
• the construction site has a total workforce exceeding 500 workers over the entire duration of the project.

2.1 Responsibilities of the main contractor in registering the construction site

In particular, the main contractor commissioning the work is required to:

• register the creation of a construction site in the TTKI system;
• register which of their employees will be authorized to access the site;
• register all subcontractors involved in the execution of the project.

The main contractor is responsible for the installation, proper use, and maintenance of an electronic registration system on the construction site, in compliance with the applicable regulatory requirements. For example, the system must allow, at any time, the generation of an up-to-date report listing all individuals present on the site and their respective working hours.

All workers present on the construction site are required to electronically record their entry and exit times. This registration must be carried out using a personal badge (Töötaja Kaart).

2.2 Responsibilities of the subcontractor in registering the construction site

Once the main contractor has registered the construction site in the TTKI system, the subcontractor will receive a notification inviting them to participate in the site activities as a subcontracting party.

Following the notification, the subcontractor must:

• confirm their participation in the construction site activities within the TTKI system;
• designate the workers authorized to access the site by selecting them from among their company’s employees;
• enter the contact details of the company representative responsible for the site;
• provide their workers with personal badges (Töötaja Kaart), which are required in order to electronically register attendance and to grant physical access to the site.

These obligations apply to all parties operating within the subcontracting chain, in order to ensure full traceability of all personnel present on site. This includes foreign subcontractors posting their workers to perform activities under a cross-border provision of services framework.

3. Registration of posted workers and the Töötaja Kaart requirement

Depending on the specific case, the employer is required to register their employees working in Estonia either:

• in the Employment register of the Tax and Customs Board, or
• in the Register of posted workers of the Labour Inspectorare.

However, this obligation applies only to:

• posted workers staying more than 183 days, and
• temporary agency workers, regardless of the duration of the posting.

To be entered into the Employment register, the worker must first obtain a personal identification code from the Population register.

Moreover, as previously mentioned, all workers must obtain a personal badge known as the Töötaja Kaart. This includes posted workers performing activities within construction sites in Estonia under a cross-border provision of services framework.

The Töötaja Kaart is mandatory for all workers authorized to access the site and serves as the official means of identification. It allows the electronic registration system to distinctively recognize the identity of the cardholder.

It is the employer’s responsibility to ensure that all workers register every entry to and exit from the construction site, using the electronic system through the Töötaja Kaart.

The introduction of these requirements aims primarily at ensuring fair competition in the construction sector, which is often affected by VAT evasion and irregular wage practices that disadvantage companies complying with law.

Indeed, the system allows for more effective monitoring of compliance with rules regarding foreign workers, particularly in terms of lawful presence and employment conditions. Furthermore, it is a key tool in strengthening surveillance of occupational health and safety standards, improving the traceability of personnel on site and increasing the accountability of the companies involved.

References:

1. Taxation Act