EstoniaTax Obligations Detailed

In 2025, Estonia implemented several tax changes impacting businesses and individuals.

Corporate Income Tax

• The general corporate income tax rate increased to 22% from 20%. This applies to all profit distributions made from January 1, 2025, even if the profits were generated in 2024.
• The reduced 14% rate on regularly distributed dividends was abolished. All dividend distributions are now taxed at the standard 22% rate.
• The advance payment rate of income tax for credit institutions increased to 18%.

Personal Income Tax

• The personal income tax rate increased to 22% from 20% for all income received starting January 1, 2025. This includes salaries for work done in December 2024 if paid in 2025.
• The monthly tax-free allowance is up to €654, with a yearly maximum of €7,848, dependent on the individual's annual gross income. For retirees, these figures are €776 and €9,312, respectively. The planned increase in the fixed basic exemption to €700 monthly (€8,400 annually) has been postponed to 2026.

Social Tax and Other Employer Obligations

• The social tax rate remains at 33% of the employee's gross salary, with a minimum monthly payment of €270.60 based on a minimum monthly rate of €820.
• Employers also pay unemployment insurance premiums: 0.8% of the employee's gross salary, while employees contribute 1.6%.
• Employers must withhold and remit mandatory funded pension contributions. Employees can choose contributions of 2%, 4%, or 6% of their gross salary. The state also contributes 4% of the social tax paid on behalf of each enrolled employee regardless of the rate chosen.
• The minimum wage is €886 per month or €5.31 per hour.
• Up to €400 in health-related expenses per employee annually are tax-exempt for the employer.

Value Added Tax (VAT)

• The standard VAT rate is 22% until June 30, 2025, increasing to 24% from July 1, 2025, as a temporary defense tax measure. Reduced VAT rates of 9% and 13% apply to specific goods and services. The VAT registration threshold is €40,000.

Other Taxes

• A new motor vehicle tax was introduced from 2025.
• A new temporary defense tax of 2% will be added to the standard VAT rate, personal income, and corporate profits, starting in July 2025 for VAT, and in 2026 for personal and corporate taxes.

In 2025, Estonia implemented several changes to its tax system affecting both individuals and businesses.

Income Tax

• Personal Income Tax: The personal income tax rate is 22%. The basic exemption remains at €654 per month (€7,848 annually), subject to income limitations, with higher exemptions for pensioners (€776 monthly/€9,312 annually). The previously planned increase of the universal basic exemption to €700 per month has been postponed to 2026.
• Corporate Income Tax: The corporate income tax rate is 22%. The preferential 14% rate for distributed profits has been abolished.
• Withholding Tax on Dividends: The 7% withholding tax applies only to dividends distributed from profits taxed at the previous 14% rate.
• Tax on Advance Payments by Credit Institutions: Increased to 18%.

Tax-Exempt Allowances and Deductions

• Daily Allowance for Business Travel: Increased to €75 for the first 15 days of travel within a month and €40 for subsequent days.
• Compensation for Use of Personal Vehicle: Increased to €0.50 per km, up to a maximum of €550 per month.
• Health and Sports Costs: Employers can deduct up to €400 per employee annually. Massage and other specific healthcare services are now included.
• Gifts to Employees: Tax-free up to €100 per occasion. Additional €100 tax-free for work anniversaries if the employee has worked for at least five years. Gifts to employees' children remain tax-free up to €100.

Other Tax Changes

• A temporary defense tax of 2% will be applied to personal income starting from January 1, 2026, until December 31, 2028, and is applicable to previously tax-exempt income like foreign dividends and pension payments. A similar defense tax of 2% on companies’ annual profits will be introduced starting from January 1, 2026.
• A new Motor Vehicle Tax was implemented in 2025.
• Excise duties have increased.

It is important to remember that these figures are based on information available as of February 5, 2025, and may be subject to change. Consulting official Estonian tax resources or a qualified tax advisor is recommended for the latest updates and specific situations.

In Estonia, Value Added Tax (VAT), known locally as Käibemaks (KM), is levied on most goods and services.

VAT Rates

• Standard Rate: 22% (currently). This will increase to 24% on July 1, 2025, as a temporary measure until December 31, 2028, to bolster defense capabilities. There are certain transitional rules that apply to pre-existing contracts.
• Reduced Rates:
  • 9% rate applies to specific goods and services such as books, some periodicals, pharmaceuticals and medical devices, and accommodation. This rate will change to 13% for accommodation (including breakfast) and press publications on January 1, 2025. There are certain transitional rules that apply to pre-existing contracts concluded under the previous rates.
  • A 0% rate applies to certain goods such as intra-community and international passenger transport, exports, and intra-community supplies of goods.
• Exempt Supplies: Certain supplies are exempt from VAT. For example: healthcare, education, insurance, postal and financial services, social welfare, long-term real estate rentals, betting and gambling. However, input VAT incurred from purchases relating to these exempt sales generally cannot be recovered.

VAT Registration

• Threshold: €40,000 in taxable turnover within a calendar year for Estonian businesses mandates VAT registration. Voluntary registration before meeting this threshold is allowed. For businesses exclusively operating outside of Estonia and/or generating 0% taxable turnover may be exempt.
• Non-Resident Businesses: Foreign businesses (non-established entities for VAT purposes), including those from EU, are generally required to register for VAT upon their first supply in Estonia, regardless of their turnover. A fiscal representative is required for companies located outside of the European Union. For EU-based businesses engaged in distance selling (selling goods over the internet) directly to consumers in Estonia, the registration threshold is €35,000, if EU VAT registered.
• Intra-Community Acquisitions: Businesses whose intra-community acquisitions of goods exceed €10,000 within a calendar year must also register for VAT.

VAT Filing and Payment

• Tax Period: Typically a calendar month. Upon request and justification, the tax authority might grant a longer tax period, aligned with calendar month start and end dates.
• Filing Deadline: The 20th day of the month following the taxable period for both VAT returns and Intra-Community Supply reports.
• Submission Method: Electronic submission through the e-MTA portal is the recommended method.
• Penalties: Late submissions and payments can result in penalties up to €32,000 plus daily interest of 0.06% on overdue VAT.

Additional Information

• VAT groups are allowed, permitting parent companies and subsidiaries to register as a single VAT entity.
• Foreign businesses registered for VAT in Estonia can recover input VAT under certain conditions, including reciprocity agreements for non-EU businesses.
• From January 1, 2025, a single consolidated VAT return will replace separate VAT and ESL (European Sales List) returns.
• eBooks are considered a separate item from physical books for VAT purposes.

This information is current as of February 5, 2025, and is subject to change. Consulting with a tax advisor is recommended for specific situations.

Estonia's tax system is recognized for its simplicity and digital-first approach, featuring a 0% corporate tax on reinvested profits.

Corporate Taxes

• Corporate Income Tax: 0% on retained and reinvested profits. A 22% tax applies to distributed profits (dividends, non-business expenses, etc.).
• National Security Tax (2025-2028): A temporary 2% tax on corporate profits, paid quarterly in advance based on the previous financial year's accounting profit. Applies to profit-making companies only.
• VAT: The standard rate is 22% (increased by 2% in 2024). Specific rates apply to certain goods and services.
• Fringe Benefits: Taxable at the employer's level, subject to income tax and social tax.
• Withholding Tax on Dividends: No withholding tax on dividends paid to non-residents.
• Tax Period: Monthly for corporate entities, with returns and payments due by the 10th of the following month.

Personal Income Tax

• Flat Rate: 20%, increasing to 22% from 2025. Applies to both residents and non-residents.
• Tax Residency: Determined by physical presence (over 183 days in any 12-month period) or having a permanent residence in Estonia. Residents are taxed on worldwide income, non-residents on Estonian-sourced income only.
• Basic Exemption: Up to €7,848 annually in 2024. This decreases with increasing annual income above €14,400, eliminated entirely over €25,200 From 2026, a universal tax-free income amount of €700 monthly will apply to all taxpayers. Pensioners will have a monthly tax-free income of €776 in 2025.
• Deductions: Allowed for specific expenses such as mortgage interest, donations, and training expenses, with individual and collective limits
• Social Tax: Paid by employers at 33% of employee wages. This covers social security and health insurance. Additional taxes like unemployment insurance and mandatory pension contributions are deducted from employee wages.

Other Taxes

• Land Tax: Annual tax on the assessed value of land, paid by the owner or user. Rates range from 0.1% to 2.5%, decided locally. Some exemptions for individuals exist, especially for residential land up to certain limits.
• Excise Duties: Applied to specific goods such as alcohol, tobacco, and fuel.

It is important to note that tax laws and regulations are subject to change. This information is current as of February 5, 2025, and should be verified with official sources for the latest updates. While there are no specific tax incentives, the 0% tax on reinvested profits functions as a significant indirect benefit, encouraging business growth and reinvestment within Estonia.