Taxes in Estonia

0.8% of the employee’s gross pay.

The Estonian tax regime is not favourable for the employer to provide motivation packages to employees. There are few possibilities to provide benefits in kind to employees without tax consequences.

Only the employer must pay taxes on the fringe benefits provided to employees. Fringe benefits are subject to 20/80 corporate income tax and 33% social tax (charged on the aggregate sum of the fringe benefit’s value and the income tax calculated thereon).

Sample example calculation:

If the benefit’s value is €100, the employer’s income tax would be €25 (20/80 x 100), while the social tax due would be €41.25 (0.33 x 125), making up a combined total fringe benefits tax charge of approximately €66, or 66%.

The benefits that trigger the payment of taxes by the employer include:

• Full or partial cover of housing expenses
• Insurance premiums, unless law mandates the employer to pay them or they exceed €100 per employee quarterly for medical insurance
• Extending loans with lower than the minimum rate prescribed by law interest rate
• Transfer free of charge or sale or exchange at a price lower than the market price, of a thing, security, proprietary right or service
• Waiver of a monetary claim, unless the estimated costs of collecting the claim exceed the amount
• Costs for formal or informal education not related to the employer’s business
• Birthday presents, regardles of the amount
• Catering, which is either free of charge or at a preferential price

An employee’s sports and health costs are exempt from income and social tax in the sum of up to €100 per employee in one quarter.

The employer withholds a flat income tax rate of 22% during payroll. Personal income tax will increase from 22% to 24% later in 2026, with the change being permanent.

Joint filing is permitted if both spouses are residents or, subject to certain conditions if at least one spouse is a resident of another EU member state.

The maximum annual basic tax exemption is €6,000 (€500 per month). The full exemption applies to annual income up to €14,400 and gradually decreases as income increases, reaching zero at €25,200.

Employees must pay 1.6% of earnings to a mandatory pension fund, withheld by the employer during payroll.

For individuals born after December 31, 1982, there is a compulsory pension contribution of 2% of the employee’s gross pay, withheld during payroll. If they elect to, they can increase that contribution to 4% or 6%.

If records are maintained, it is possible to compensate €0.50 per km, capped at €550 monthly for each employer without tax consequences.

If an employee incurs costs related to a business trip, they shall be reimbursed by the employer and not incur any taxation costs.

The minimum daily allowance for a business trip abroad is 40 euros.

The daily allowance for a business trip abroad in the rate of 75 euros for the first 15 days of the business trip, but no more than for 15 days in a calendar month and 40 euros for each subsequent day is not subject to taxation.

All permanent residents and foreign citizens on a temporary residence permit or right can claim child allowance, paid monthly by the government. The assistance is between €80 and €100 per month, depending on the number of children.

Child allowance is paid from the child’s birth until they turn 16. The assistance is extended until age 19, if the child studies at a lower or higher secondary school, or undertakes vocational training. If the child turns 19 during an academic year, the allowance is extended until the end of the academic year.

In addition to the child allowance, the state also provides a parental pension to one of the parents until the child turns three. This is an additional payment to pension pillar II.

Other one-off benefits paid through the Estonian National Social Insurance Board include:

• Childbirth allowance
• Adoption allowance
• Single parent’s child allowance
• Guardianship allowance
• Allowance for families with many children

Individuals can also deduct certain mandatory payments without any limitations, including unemployment insurance contributions, contributions to a compulsory accumulative pension scheme, and some obligatory contributions to foreign social security schemes.

Other allowed deductions include specific gifts and donations, and certain payments to personal pension schemes.

A 20% deduction is available for income from renting out immovable property.

Estonian residents who have earned foreign-source taxable income can credit its tax against their Estonian income tax liability if they meet certain conditions. The tax credit is generally limited to 20% of foreign taxable income and is calculated separately for each country.