Taxes in Estonia

Estonia is famous for its proportional income tax system. This means that the standard rate for the personal income tax is 20%. For everyone.

Updated in November 2021.

Personal taxes: income tax and social tax

With the 20% income tax, you can actually keep the larger portion of your salary to yourself (it’s quite a different story in the neighbouring countries of Finland and Sweden, for example).

Amount of annual tax-free income can be calculated using the calculator.

In Estonia, taxes are withheld from your gross salary by your employer on a monthly basis. This means you don’t have to make additional payments or file monthly tax returns.

Also, as the annual tax-free amount is depending on the overall total amount of taxable income, it may be that employee has to submit income tax return in order for to apply the final tax free amount and get a possible refund of the overpaid income tax withheld or to pay any additional income tax due, because it was not possible to take all the information into account at the moment of payment of the taxable income. You can read more about calculation of tax-free amount here

When you log in to the e-services of the Estonian Tax and Customs Board, you have the possibility to check the usage of the tax-free amount and also all taxes paid on your employment income. Please be informed that there is a time lag, as the information on salaries received in November for work done in October will be available since 10 December.  It is important to have a look at the information, for example because it may be needed to change the application the employee has submitted to the employer about calculation of basic exemption upon monthly payment.

You’ll also have deductible expenses, such as:

– housing loan interest,

– training expenses,

– gifts and donations,

– pension contributions,

– deductions for children,

– unemployment insurance contributions.

Additionally, your employer is also obliged to pay the social tax of 33% from your gross salary. This is the tax for the employer: it is based on your actual gross income and not subtracted from your salary.

labour taxes in estonia graphic

When your employer has registered your employment with the Employment Register and pays your social tax, you’ll automatically have social and health insurance coverage in Estonia.

Own securities without the capital gains tax

As an individual, you don’t have to report the receiving or ownership of the securities in Estonia. Capital gains tax is triggered only when you sell your securities and earn profit. Gains from transfer of securities (or other financial assets) are subject to the standard income tax rate of 20%.

Also, as a natural person you are allowed to postpone taxation of investment income by using an investment account. For that purpose, the transactions with financial assets must be made through an investment account only.

Filing the annual personal tax return online takes only 3-5 minutes

The annual personal income tax return is filed at the beginning of each year to report your previous year’s income. The deadline for the annual personal income tax return is 30 April.

Using a secure ID, a taxpayer logs onto the e-Tax system, reviews the data in pre-filled forms, makes any necessary changes, and approves the declaration form. The process typically takes three to five minutes. Even one-click tax returns are possible.

You only have to submit an income tax return if you have tax incentives (housing loan interests, training expenses, gifts, donations) to claim, or any income other than your regular job (such as foreign employment income, rental income, or profit from selling stocks).

By the way, your tax residency does not change automatically. It´s your responsibility to inform the tax authorities by submitting a Form R via email (if you have an Estonian ID-card for digital signing) or in person.

Corporations and private entrepreneurs 

Estonia currently ranks first in the International Tax Competitiveness Index and enables entrepreneurs to pay Estonian taxes entirely online with minimal hassle.

The income tax rate for private entrepreneurs and corporations is 20%.

Corporate earnings taxation in Estonia is truly unique – it shifts the moment of corporate taxation from the moment of earning the profits to the moment of their distribution. This means that earning profit in itself does not trigger income tax liability. The tax obligation arises only when earnings are distributed to shareholders. If the profit distributed to shareholders originates from dividends received from a subsidiary or permanent establishment in another country, there’ll be no tax to pay on profit distribution.

A reduced tax rate (14/86) applies to part of dividends paid by the Estonan resident company regularly. The natural person receiving such dividends taxed at a reduced rate (14/86) in the hands of the Estonian company or a permanent establishment of a non-resident company, has to pay income tax at a rate of 7% in addition. It has to be withheld by the payer.

A non-resident natural person has to pay income tax on dividends received from the Estonian company in the resident country also and he or she cannot take into account the corporate income tax (20/80 or 14/86) paid in Estonia by the Estonian resident company to avoid double taxation of the recipient. Only the income tax withheld at a rate of 7% may qualify to avoid double taxation of the natural person recipient.

The implicit way to distribute profits is to do that through fringe benefits, gifts and donations, as well as expenses and payments unrelated to business activity.

All of these profit distributions are taxed at a rate of 20/80.

Hence, there is no obligation to submit a tax return annually by the Estonian company or a permanent establishment of a non-resident, regardless of profits or losses. Income tax is assessed monthly (Form TSD with Annexes), thus taxable amount must be declared monthly (10th day of the month following the payment) whenever profits are distributed or other taxable expenses are incurred.

Value added tax/sales tax 20%

The value added tax/sales tax rate in Estonia is 20%. Most goods and services are taxed at 20%. VAT is always included within the price, so when you´re shopping, you won´t be hit with surprise taxes at checkout!

There’s also a reduced VAT rate of 9%. Some goods – like books, for example – are taxed at the rate of 9%.

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