2025 Tax Rates
- Corporate Income Tax: 22% (22/78)
- Personal Income Tax: 22%
- Tax-Free Income: Up to €654 per month and up to €7,848 per calendar year, depending on the person’s annual gross income.
- Tax-Free Income for Pensioners: Up to €776 per month and up to €9,312 per calendar year.
Social Security Contributions:
- Employer’s Obligation: 33.8% (33% social tax and 0.8% unemployment insurance contribution)
- Employee’s Obligation: 1.6% unemployment insurance contribution and 2%, 4%, or 6% mandatory funded pension contribution.
Value-Added Tax (VAT):
- Standard rate: 22%
- Reduced rates: 13% and 9%
- VAT registration threshold: €40,000
Minimum Wage: €886 per month or €5.31 per hour
Changes Effective in 2025
Motor Vehicle Tax
Starting January 1, 2025, a new annual motor vehicle tax will be applied to vehicles registered in the Traffic Register.
- Taxable Vehicle Categories:
- Passenger cars (M1, M1G)
- Vans (N1, N1G)
- Motorcycles and mopeds (L3e, L4e, L5e, L6e, L7e)
- Off-road vehicles (MS2)
- Wheeled tractors (T1b, T3, T5)
The tax period is the calendar year, and the tax is paid in two parts: half by June 15 and the other half by December 15.
Tax notices will be issued by February 15 for already registered vehicles, while newly registered vehicles will receive their tax notice within 15 working days after registration.
Corporate Income Tax
- From January 1, 2025, the corporate income tax rate will increase from 20% to 22% on gross distributions (22/78 of net distributions).
- Estonia applies a cash-based taxation system, meaning profits are taxed at the rate applicable at the time of distribution. For example, profits earned in 2023 but distributed in January 2025 will be taxed at 22%.
- The reduced 14% tax rate on regularly distributed dividends will be abolished, and all profit distributions will be taxed at the 22/78 rate.
- The advance income tax rate for credit institutions will increase from 14% to 18%.
Personal Income Tax
- From January 1, 2025, the personal income tax rate will increase from 20% to 22%.
- The new rate applies to income received starting January 1, 2025. For example, wages earned in December 2024 but paid in January 2025 will be taxed at the new rate.
- Starting January 1, 2025, residents can increase their mandatory funded pension contribution rate from 2% to either 4% or 6%, effective for at least one calendar year.
- Applications to change the contribution rate must be submitted by November 30 of the preceding year.
- If submitted in December, the new rate will apply starting the year after next.
Changes to Financial Assets
- Retroactively from January 1, 2024, the following will be treated as financial assets:
- Covered bonds under the Covered Bonds Act or EU Directive 2019/2162.
- Loans or securities acquired through crowdfunding platforms licensed under EU Regulation 2020/1503.
- From January 1, 2025, crypto assets acquired via licensed crypto service providers or issuers will also be classified as financial assets.
Benefits of Financial Asset Classification:
- Losses from crowdfunding investments or crypto asset transactions can be deducted from gains.
- These assets can be included in the investment account system, deferring the income tax obligation.
Value-Added Tax (VAT)
- Starting January 1, 2025, the reduced VAT rate on accommodation services (hotels, short-term rentals) and services including breakfast will increase from 9% to 13%.
- The VAT rate for periodicals (both physical and electronic) will increase from 5% to 9%, with exceptions for publications primarily containing advertisements, erotic content, or video/audio material, which remain taxed at 22% (increasing to 24% from July 1, 2025).
- A special scheme for small businesses will allow businesses established in Estonia to operate in other EU member states without registering for VAT there, provided total EU-wide turnover does not exceed €100,000 per year.
Excise Duty Changes
- Starting January 1, 2025, excise duties on alcohol, cigarettes, smoking tobacco, and e-liquids will increase by 5% and again by 5% in January 2026.
Security Tax
A temporary security tax will be implemented to finance national defense capabilities.
- From July 1, 2025 to December 31, 2028:
- VAT will increase from 22% to 24%.
- From January 1, 2026 to December 31, 2028:
- A 2% security tax will apply to:
- Corporate profits (residents and non-residents with permanent establishments in Estonia)
- Personal gross income (e.g., wages, business income, rental income, dividends, pensions)
- A 2% security tax will apply to:
Security tax will be deducted alongside income tax and declared the following month.
Other Changes in Personal Income Tax
The planned fixed tax-free income of €700 per month (€8,400 annually) has been postponed to 2026.