Taxes in Estonia

Written by Lais Cattassini Moderated by Oleksandra Dosii

Lais Cattassini

Lais is a Brazilian journalist and copywriter with over 17 years of experience, writing about things she knows really well (travelling, cinema, social media trends) and things she loves learning about.

Oleksandra Dosii

Oleksandra is a dedicated marketer with a passion for growing HR-tech products. She believes content marketing is about delivering high-quality content that provides value—not just generating leads. Since 2016, Oleksandra has been involved in tech talent relocation.

Last update: October 10, 2024

Next update: Scheduled for February 1, 2025

Estonia's tax system is widely regarded as one of the most business-friendly and transparent in Europe.

When it comes to income tax, Estonia applies a flat 20% tax rate on personal income for residents and non-residents alike. This simplicity ensures that everyone, regardless of income level, is taxed at the same rate. Residents benefit from a tax-free allowance, which reduces their taxable income.

Employers must pay 33% social tax on employee wages. This tax funds social security and health insurance. Employers also deduct other taxes directly from employee wages, including unemployment insurance and mandatory funded pension.

Estonia is known for its innovative e-Residency program, allowing digital entrepreneurs to register businesses in Estonia without physically being present. However, the tax residency status is determined by where individuals spend most of their time and where their economic activities occur. Simply being an e-resident does not confer tax residency in Estonia.

What is the income tax in Estonia?

Estonia applies a flat income tax rate of 20% on personal income. This means that all individuals, regardless of their income level, are taxed at the same rate.

The rules for determining whether an individual is a tax resident or non-resident are crucial since they affect how and where income is taxed. An individual is considered a tax resident of Estonia if they spend more than 183 days in Estonia during any 12-month period, or have their permanent residence in Estonia.

Residents are taxed on their worldwide income, meaning all income earned both in Estonia and abroad is subject to Estonian income tax. Non-residents are only taxed on their Estonian-sourced income.

In 2024, the monthly tax-free allowance is €654 per month (or €7,848 annually), but it varies depending on total annual income. This allowance is meant to support low-to-middle-income earners by providing a tax-free portion of their income. The basic allowance decreases for individuals with annual incomes exceeding €14,400 and disappears entirely for those earning more than €25,200 per year.

Social Security contributions

In Estonia, social security contributions are primarily paid by employers on behalf of their employees, though employees also contribute to certain areas like unemployment insurance and pension funds. The total rate of social tax is 33%.

The social tax is broken down into two components: 20% is used to fund the state pension, and 13% is used to finance the public healthcare system, providing residents with access to healthcare services. Self-employed individuals in Estonia must pay the full 33% social tax on their business income.

Estonia also requires contributions to the unemployment insurance scheme, which protects employees in the event they lose their jobs. Employees contribute 1.6% of their gross salary towards unemployment insurance, and employers contribute 0.8% of the employee’s gross salary.

Employees also contribute 2% of their gross salary to a mandatory-funded pension scheme, and their contributions are invested to provide additional income in retirement. The government contributes an additional 4%.

Online tax calculator for taxes in Estonia

To calculate your taxes in Estonia you must determine your personal income tax, social security contributions, and other applicable taxes, as well as deductions and allowances.

You can calculate your net income here.

Annual tax returns in Estonia

The Estonian Tax and Customs Board (ETCB) manages the country's tax filing system, which is largely automated.

Estonian tax residents must file an annual tax return if they earn taxable income, both domestically and internationally. This includes wages, self-employment income, rental income, capital gains, and other forms of income. Non-residents are only required to file a tax return if they have earned Estonian-sourced income. This might include income from employment, rental income from property located in Estonia, or capital gains from the sale of assets within Estonia.

The tax year in Estonia follows the calendar year, from January 1 to December 31, and tax returns must be submitted by April 30 of the following year. The tax filing is done online through the E-Tax system, which is accessible via the ETCB website.

The E-Tax system provides pre-filled tax returns with data already collected from employers, banks, and other institutions. You only need to review the information, make any necessary corrections or additions, and submit the return.

How to pay less taxes

The basic tax-free allowance is the most common way to reduce taxable income. In 2024, this allowance is up to €654 per month (or €7,848 annually), depending on your total income.

Home loan interest deduction

Estonia also allows taxpayers to deduct interest paid on a home loan for their primary residence from their taxable income, up to a certain limit.

Educational expenses deduction

Expenses related to education, such as tuition fees for yourself or your dependent children, can also be deducted from your taxable income.

Charitable donations

Donations to registered charitable organisations in Estonia are tax-deductible. The donation must be made to an organisation approved by the Estonian Tax and Customs Board (ETCB).

Voluntary pension contributions

Contributions to voluntary private pension funds are tax-deductible. You can deduct up to 15% of your taxable income, but no more than €6,000 annually.

Contributions to the mandatory funded pension are not tax-deductible.

Investment account for capital gains deferral

Estonia allows taxpayers to defer taxation on capital gains from investments if they use an investment account. You can defer paying taxes on profits from the sale of financial assets (such as stocks or bonds) as long as the money remains in the investment account. Taxes are only paid when the funds are withdrawn from the account for personal use.

Joint filing for couples

Married couples in Estonia can file a joint tax return which can be advantageous in cases where one spouse earns significantly less than the other.

If one spouse does not fully utilise their tax-free allowance (due to low or no income), the unused portion can be transferred to the higher-earning spouse, reducing their taxable income.

Additional child allowances

Families with children can benefit from several child-related tax allowances and benefits, including the Child Tax Credit – an additional tax-free allowance of €1,848 per year for the second child and each subsequent child in a family – and Parental Benefit.

Talk to a tax advisor

Consult a tax advisor or accountant to ensure you pay taxes correctly and collect benefits, allowances, and deductions. For expats, services like these can be extremely beneficial, as they help foreigners overcome language barriers and the complicated tax regulations of a new country.

Other Estonian taxes

In Estonia, aside from personal and corporate income taxes, there are several other taxes that individuals and businesses must be aware of.

Value-added tax (VAT, Käibemaks)

VAT is a consumption tax applied to most goods and services in Estonia. Businesses charge VAT on their sales, and consumers bear the cost. The VAT system in Estonia follows EU rules, with the standard rate being 20%, a 9% reduced rate for pharmaceutical products, books, and accommodation services and a 0% rate for exported goods.

Land tax (Maamaks)

Land tax is levied on all landowners in Estonia, except for specific exemptions such as state-owned land, land used for public purposes, or protected areas.

Gambling tax (Hasartmängumaks)

Estonia imposes a gambling tax on operators who organize lotteries, games of chance, betting, and other gambling activities. The tax is aimed at regulating the industry and ensuring responsible gambling practices.

Transfer tax on immovable property

Transactions involving immovable property (such as land or buildings) are subject to notary fees and state duties.

Tax treaties with Estonia

Tax treaties ensure that individuals and businesses do not pay taxes twice on the same income in both Estonia and another country. Here are all the treaties Estonia has with other countries.