There are two kinds of income tax – personal income tax and corporate income tax (income tax of a legal person is also paid by all employers who have non-resident permanent places of activity and offer fringe benefits). Besides paying corporate income tax, you are required as an employer to withhold and pay employees’ income tax to the Tax and Customs Board.
Taxation of corporate income
A special feature of corporate income tax in Estonia is the fact that only dividends are taxed. Earnings are not taxed as long as they are reinvested in the company.
Income tax must be paid on distributed earnings, expenses and payments not related to enterprise and on gifts, donations, costs of entertaining guests and fringe benefits granted to employees.
Also subject to income tax are reduction of corporate capital, repurchases of shares and disbursement of liquidation proceeds exceeding the monetary and non-monetary contributions to the company’s equity.
Income tax rate and taxation period
The income tax rate is 22% and the corporate income tax rate is 22/78.
The taxation period is a calendar month. Tax return (Form TSD) is submitted to the Tax and Custms Board by the 10th day of the month following the taxation period.
The tax return can be submitted in the e-services environment e-MTA or in the service bureaus of the Tax and Customs Board.
When withholding income tax from payments made to employees, the employer may calculate a monthly tax-free income of up to 700 euros.
Tax-free income is applied based on the employee's application.
More information is available on the website of the Tax and Customs Board:
Submission of declaration form TSD
Calculation of basic exemption
Taxation of sole proprietor (FIE) income
If you are engaged in enterprise as a sole proprietor (FIE), business income will be subject to income tax, less deductions for business expenses. The FIE tax rate is 22%.
The taxation period is a calendar year and as a FIE, you will have to declare income once a year on your income tax return. Income tax return must be submitted by 30 April of the year following the taxation period. If you earned taxable income in the previous period, you must make advance payments of income tax by 15 September and 15 December. The advance payment must be 25% of the total income tax assessed on business income in the previous taxation period.
Taxation of employees’ income
The income of a natural person is also subject to income tax and when making payments, the payer must withhold and pay income tax on the gross salary, bonuses, holiday pay and other payments of employees that are deemed to be wages.
The natural person income tax rate is 22%.
Basic exemption is applied to the recipient of the payment who is not of Estonian pensionable age and whose pensionable age does not arrive during the calendar year.
More information is available on the website of the Tax and Customs Board:
Calculation of basic exemption
The basic exemption rate of 8,400 euros per year, i.e. 700 euros per month, applies to all income since 2026.
If an employee has filed a request to the person making the payments (employer) for the application of the basic exemption, the basic exemption permitted per month can be deducted before calculating the amount of income tax to be withheld. In addition to income tax, mandatory funded pension contribution and unemployment insurance premium must be withheld from employees´ income. Also, social tax on the fees specified in § 2 of the Social Tax Act must be paid.
Basic exemption at pensionable age is applied to the recipient of payment who is of pensionable age at the beginning of the calendar year or reaches pensionable age during the calendar year.
If the recipient of the payment reaches pensionable age during the calendar year, the basic exemption for old-age pension shall be applied to the recipient from the beginning of the calendar year.
In 2026, the basic exemption at pensionable age is 776 euros per calendar month.
If, after the Social Insurance Board and the Funded Pension Registry have applied the basic exemption automatically, a person has a balance of unused basic exemption and wishes to use it on his or her salary or other income, the person must submit a request to the payer (employer) for the application of basic exemption.
More information is available on the website of the Tax and Customs Board: Basic exemption at pensionable age.