The year 2025 will bring several significant changes to the Estonian tax system. They affect both individuals and businesses, which is why it is important to be aware of what changes lie ahead and how they will affect everyday life.
Tax rates and tax-free income in 2025
As of 01.01.2025, the following are valid:
- corporate income tax rate 22/78 (instead of 20/80)
- Advance payment rate of income tax for credit institutions 18%
- withholding tax rate of 22% (instead of 20%)
- Tax-free income up to 654 euros per month and up to 7848 euros per calendar year – depends on the person’s income.
- Tax-free income at retirement age is 776 euros per month and 9312 euros per calendar year
- unemployment insurance premium for employees 1.6% and for employer 0.8%
- funded pension contribution 2%, 4% or 6%
- social tax 33%, monthly rate on which the minimum obligation is based 820 euros and social tax 270.60 euros
- minimum wage per month 886 euros, 5.31 euros per hour
- standard VAT rate of 22%, reduced rates of 13% and 9%
NB! It should be noted that if the salary payment for December 2024 takes place in January 2025, the salary must be taxed at new tax rates.
Deductions from the income of a natural person
For a resident natural person, the income tax rate will change from 20% to 22% compared to 2024 vs 2025. When submitting the income tax return of a resident natural person (hereinafter the income tax return), it must be known that the income tax rate of 20% applies to the income tax return for 2024 (submitted from 15.02.2025) and the income tax return for 2025 is subject to an income tax rate of 22% (submitted from 15.02.2026).
In both years, the following are entitled to deduct from taxable income:
- tax-free income up to 7848 euros or 9312 euros at retirement age;
- training costs and donations 1200 euros;
- contributions to a supplementary funded pension (third pillar) in the amount of up to 15% of taxable income, but not more than 6000 euros per year.
In addition, starting from 01.01.2025, the funded pension payment rate is 2%, 4% or 6%, depending on the person’s application to the pension registrar. If no application has been made for a higher rate (the deadline was November 30, 2024), then in 2025 the default payment rate will apply at 2%. The application can be submitted by 30 November each year at the latest, and the rate can be changed once a year. The new payment rate will always apply from 1 January. The state will continue to add 4% of the social tax to the II pillar at the expense of 33%, this will not change.
NB! In addition to the fact that the obligation to pay the employees’ funded pension payment has to be checked three times a year, accountants are now obliged to check the funded pension contribution rate of a person who has joined the II pillar once a year.
Corporate income tax
From 01.01.2025, the corporate income tax rate will also increase from 20% to 22%, i.e. on 22/78 net disbursements. It is important that in this regard, the lower tax rate of 14/86 on dividends also disappears, and in the future it is not necessary to withhold 7% income tax on dividends paid to a natural person. Thus, from 2025, the dividend will be taxed only at the rate of 22/78.
NB! The payment of dividends received earlier and not paid at a lower rate is still subject to the obligation to withhold 7% from the dividend paid to a natural person.
Tax-exempt limits are changing
With the adopted amendments to the Income Tax Act, several tax-exempt limits were raised from 01.01.2025.
The tax-exempt limit of the daily allowance for missions abroad will increase:
- EUR 75 for the first 15 days of an assignment abroad, up to a maximum of 15 days in a calendar month, and
- EUR 40 for each subsequent day of assignment abroad.
NB! The part that exceeds the tax-exempt limit is taxed as salary with income tax, social tax and, in most cases, unemployment insurance and funded pension payments.
The tax-exempt limit on the compensation for the use of personal car increases:
- on the basis of the calculation of business trips, EUR 0,50 per kilometre of work journey, but
- not more than EUR 550 per month for each employer paying compensation.
NB! A benefit that exceeds the tax-exempt limit is taxed as a fringe benefit with income tax and social tax.
The tax-exempt limit for promotional gifts and reception costs will increase:
- Goods or services transferred for advertising purposes, the value of which, excluding VAT, is up to EUR 21
- The tax-exempt limit for reception costs is 50 euros per calendar month, plus 2% of the amount of payments made in the same calendar month subject to personal social tax.
In addition, business-related expenses incurred in order to accommodate an employee with an employment contract are no longer considered a fringe benefit if both conditions are met:
- the worker’s place of residence is located at least 50 kilometers from the place of work and the employee does not own any residential property closer to the place of work, and these conditions are fulfilled throughout the period of accommodation;
- the costs per employee accommodated are up to EUR 500 per calendar month in the case of accommodation in Tallinn or Tartu and up to EUR 250 in other cases.
Expenses made on improving employees health
The following expenses made for improving the health of the employee in the amount of 400 euros per employee per year are not taxed as fringe benefits if the employer has provided them to all employees:
- expenses directly related to the regular use of a place for sports or exercise or massage;
- expenses made for the services provided by a health care professional entered in the health administration information system or holding a corresponding professional certificate.
The annual limit of 400 euros (instead of the previous 100 euros per quarter) gives freedom and flexibility, e.g. it is possible to buy a sports club package for a year or pay health insurance premiums for a year, which may be more favourable than quarterly payments.
Within the limit, the following are also exempt from tax:
- massage, which helps to prevent or alleviate minor ailments, including with a device, e.g. roller massage or LPG massage;
- health care service regardless of the field of medicine, including the service of a dentist, oral hygienist, ophthalmologist, optometrist, but
- the service must be provided by a health care professional entered in the health administration information system or by a specialist who has a vocation or professional competence.
Entrepreneur account and taxes
Tax rate on business income
As of 01.01.2025, the following are valid:
- The business income tax rate is 20% and applies to all income received.
- For an entrepreneur account user who has joined the second pillar, the rate of business income tax is higher by the funded pension contribution rate (2%, 4% or 6%). Thus, from now on, the business income tax rate will be either 20% (not joined), 22%, 24% or 26%.
- In order to receive health insurance, 2255 euros must be received in the entrepreneur account in one calendar month.
- A user of the entrepreneur account who has received more than 40,000 euros per year is obliged to continue operating in another form of entrepreneurship (as a sole proprietor (FIE) or through a private limited company (OÜ).
Provision of services to a legal entity
When providing services to a resident company, non-profit association, foundation and religious association that is a legal person, it must be taken into account that these persons will have an additional income tax liability (rate 22/78), which equates the tax burden with the tax burden of a normal employment relationship. The additional tax liability is intended to prevent the normal employment relationship from being transferred to a more favourable entrepreneur account.
If a legal person pays a fee to the entrepreneur account to the person providing the service, then the legal person must additionally pay income tax on the service fee amount 22/78 in Annex 6 to the TSD with code 6080.
NB! The first draft 463 SE (The Act on Amendments to the Simplified Business Income Taxation Act and the Taxation Act) stated that when providing a service to a legal person, the legal person is obliged to pay social tax of 33% on the 50% service fee amount and there is no income tax liability. However, this amendment has been removed from the final act which was approved on 04.12.2024 and only the above-mentioned income tax liability at the rate of 22/78 remained in force.
Motor vehicle tax
As of 1 January 2025, the much-talked-about motor vehicle tax will also take effect. Motor vehicle tax (also known as car tax) is a state tax paid by all owners of motor vehicles registered in the motor register or responsible users of motor vehicles.
The amount of tax on each vehicle is individual. The tax on vehicles of different categories is formed by different types of factors (base part, part of CO2 and part calculated on the basis of maximum weight).
The tax applies to the following categories of vehicles:
- passenger cars – M1 and M1G
- vans, pickups – N1 and N1G
- motorcycles – L3e, L4e, L5e, L6e and L7e
- off-road vehicles – MS2
- wheeled tractors – T1b, T3 and T5
The tax period for motor vehicle tax is a calendar year and the tax liability arises on 1 January of the current year or when the vehicle is first registered in the motor register. If the vehicle is registered in the motor register for the first time during the tax period, the obligation to pay motor vehicle tax arises at a lower rate, where the tax is calculated proportionally for the days remaining until the end of the current year. Tax notices are issued in the e-MTA e-services environment and the tax calculation process is also visible there.
| Status of vehicle registration in the motor register in 2025 | Issuing a tax notice | Due date for payment of tax |
| As of January 1 | By February 15 | Half of the tax amount June 15 and the rest December 15 |
| Registration in January | By February 15 | December 15 |
| Registration 1 February – 30 September | Within 15 working days after registration of the vehicle | December 15 |
| Registration 1 October – 31 December | Within 15 working days after registration of the vehicle | 15 June (2026) |
Land tax
In 2025, the rates will also change on land tax – the limit for the increase in land tax will be 50 percent or 20 euros (instead of the previous 10 percent or 5 euros) and the amount of the first instalment will increase to 100 euros (instead of the previous 64 euros).
Value added tax
Amendments to the Value Added Tax Act have also been adopted by the Riigikogu, some of which will enter into force already on 1 January 2025.
From 01.01.2025, VAT rates will change:
- VAT rate of 13% for accommodation and accommodation with breakfast (instead of 9%);
- VAT rate of 9% for press publications (instead of 5%).
In addition to the changes in VAT rates, from 01.01.2025 the following will apply:
Special scheme for small enterprises – under which a small enterprise can register for tax purposes in another Member State under the same conditions as those applicable to businesses established or having a permanent establishment in that other Member State.
Harmonisation of the new principles for calculating the VAT registration threshold – from 01.01.2025, the following will be included in the VAT registration threshold of EUR 40,000:
- taxable supply of goods and services, including the supply of goods and services taxed at zero per cent, excluding the transfer of fixed assets;
- supply from transactions in immovable property, excluding the transfer of fixed assets and occasional transactions;
- supply from insurance and financial services, excluding occasional services.
Only turnover with the place of supply of which is Estonia, is included in the limit.
If a person’s total turnover is either exempt from tax or subject to 0% VAT (and does not include the intra-Community turnover of goods), then regardless of the size of the turnover, there will be no obligation to register.
NB! Therefore, it should be noted that if an Estonian company has only incurred a tax-free turnover in a calendar year (also above the limit of 40,000 euros), then from 2025 there will be no obligation to register as a VAT payer either. However, if, in addition to the tax-free or 0% turnover, the company also generates a taxable turnover (which has not arisen from an incidental transaction), then from the day when the total turnover of the calendar year exceeds 40,000 euros, the obligation to register as a VAT payer arises. Also, when deducting input VAT, it is necessary to begin to take into account the proportion.
Changes in the taxation of immovable property:
- according to the act, a building that is first transferred within one year after the initial commissioning/re-use is also considered a new building;
- when fixed assets are first put into use, the input VAT is adjusted in full according to the proportion of the actual use of the fixed assets for taxable turnover in the tax period in which the fixed assets are put into service.
In addition, in connection with the security tax adopted by the Riigikogu, from 01.07.2025 until 31.12.2028, the VAT rate will increase to 24% (instead of the current 22%).
All the information provided in the blog post comes from the materials published by the Tax and Customs Board as of 19.12.2024. For a complete overview of tax changes, imore detailed information can be found on the website of the Tax and Customs Board.