Income Tax in Estonia

In Estonia, income tax is divided into:

• personal income tax
• corporate income tax (also applies to permanent establishments of non-residents and employers granting special benefits)

Employers are required to withhold income tax from employee salaries and remit it to the Tax and Customs Board (MTA).

📊 Corporate Income Tax

Key Principle

Estonia applies a unique model where only distributed profits are taxed.
Undistributed or reinvested profits are tax-free.

Taxable Transactions

Companies must pay income tax on:

• Distributed profits (e.g. dividends);
• Non-business-related income and payments;
• Gifts, donations, representation costs;
• Employee benefits;
• Reduction of capital, share buy-backs, or liquidation dividends exceeding equity contributions.

Tax Rate and Filing

• Tax rate: 22/78 of the net distributed amount (2025)
• Tax period: monthly
• TSD declaration deadline: 10th of the following month
• Filing via e-MTA or regional tax office

👨‍💼 Income Tax for Sole Proprietors (FIE)

If you operate as a sole proprietor, you must pay tax on your net business income (income minus deductible business expenses).

• Tax rate: 22%
• Tax period: calendar year
• Declaration deadline: April 30 of the following year

Advance Payments

• Due by September 15 and December 15
• Equal to 25% of the previous year’s income tax from business activity

👷 Income Tax on Employee Wages

Employers must withhold income tax from:

• gross salaries,
• bonuses,
• vacation pay,
• other wage-related payments.

Tax rate (2025): 22%

Tax-free Allowance

A monthly non-taxable minimum applies to all employees (2025):

• €654 per month, or
• €7848 per year

If the employee submits an application for the tax-free allowance, the employer can deduct this amount from the taxable base.

Additional Obligations

In addition to income tax, employers must also:

• Withhold mandatory funded pension contributions (if applicable)
• Withhold unemployment insurance contributions
• Pay social tax on gross wages