Income and social taxes

Natural persons pay income tax on their income. Income from employment, gains from transfer of property, business income and other income are taxed at the rate of 20%. In addition to income tax, income from employment and business income are also taxed with social tax, unemployment insurance premiums and in case of an obligated person, insurance premiums of mandatory funded pension.

Legal persons (companies, non-profit associations, foundations, legal persons in public law and profit-making state agencies) pay income tax on fringe benefits, gifts and donations, costs of entertaining guests, distributed profit (dividends) and payments from the equity capital. All payments are taxed at the same rate of 20/80. In addition to income tax, fringe benefits are also taxed with social tax.

It is unique in the Estonian income tax system that tax liabilities of a company arise at the distribution of profit (at dividend payment). If the company does not distribute profit but invests it in the company, there is no tax liability. Dividends are taxed at a 20/80 rate, while regularly paid dividends are taxed at a reduced rate of 14/86.

You can find more details in the explanations below.

Income tax and basic exemption

In Estonia, companies pay (corporation) income tax only when profit is distributed as dividends or in other form, on fringe benefits, gifts, donations, costs of entertaining guests, as well as expenses not related to business. One way of fulfilling the income tax liability is to withhold income tax from the taxable income of the recipient. When withholding income tax, there is a right to take into account the overall basic exemption.

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Tax rates

On this page you will find the rates of income tax, social tax, contribution to mandatory funded pension and unemployment insurance premium applicable from 2017-2021 as well as national minimum wage rates since 1996.

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Social tax

Social tax is levied on income from employment and business in order to finance pension insurance and state health insurance. The social tax rate is 33 % (13 % in some cases) on the taxable amount.

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Contributions to mandatory funded pension

The contribution to the mandatory funded pension is a social security contribution established by the Funded Pensions Act for the purposeful financing of the second pillar of pension. The provisions of the Taxation Act concerning taxes apply to social security contributions (hereinafter contribution).

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Fringe benefits

By its nature, fringe benefit is the income of the recipient (employee), but paying income and social tax on the fringe benefit is the obligation of the person granting the benefit (employer). Fringe benefits i.e. benefits provided by the employer to the employee are subject to income tax at a rate of 20/80 and social tax at a rate of 33%.

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Taxation of dividends

A resident company, including a general and limited partnership, pays income tax on profit distributed as dividends or other profit distributions upon payment thereof in monetary or non-monetary form. Income tax is not charged on profit distributed by way of a bonus issue.

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Special tax arrangement for crew members, tonnage scheme

An Estonian company taking profit from international carriage of goods and passengers by sea may abandon, upon request, the standard procedure for taxation and pay the income tax on the basis of the tonnage scheme. It is also possible to impose taxes on the remuneration of the members of a ship’s crew on the basis of the special arrangement.

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Last updated: 01.10.2021

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