In 2023, the overall basic exemption is up to 654 euros, and it decreases as a person's income increases. However, the basic exemption during the pensionable age is a fixed amount - 704 euros and it does not depend on the amount of the person's income. The Social Insurance Board calculates the basic exemption at pensionable age to the person's old-age pension, and if the old-age pension is less than this amount, based on the person's application, the employer also calculates the unused surplus to the wages or other income.
The purpose of deducting the basic exemption applicable in Estonia is to guarantee a person a subsistence minimum free of income tax. From 1 January 2023, the general tax-free income rate is:
- 7,848 euros per year, or 654 euros per month, but
- if a person's gross income exceeds 14,400 euros per year (1,200 euros per month), the rate of basic exemption begins to decrease based on a linear formula and
- reaches zero at an annual income of 25,200 euros (2,100 euros per month).
From 1 January 2023, the amount of basic exemption of a person of a pensionable age is:
- equal to the amount of the average old-age pension per month and
- to the amount of 12 times the average old-age pension per year.
The amount of the average old-age pension shall be established by the State Budget Act of the fiscal year – expected to be 704 euros per month and 8,448 euros per year in 2023.
The exact amount will be revealed when the 2023 State Budget Act is adopted.
In Estonia, the retirement age depends on the person's year of birth
When a person is born:
- in 1958, his/her retirement age is 64 years and 3 months
- in 1959, then 64 years and 6 months
- in 1960, then 64 years and 9 months
- in 1961, then 65 years
Basic exemption is applied for the whole year, even if a person reaches pensionable age during the year.
|A person is born||A person reaches pensionable age||A person's basic exemption is at the level of
average old-age pension from 1 January
|until September 1958||is at pensionable age in 2023||in 2023|
|in October, November, December 1958||in January, February, March 2023||in 2023|
|in January – June 1959||in July – December 2023|
|in July – December 1959||in January – June 2024||in 2024|
|in January, February, March 1960||in October, November, December 2024|
|in April – December 1960||in January – September 2025||in 2025|
|in January – December 1961||in January – December 2026||in 2026|
- If you reach pensionable age during the year, basic exemption to the extent of the average old-age pension will apply to you from 1 January of that year, and general basic exemption will no longer apply to you.
- The application of basic exemption other than the general one is only related to reaching your pensionable age and is not related to your pensioner status or pension type.
- From 2021, if a person has enough pension qualifying years, it will be possible to use a flexible old-age pension up to five years before reaching the pensionable age.
- If you use the option of a flexible old-age pension before reaching the pensionable age, the general basic exemption will apply to you until the year you reach the pensionable age.
- You can also postpone receiving your old-age pension. If you use the option of postponing your pension, then you will be subject to basic exemption in the amount of your average old-age pension from the year you reach the pensionable age, not from the time you start receiving your pension.
- Also, if you use the old-age pension under favourable conditions, you will be subject to general basic exemption until the year in which you reach the pensionable age.
More common situations
You have the right to apply the unused part of the basic exemption to your old-age pension also to your wages. For this, you must submit an application to the employer and also indicate the amount of the unused part of the basic exemption, which the employer applies to the payments made to you. The employee is responsible for the correctness of the sum.
For example, you are at pensionable age and the Social Insurance Board pays you a monthly old-age pension in the amount of 560 euros. Starting from January 2023, the Social Insurance Board automatically calculates basic exemption of up to 704 euros to your old-age pension, and thus your pension will be income tax-free from the new year. The Social Insurance Board will pay you the entire old-age pension of 560 euros.
In case you are also working at the same time, you have the right to submit an application to the employer to use the basic exemption surplus. In your case, the remaining basic exemption not used for old-age pension is 144 euros (704 – 560 = 144). Based on your application, the employer calculates a basic exemption of 144 euros on the wages, and this part of the wages is not taxable with income tax.
For example, you are working, and your employer pays you monthly gross wages of 1,000 euros. Based on your application, the employer calculates a basic exemption of 144 euros (1000 – 144 = 856) and taxes your wages with 20% income tax of 856 euros. The employer withholds income tax of 171.20 euros (856 × 20% = 171.20) from your wages. The employer pays you net wages of 828.80 euros (1000 - 171.20 = 828.80).
NB! Although your gross monthly income is 1,560 euros (560 + 1,000 = 1,560), but since you are at a pensionable age, you are entitled to a basic exemption of 704 euros per month and it does not depend on the amount of your income.
From the beginning of the year, i.e. from 1 January, basic exemption to the extent of the average old-age pension applies to you, and general basic exemption no longer applies to you.
This means that the employer will apply basic exemption to your wages in the amount of the average old-age pension from 1 January, even though you will reach the pensionable age and start receiving the old-age pension from the Social Insurance Board only within a year (e.g. in July). You must submit an application to your employer to apply basic exemption.
If you reach the pensionable age during the year and you already receive old-age pension from the Social Insurance Board and payments from the Pension Centre of the II pillar at the 10% income tax rate, do not forget to change your application with your employer.
The following are entitled to basic exemption in pensionable age:
- Estonian residents and
- residents of the European Economic Area (members of the European Union, Norway, Iceland, Liechtenstein) who receive income from Estonia. A resident of the European Economic Area must submit his/her certificate of residency to the Estonian Tax and Customs Board. Only in case of a certificate there is a right to apply basic exemption.
Residents of third countries are not entitled to general basic exemption and basic exemption in pensionable age.
Basic exemption at pensionable age is applied by:
- the Social Insurance Board for state pension (the first pillar pension). A person does not need to submit an application, because the Social Insurance Board automatically applies the basic exemption in the pensionable age.
- the Pension Centre for the second pillar pensions, which is taxable at 10% income tax rate.
- the employer or other payer according to the person's choice. A person can submit an application to use the surplus, and the payer will take into account the amount indicated in the application.
Last updated: 09.12.2022