Basic exemption in 2023 and 2024
- Person is not of pensionable age
Basic exemption: 7848 euros per year / 654 euros per month
Overall basic exemption decreases as annual income increases. Read more from section “Calculation of basic exemption”. - Person is of pensionable age
Basic exemption in 2023: 8448 euros per year / 704 euros per month
Basic exemption in 2024: 9312 euros per year / 776 euros per month
Basic exemption in pensionable age is a fixed amount that does not depend on the amount of a person's annual income.More information on the page “Basic exemption at pensionable age”.
Basic exemption in 2025
From 2025, people who have not reached the pensionable age will have 8400 euros per year or 700 euros per month free of income tax, regardless of the person's income. In other words, from 2025, the calculation of the amount of income is no longer necessary, and basic exemption can be applied by all residents of Estonia.
More information in the article “Tax rates”.
Calculation of basic exemption:
- annual income up to 14 400 euros gives 7848 euros as annual basic exemption,
- if annual income increases from 14 400 euros to 25 200 euros, basic exemption decreases according to the following formula: 7848 – 7848 ÷ 10 800 × (income amount – 14 400),
- if annual income is above 25 200 euros, basic exemption is 0.
It is possible to check how basic exemption is taken into account during the year in the Tax and Customs Board’s e-services environment under "My income".
Annual income includes:
- income taxable with income tax (incl. foreign income);
- remuneration and other income and dividends received abroad which are not taxed with income tax in Estonia;
- dividends or other payments made from the equity which are taxed at the company level at a standard tax rate 20/80;
- an amount taxed according to the Simplified Taxation of Business Income Act from which the part of the social tax of the business income tax is deducted.
Annual income includes:
- remuneration and other fees (holiday pay, grant, sickness benefit etc.);
- service fees received on the basis of a contract under the law of obligations;
- business income;
- gains from transfer of property;
- rental income, royalties, interest;
- dividends;
- taxable state pension, including the flexible old-age pension and the old age pension under favourable conditions related to certain occupations (e.g. occupations that are detrimental to health, superannuated pensions, and the pension of a policeman, prosecutor, judge, official of the National Audit Office, and Chancellor of Justice if a person has not reached the pensionable age) from I pillar;
- payments from supplementary funded pensions (III pillar), which is taxed with 20% tax rate;
- benefits, scholarships and grants, awards, compensations or other income.
Dividends received from an Estonian company and taxed by the company:
- at the standard tax rate 20/80 - will be taken into account as annual income in the amount received (money received by a person);
- at the preferential rate of 14/86 + withholding tax 7% - will be taken into account as annual income in gross amounts on which 7% of income tax has been withheld.
Income tax may also be withheld and paid on dividends received from a foreign company. Dividends received from a foreign company will also be taken into account in gross amount.
Annual income does not include:
- compensations, benefits, scholarships and grants exempt from tax;
- tax exemptions (for example sale of housing or transfer of movable property in personal use) which are not declared in a natural person’s income tax return;
- payments from mandatory funded pension (II pillar) and supplementary funded pension (III pillar) exempt from tax;
- payments (incl. compensations) from mandatory funded pension (II pillar) which have been taxed with 20% or 10% tax rate and
- payments from supplementary funded pension (III pillar) which have been taxed with 10% tax rate.
Application for basic exemption
Only one employer (the withholding agent) can apply basic exemption on the basis of a person’s application. Employees who have several jobs must be aware that they are entitled to calculate and use the basic exemption only in one job.
In the application, it must be indicated that the withholding agent should:
- calculate the basic exemption or
- not calculate the basic exemption or
- calculate the basic exemption in a specific amount, e.g. 100 euros per month.
The withholding agent can apply the basic exemption on a monthly basis. The amount of basic exemption is calculated on the basis of the employee’s gross salary or other fees.
For example, in case of the following gross income, the basic exemption is calculated as follows:
It is also necessary to consider that if income received from several sources and salary or other income exceeds 1200 euros per month, the monthly tax calculation will not give the same result as the annual tax calculation.
Therefore, in a case where the annual income is within the range of 14 400 – 25 200 euros, it is important for people:
- to think through their monthly income (e.g. salary, rental income etc.) and other expected income (e.g. gains from selling immovable property or securities etc.) by the beginning of the calendar year, and
- considering their expected annual income, to decide on whether to apply for basic exemption and
- to notify the withholding agent (the employer) on their decision to:
- not use the right to calculate a monthly basic exemption or
- use the right to calculate the monthly basic exemption in a smaller amount than 654 euros.
It is recommended to submit one basic exemption application per year. In the case of variable income, it is possible to change the application once a month or withdraw it for applying basic exemption in a smaller amount or not applying it at all. If the basic exemption is applied monthly in a bigger amount than the total income allows, the person has to pay additional income tax based on the income tax return by 1 October of the following year.
If basic exemption is not applied at all when withholding income tax or the total amount of basic exemption has not been used throughout the year, the overpaid income tax amount will be refunded to the person on the basis of the income tax return by 1 October of the following year at the latest.
Last updated: 08.02.2024