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Sale of electricity
The amendment to the Income Tax Act was published in the Riigi Teataja on 07.03.2023, which provides for an income tax exemption for income from the sale of electricity, if the electricity is produced from a renewable energy source for the production of electricity with a production device with a net capacity of which is up to 15 kW, in order to promote the introduction of renewable energy and also to make taxation fairer.
Income Tax Act § 15 (4) was supplemented with a new clause 12, and § 15 with a new subsection 4¹, which will be applied retroactively from 1 January 2022.
- Income from the sale of electricity produced by a production device with a net capacity of up to 15 kW used to produce electricity from a renewable energy source is exempt from income tax. In addition to solar panels, the exemption includes income from the sale of electricity produced by, for example, wind turbines.
- The tax exemption also applies if the said income is received by a member of an apartment association selling electricity and the net power of the production device does not exceed 15 kW per connection point or 8 kW per apartment ownership.
The power of the generating device is calculated according to the power of the inverter. It is also possible to change the power of the production device (inverter), for more detailed information visit the network operator (e.g. elektrilevi.ee or Elektrilevi self-service).
Income tax is levied on all income from the sale of electricity, which is produced and connected to the network via production equipment with a net capacity exceeding 15 kW. Income from the sale of electricity is subject to taxation in the tax return of a natural person as profit from the transfer of property in table 6.3.
For example, if the production device (inverter) is set to a net power of 17 kW, then regardless of the production volume, all income from the sale of electricity must be declared in table 6.3 of the income declaration. From the point of view of taxation, it is not relevant whether the income from the sale of electricity is credited to a prepaid account with an energy company (e.g. Eesti Energia) or transferred to a bank account of the person.
It is allowed to deduct the cost of acquiring the production equipment and the costs related to its installation from the income from the sale of electricity, according to the proportion of the electricity amount produced and supplied to the electricity network (kWh) from the total electricity produced. The total electricity produced (kWh) is the sum of the amounts of electricity produced both for own use and supplied to the electricity network.
The proportion may vary each year depending on weather and production volume. For example, in the case of solar panels, production and consumption quantities depend on the sunny summer or year.
For example, if in 2025 the amount of electricity produced into the electricity network by the micro producer is 5,600 kWh and the amount of electricity consumed by the micro producer (own consumption) is 8,800 kWh, then the total amount of electricity produced is 14,400 kWh (5,600 + 8,800). The acquisition cost can be taken into account to the extent of 39% (5,600 ÷ 14,400 × 100 = 38.88).
The acquisition cost may be taken into the account for one year or over several years. The rule is that the acquisition cost should be considered proportionally.
Electricity can be used for own consumption only on the property where the production device is installed. According to the proportion of the amount of electricity produced and supplied to the electricity network (kWh) from the total produced electricity (including electricity produced for own consumption), can be taken into account as the acquisition cost only a production device and its installation which is on this property.
If electricity produced on different properties using different production equipment, the capacity and production volumes of each device must be accounted separately.
It is permitted to deduct from the income from the sale of electricity the acquisition cost of a generating installation and the costs related to its installation in accordance with the proportion of the amount of electricity produced and supplied to the network (kWh) in relation to the total amount of electricity generated. Total electricity generated (kWh) is the sum of the amounts of electricity generated for own consumption and supplied to the network.
The acquisition cost can be taken into account all at once in one year or over several years. It is important that the acquisition cost is taken into account in accordance with the proportion.
The income received from the sale of electricity and the acquisition cost must be indicated in table 6.3 of the income tax return of a natural person.
In order for the cost of acquisition to be taken into account, it is first necessary to calculate the proportion by which the cost of acquisition may be taken into account. Each year, a new percentage is calculated according to the amount of electricity generated and supplied to the network. The balance of the acquisition cost, to which the resulting proportion is applied, must also be calculated annually.
Example
| Income tax return of 2024 (I year) |
During the year, 10,000 kWh of electricity has been generated, of which 8,000 kWh of electricity has been supplied to the network and 2,000 kWh has been used for own consumption. The generating installation and its installation cost 10,000 euros in total. Income from generating electricity is 2,500 euros. |
| Calculation of the proportion percentage for 2024 |
(electricity sold to the network ÷ (own consumption + electricity sold to the network)) × 100 = % (8,000 ÷ (2,000 + 8,000)) × 100 = 80% In 2024, the following can be taken into account as acquisition costs: generating installation and its installation costs × proportion % 10,000 × 80% = 10,000 × 0.8 = 8,000 euros It is possible to declare the same amount as the income from the sale as the acquisition cost. If the income from the electricity sold to the network is 2,500 euros, then in table 6.3 of the income tax return of a natural person, the amount of income entered is 2,500 euros and the acquisition cost entered is 2,500 euros. |
| Income tax return of 2025 (II year) |
First, the proportion must be recalculated. For example, the proportion calculated for 2025 is 50% and the acquisition cost declared the year before is 2,500 euros. In 2024, the own consumption was 20%, which is taken into account when calculating the balance of the acquisition cost in 2025, and by this the balance of the acquisition cost decreases |
| Calculation of the proportion percentage for 2025 | Own consumption of the previous year (2024) must be taken into account in the calculation of the balance of the acquisition cost. |
| Calculation of own consumption |
(income from electricity sold × % of own consumption of the previous year) ÷ % of sales to the network (2,500 × 20%) ÷ 80% = (2,500 × 0.2) ÷ 0.8 = 625 euros |
| Calculation of acquisition cost balance |
generating installation and its installation costs – acquisition cost declared in the previous year – own consumption of the previous year = acquisition cost balance 10,000 – 2,500 – 625 = 6,875 eurot If the balance of the acquisition cost in 2025 is 6,875 euros and the proportion is 50%, then for 2025 it is possible to enter the following as the acquisition cost in table 6.3 of the income tax return of a natural person (to be submitted in 2026): balance of acquisition cost × proportion % 6,875 × 50% = 6,875 × 0.5 = 3,437.5 euros |
Support is paid to the owner of solar panels on the basis of § 59 of the Electricity Market Act and the support is exempt from tax for the recipient.
A private individual is not required to declare the tax-free support in his or her income tax return.
If the sale of electricity is a business activity, the rules on the taxation of the income of a sole proprietor must be followed. Business is a person’s independent economic or professional activity, the aim of which is to derive income from the production, sale or intermediation of goods, provision of services, or other activities.
A natural person who conducts business must register his or her activities in the commercial register. Business income from which business-related expenses have been deducted, is subject to income tax and social tax, and contributions to funded pension if the person has subscribed to mandatory funded pension.
In certain cases, a person may also be required to pay excise duty on electricity. You can read more about electricity excise duty on our web page on fuel and electricity excise duties.
A sole proprietor must declare the income from the sale of electricity in the income tax return form E.
A sole proprietor has the right to take into account all costs related to electricity production (e.g. plant construction and maintenance costs, including costs covered from the support received) and the tax liability on profits is calculated on the basis of the tax return.
The support received by economic operators is taxable and must be declared in the income tax return form E.
Costs covered from the support are taken into account in the total costs and the tax liability is calculated on profits.
Turnover derives both from the sale of electricity to the electric grid by a small producer acting as an entrepreneur and from the sale of electricity to a small producer via the grid by an energy company.
However, a small producer registered for VAT person must add 24% VAT (from 1 July 2025) to the price of electrical energy released to the grid and submit an invoice to the energy company by the requirements of the VAT Act. In case a small producer is not registered for VAT person, no VAT shall be charged on the sale of electricity supplied to his system.
An energy company must account for and pay VAT on all electricity it sells to a small electricity producer and also submit an invoice for all electricity it sells to a small electricity producer – this cannot be deducted from the amount of electricity that the same small electricity producer releases into the grid of the energy company. It is irrelevant whether the small electricity producer is a natural person, a legal person identified for VAT purposes or a legal person not identified for VAT purposes. The energy company does not account for VAT only on the amount of electricity that is directly consumed by the small electricity producer itself without having to discharge it into the grid.
Income from balancing service
Estonian companies provide a service aimed at finding the best offer for the purchase, sale or storage of electricity for their customers who are natural persons, taking into account the hourly market price of electricity, weather conditions and the energy consumption and production capacity of the natural person. Companies also cooperate with flexibility service providers to enable customers to participate in the flexibility market and to and earn revenue from balancing services.
Customers can use their own systems (e.g. solar panels and batteries up to 15 kW) on the energy market to:
- sell electricity to electricity supplier and earn income, or
- participate in the balancing / flexibility market (i.e. customer's system automatically reduces consumption at times when there is a shortage in the grid and shifts consumption to periods when energy is cheap and in surplus) and thereby earn income.
The tax authority is of the opinion that the income tax exemption provided for in clause 12 of subsection 4 of § 15 of the Income Tax Act applies only to income from the sale of electricity produced by a generating installation with a net capacity of up to 15 kW used for the production of electricity from a renewable energy source.
The income tax exemption does not extend to the income a customer receives from participating in the balancing/flexibility market and selling or not selling electricity on a smaller scale. The remuneration for the balancing service depends primarily on a customer's system, i.e. battery capacity, inverter capacity, the size of the main circuit breaker (more powerful systems earn more revenue), not on the sale of electricity, i.e. the amount of electricity fed into the grid.
In the view of the tax authority, the remuneration for the balancing service constitutes “other income” of a customer, i.e. a natural person. “Other income” of a natural person is taxed pursuant to subsection 1 of § 12 of the Income Tax Act. The list of income in the aforementioned provision is not exhaustive, which means that income tax is also charged on the categories of income not included in the list which, in terms of their economic substance, correspond to the concept of income.
Upon making a payment to a natural person (including “other income”), companies are obliged to withhold income tax (basis: clause 13 of § 41 of the Income Tax Act), declare the payment in Annex 1 to the tax return form TSD (type of payment “55”) and transfer the amount of tax to the Estonian Tax and Customs Board. On the basis of form TSD, data is pre-filled in the income tax return of a natural person and the person does not have to pay income tax.
Charge for production of electricity from wind energy related to residence
The Environmental Charges Act requires local authorities to transfer the charge for production of electricity from wind energy to natural persons living within area of influence of onshore wind farms (§ 55³ of the Environmental Charges Act). The Income Tax Act does not provide a tax exemption for the aforementioned charge. Therefore, it is considered to be natural person's taxable income, from which the local authority is obliged to withhold income tax when making a payment, to declare it (on the Annex 1 of the income and social tax declaration form TSD with payment type 55 “other income”) and to transfer it to the Estonian Tax and Customs Board. The charge paid to the person and the income tax withheld from it are pre-filled in the income tax return of the resident natural person based on the data provided by the local authority.
Taxation of the income of drivers providing taxi service through a ride-sharing platform
The provision of taxi services is essentially business. While doing business, a person has to decide whether to offer his or her services as a sole proprietor, through a company or by using an entrepreneur account.
The work and service fees of a natural person (not a sole proprietor (FIE), entrepreneur account user or a company) must be declared by platform operator and taxed with all labour taxes, i.e. income tax, social tax and contributions (unemployment insurance premium and, in the case of an obligated person, a funded pension payment). The taxed work and service fees are pre-filled in the person’s income tax return in part I of table 5.1.
If the work or service fees have not been pre-filled in the income tax return, the person must declare the remuneration received from a platform operator in part II of table 5.1 of the income tax return and pay income tax at the rate of 22% on the income received.
Since 2019, for simplifying the taxation of services offered by one natural person to another (incl. income derived through a taxi service platform), it is possible to use an entrepreneur account.
You can find out more about an entrepreneur account.
Sole proprietors may deduct business related expenses from their business income. From their profit they have to pay income tax and social tax, and also contributions to mandatory funded pension in case they have joined the mandatory funded pension system.
A sole proprietor registered as a person liable to value added tax (VAT), has to pay VAT. The VAT return (form KMD) has to be submitted every month.
A sole proprietor cannot distribute dividends and does not have to file an annual report to the Commercial Register.
The sole proprietor’s business income has to be declared on the form E of the income tax return. The income tax return and form E have to be submitted once a year with the person’s other income and deductions by 30 April of the year following the period of taxation. A sole proprietor has cash based accounting which means that income and expenses have to be indicated in the accounting for taxation purposes in the year money is paid or received.
If a sole proprietor wishes to save up for a bigger investment, he or she may use a special account to defer tax obligations.
Sole proprietors have to take into account the obligation to pay advanced payments.
More instructions about sole proprietors’ tax obligations.
When performing business activities through a private limited company (in Estonian ‘osaühing’, OÜ), it is necessary to consider that providing driver services is a business activity and labour taxes need to be paid on income from employment (income tax, social tax, unemployment insurance premiums and in case the driver has joined the mandatory funded pension system then also contributions to mandatory funded pension).
The owner of a private limited company may receive dividends as owner’s income in addition to salary. Distributing dividends requires only income tax to be paid.
In case of making taxable payments, the representatives of private limited companies need to submit monthly income tax declarations (form TSD or declaration of income and social tax, unemployment insurance premiums and contributions to mandatory funded pension) to the Estonian Tax and Customs Board and annual reports to the Commercial Register.
An obligation to register as value added tax (VAT) liable arises when the taxable supply exceeds 40,000 euros as calculated from the beginning of a calendar year. When the limit amount is reached the representative of the company has to submit an application to the Estonian Tax and Customs Board to register the company VAT liable. VAT return (form KMD) is submitted monthly.
The person providing driver services can decide on which business form (sole proprietor or private limited company) to use.
Regardless of the chosen form of business in Estonia, the Uber service of enabling the use of the application is registered as VAT liable in the Netherlands and is regulated in Estonia according to subsection 5 of § 10 of the Value Added Tax Act. This means that by using the Uber application for offering ride-sharing services the Estonian entrepreneur (sole proprietor or private limited company) has to register as a taxable person with limited liability and this service has to be declared and VAT with the Estonian rate of 24% has to be paid (the so-called reverse charge).
As a VAT liable person with limited liability does not have the right to deduct the input VAT on purchased goods and services (incl. the VAT calculated from the purchase price of the reverse charged service), the driver offering services in the course of business activities can consider registering for VAT according to the standard procedure voluntarily before the VAT registration threshold limit is reached.
If using the taxi service was related to performing the passenger´s (an employee) work tasks, the cost can be reimbursed to the employee by the employer on the basis of a ride summary issued by the ride-sharing platform as the expense in the benefit of another person and supported by documentary evidence pursuant to subsection 3 of § 12 of the Income Tax Act.
This is the case regardless of whether the taxi service was provided by a sole proprietor, private limited company, owner of an entrepreneur account or by a private individual.
The income derived from the assets upon the merger of the company with the assets of the natural person
If the sole shareholder of a company who is a natural person has merged the assets of the company with the personal assets as an alternative to the liquidation proceedings of the company, then he/she shall have to declare it in table 6.6 of the income tax return.
A company which transfers its assets and liabilities to a natural person upon merger becomes liable to tax on the part of the equity exceeding the monetary and non-monetary contributions made to the company (subsection 22 of § 50 of the Income Tax Act).
A natural person must declare the difference between the income received from the company in monetary or non-monetary form and the liabilities assumed, as well as the acquisition cost of the holding (subsection 31 of § 15 of the Income Tax Act). Income received in non-monetary form must be declared at market price. A tax liability arises for a natural person on gains received which are not taxed at the level of the company.
If upon merging the liabilities of the company are taken over, then the amount of the liabilities taken over shall be declared.
If the liability taken over from the company ceases to exist later due to waiver of a claim, limitation period, consolidation of an obligor and an obligee or other reason, then it shall be declared and the taxable income shall occur during the period of taxation when the liability shall cease to exist.
Income from gambling
In Estonia, no income tax has to be paid on casino winnings or on any other gambling winnings if the gambling operator holds a gambling licence issued by the Estonian Tax and Customs Board. This applies to lotteries, sports betting, poker tournaments, casinos, and any online gambling.
All winnings from gambling licensed in Estonia are exempt from tax, i.e. you do not have to declare or pay income tax on the winnings. All taxes are paid by the gambling operator in the form of a gambling tax.
Operators that do not have a licence in Estonia are considered to be illegal and gambling there is prohibited. However, if a person unknowingly ignores the prohibition and plays on illegal gambling sites and wins, then the winnings must be declared and income tax paid at the rate of 22%. In this case, gambling winnings received in Estonia must be declared in part II of table 5.1 of the income tax return and gambling winnings received abroad in table 8.1.
Last updated: 18.12.2025
