Changes in law 2026

Basic exemption of income taxdraft

Starting from 01.01.2026, the personal income tax-free minimum for residents is 700 euros per calendar month (thus 8,400 euros per year in total). The tax-free allowance does not apply to third-country residents.

Abolition of the tax humpdraft

The differentiated tax-free income calculation formula (known as the "tax hump") that came into effect in 2018 will be eliminated. Everyone will be subject to a uniform tax-free minimum of 700 euros per calendar month.

Security taxdraft

The security tax is currently agreed to be temporary and is valid for the period 01.01.2026-31.12.2028. It consists of three parts:

  • 2% increase in VAT from 01.07.2025 → new rate 24%
  • 2% of profits earned by companies (including profits from permanent establishments in Estonia of foreign companies) starting from 01.01.2026
  • 2% of income earned by natural persons (including non-residents) starting from 01.01.2026

Additional 2% increase in VAT

From 01.07.2025, VAT will increase again and Estonia’s new standard VAT rate will be 24% (instead of the current 22%). In connection with this, the previous VAT transitional provisions, which were originally supposed to be valid until 31.12.2025, will end on 30.06.2025.

Company’s 2% income tax on profit

Tax period

  • The taxation period is not the calendar year but the financial year.
  • If the financial year is not the calendar year, the pre-tax profit of the financial year ended in 2026 will be subject to security tax proportionally to the number of months falling within the year 2026.
  • In 2028, the same logic will be followed and pre-tax profit will be taxed proportionally to the number of months that fall within the year 2028.

Declaration and payment

  • Tax payment is made in advance - September 10, December 10, March 10 and June 10.
  • After the end of the financial year, a company has 9 months to submit a declaration by the 10th date on the profit earned in the previous financial year. When paying, advance payments are taken into account and tax is paid less accordingly. However, if advance payments exceed the tax liability, EMTA returns the overpayment to the company’s prepayment account.
  • In 2026, advance payments will be made by September 10 and December 10 on half of the previous financial year’s profit. Except for credit institutions, insurance companies and listed public companies, who pay advance payments on profits earned in the previous quarter.

Principles for calculating advance payments

  • Before July 1st if the previous financial year’s report has been submitted → ¼ of the pre-tax profit earned in the previous financial year.
  • Before July 1st if the previous financial year’s report has not been submitted → ¼ of the pre-tax profit earned in the financial year before the previous one.
  • After July 1st → ¼ of pre-tax profit earned in the previous financial year.

NB! The first advance payment must be made by 10.09.2026 and the next by 10.12.2026. The tax calculation is based on half of the previous financial year's profit (except for credit institutions, insurance companies and listed public companies).

Tax calculation basis

  • Taxation applies to the company’s net profit before income tax. Therefore, there is no right to pay this 2% income tax less by the amount of income tax paid on dividends during the financial year. However, the calculation includes income tax expenses such as fringe benefits etc., and accordingly less 2% additional income tax is paid by that amount.
  • If the company is operating at a loss, no tax liability arises. However, the loss cannot be carried forward (or backward).
  • When a company receives dividends from another company in which it has a shareholding of more than 10%, these dividends are tax exempt provided that the underlying profit has been previously taxed.
  • Profit attributed to a permanent establishment located in a foreign country is also exempt from tax, provided that this profit has been taxed in that foreign country.
  • However, tax must be paid on profits attributed based on transfer prices to a permanent establishment located in Estonia.

2% withheld income tax from natural persons

Tax period is calendar year. When tax liability arises, it needs to be paid by October 1st.

Tax is paid on all earned income, for example:

  • Employment income
  • Dividend income
  • Rental income
  • Pension
  • Scholarships
  • etc.

For income where the law requires income tax to be withheld, it is calculated and paid after the payment. All others must be paid once a year based on the natural person’s income tax return.

There are no deductions from this tax.

For non-residents, the following are taxed:

  • Income earned in Estonia
  • Management board member’s fee
  • License fee
  • rental income from property located in Estonia
  • income from the transfer of property located in Estonia