Therefore, when the employee wishes to come back after this long leave, the employer might need to make difficult decisions. For example, during the years of the employee’s absence, the employer has restructured the company structure, and the returning employee has basically no active position anymore. However, the employer needs to always consider the following:

1. The employment contract of the employee on this leave remains still in force. The employment contract does not automatically change or expire because of that. NB! It is also forbidden to lay off an employee who uses maternity/paternity leave, adoptive parent leave and parental leave (except in cases of company bankruptcy or liquidation).
2. The employee has the right to improved working conditions to which they would have been entitled during their absence. This means, for example, if the employer decided to raise the overall salary of every employee by 2%, the 2% raise applies to the absent employee as well.
3. In case the employee returns from their leave and their child is still under 3 years old, the employee shall also get the following protection:
   • In case of lay-off, they are the one entitled to stay compared to other employees working in the same position.
   • In case of business trip, the employee must agree to the business trip (it is not a unilateral decision of the employer).
   • In case of employment termination, the employer must prove and justify the legal grounds of termination (e.g. breach of employment contract), the law states that employment was terminated due to employee being pregnant or raising a child under 3 years of age (this is illegal).

Thus, we advise the employers to always consider the employment contracts of the absent employees when making organisational decisions and to consult with lawyers to avoid possible legal disputes. As pregnant employees and parents of children under 3 years of age are more protected by the law, it is way more likely that the labour dispute body shall rule against the employer.

Based on our practice, we also recommend employers to be more cautious when considering granting bonuses to employees on parental leave. Employees receive state-provided income during their leave, and there is a maximum monthly income threshold they must not exceed not affect their state-provided income. In 2025, the monthly limit is 2 632.55 EUR (gross). 

As employers do not have access to the info whether the employee has any additional income during their leave, it is recommended for employers that they consult with their employees regarding the planned bonus payment beforehand. In case the employer pays the bonus, and because of the bonus payments the monthly limit is exceeded, the state shall start claiming payments back from the employee. To prevent misunderstandings and claims from the state, it is best to discuss potential bonus payments with the absent employee beforehand.

For more information or advice please contact us at tax-legal@leinonen.ee

The post EMPLOYEE ON A PARENTAL LEAVE – WHAT DOES THE EMPLOYER NEED TO KNOW? appeared first on Leinonen Estonia.

Salary and Payment Terms

The Employment Contracts Act lets employers and employees decide together how wages are structured. Wages can be based on the number of hours worked (like hourly or monthly salary) or on the tasks completed (known as piece work). It is important that the employment contract clearly states the amount of wage to make everything clear for employees.

Here’s what should be considered when setting wages:

• The amount of work and time it takes.
• The complexity of the job.
• The working conditions.
• Any special situations, like working night shifts. Wages must be fair and should not discriminate based on gender.

 For full-time workers, the wage must be at least the minimum wage set by the government. Wages should be paid in money, and this can include cash if both sides agree. Payments should be made at least once a month on a set payday mentioned in the employment contract. Employers can choose to pay wages more often, like every week, but not less than once a month. The payday should be on a specific date, such as the 5th of each month, or a specific day, like the first business day of each month. It should not be within a range of dates (for example, not between the 1st and 10th). If the payday is on a public holiday or a day off, the wages should be paid on the last working day before that. For instance, if payday is on a Sunday, the wages should be paid on the preceding Friday.

Salary Taxes and Contributions

Employers are required to pay and withhold certain taxes and contributions on the employee’s earnings.

** To be eligible for health insurance in 2025, the total social tax from one or more authorization agreements and/or service contracts must be at least EUR 270.60, which is the amount based on a gross monthly wage of EUR 820.

Minimum Wage in 2025

Employees have a right to earn at least the minimum wage. In 2025, this is EUR 5.31 per hour (gross) or EUR 886 per month (gross) for full-time employees. For those working part-time, the minimum wage is adjusted based on the number of hours worked.

Key Tax Changes in 2025

Salary calculations, EUR

• Starting January 1, 2025, the income tax rate is 22%.
• The basic tax exemption varies by income, up to 654 euros monthly or 7,848 euros annually.
• The funded pension contribution rate is set at 2%, 4%, or 6%, based on the individual’s choice registered. If no choice is made, it defaults to 2%.
• From January 2024, individuals can opt to increase their second pension pillar contribution rate from 2% to 4% or 6%. Changes must be requested by November 30 each year, and the new rate applies from January 1 the following year.

Overtime, night work, work on public holidays regulation

In Estonia, overtime is defined as work performed beyond the agreed-upon working hours and requires a mutual agreement between the employer and the employee. Employers can compensate for overtime by giving either equivalent time off or monetary compensation, based on what has been agreed. When overtime is paid in money, the rate is 1.5 times the regular hourly wage.

For work carried out between 10 PM and 6 AM, employers must pay 1.25 times the regular wage unless the salary already includes compensation for night work. Work on public holidays is compensated at twice the regular wage, recognizing the special circumstances of these days.

Navigating Estonian Payroll Regulations

Understanding payroll regulations in Estonia is essential for both employers and employees. Following these guidelines ensures that employees are fairly compensated and that businesses comply with tax laws, contributing to a balanced work-life environment. By becoming well-versed in these regulations, businesses can handle payroll duties in Estonia with confidence and integrity.

If you have any questions about managing payroll in Estonia, please reach out to us using the contact information provided below.

The post Payroll in Estonia: Key Changes from January 2025 appeared first on Leinonen Estonia.

As of writing this article, the following changes are also fully adopted:

1. New value added tax rate. Starting from 01.07.2025, the new VAT rate is 24% (previously 22%)
2. Tax-free limits changes. The maximum tax-free amounts of business trip daily allowance and personal car compensation are changed starting from 01.01.2025 the following:
   • The personal car compensation maximum tax-free amount shall be 550 EUR (previously 335 EUR) per month and 0,5 EUR (previously 0,3 EUR) per km.
   • The foreign business trip daily allowance maximum tax-free amount shall be 75 EUR (previously 50 EUR) per day for the first 15 days (maximum 15 days in a month) and afterwards 40 EUR (previously 32 EUR) per day.
3. Fringe benefit regulation limits change.
   Starting from 01.01.2025, the employer’s business-related expenses for the accommodation of an employee working on the basis of an employment contract are not deemed to be a fringe benefit if both of the following conditions are met:
   • the expenses per accommodated employee are up to 500 EUR (previously 200 EUR) a calendar month in the event of accommodation in Tallinn or Tartu and up to 250 EUR (previously 100 EUR) in other events.
4. Income tax on gifts, donations and costs of entertaining guests.
   Starting from 01.01.2025, income tax is not charged on goods delivered or a service provided for the purposes of advertising, the value of which without value added tax is up to 21 EUR (previously 10 EUR).
5. Security tax. Starting 01.01.2026, the 2% security tax shall be paid the following:
   The security tax applies to:
   • a resident natural person;
   • a non-resident who receives taxable income in Estonia in accordance with this Act;
   • a resident company;
   • a non-resident company that has a permanent establishment in Estonia.

Amendment of the funded pension contribution rate as of 01.01.2025

From 01.01.2024, natural persons who have joined the second pillar pension fund, are able to increase their 2% funded pension contribution rate to 4% or 6% if they wish (the chosen new rates in 2024 came into force in 01.01.2025). The application can be submitted by 30.11. every year at the latest and the contribution rate can be changed once a year. The new contribution rate will apply from 01.01. each year based on the application done the previous year.

For more information or advice please contact us at tax-legal@leinonen.ee.

The post PLANNED TAXATION AND SALARY RELATED CHANGES IN ESTONIA (PART II) appeared first on Leinonen Estonia.

Timely submission of annual reports is not only a legal obligation, but it also ensures transparency and helps maintain the trust of stakeholders, investors, and regulatory authorities. Failing to comply can result in significant penalties, fines, and potential damage to your company’s reputation. We encourage businesses to prioritize this responsibility and avoid unnecessary complications by submitting reports timely and duly. Key points to remember:

• Board members are responsible for ensuring report accuracy.
• Failure to submit reports may result in removal from the register or fines.
• The Centre of Registers and Information Systems issues a warning before exclusion, allowing a grace period for compliance.

Timely submission avoids severe consequences and preserves business opportunities.

Useful information for preparing the annual reports

According to the Accounting Act, companies are categorized based on their balance sheet figures as of the reporting date and their level of public interest. Different requirements for annual reports are established based on the Estonian financial reporting standards.

If a company fails to meet the criteria for its category for two consecutive financial years, the provisions of the category it now belongs to will apply starting from the third year (the year following the two consecutive financial years).

Annual accounts must provide a true and fair view of the accounting entity’s financial position, operational results, and cash flows, enabling users to make informed business decisions. Annual accounts consist of basic reports (balance sheet, income statement, cash flow statement, and statement of changes in equity) and notes

Under the Accounting Act, micro-enterprises and small-scale enterprises may prepare abridged annual accounts instead of full annual accounts based on the Estonian financial reporting standards. These abridged accounts must include at least two basic reports (balance sheet and income statement) and annexes. A micro-enterprise may also choose to prepare an abridged or full annual report of a small-scale enterprise.

Financial statements must present a true and fair view of the company’s financial position, operational results, and cash flows. The annual report consists of basic reports (balance sheet, income statement, cash flow statement, and statement of changes in equity) and notes.

Medium-sized and large undertakings must prepare a full annual report, which includes a management report, four main statements (balance sheet, income statement, cash flow statement, and statement of changes in owners’ equity), and notes. A full annual report is also mandatory for non-profit associations and foundations.

A micro-enterprise may, if it chooses, prepare an abridged annual account of a small undertaking, and both micro and small enterprises may, if necessary, prepare a full annual report.

Annual accounts must be prepared in Estonian and in the officially applicable currency of Estonia, with the degree of precision for figures clearly indicated (e.g., in euros or thousands of euros).

Balance sheet and income statement

The balance sheet is a view of the company’s financial situation (assets, liabilities and equity as of the end of the financial year). The income statement lists the income and expenses and is a view of the company’s operating results during the reporting period (income, expenses and profit or loss).

Cash flow statement

The cash flow statement is a view of the company’s cash flows during the reporting period (receipts of cash and cash equivalents and disbursements). In this statement, you indicate the receipts and expenditures during the reporting period, grouped according to their purpose as cash flow from operating activities, investing activities and financing activities.

Statement of changes in equity

The Statement of changes in equity is used to recognize changes in the company’s equity during the reporting period. You are required to record separately any contributions of capital made by the owners and disbursements made to owners, profit or loss for the reporting period, impact of changes in accounting policies, increase and decrease of reserves and other economic transactions that impacted equity entries.

Notes to the annual accounts

The number of notes in the annual report varies depending on the company. However, the following must be included:

• An explanation of the financial reporting standard used to prepare the annual report.
• The accounting policies applied in preparing the annual report.
• Explanations of key entries and any changes in them during the reporting period.

Management report

Management reports provide an overview of a company’s activity and circumstances that are of material importance to evaluating the company’s financial condition and economic activity, key events in the financial year, and forecast development trends in the next financial year. One should certainly not forget to put down the main activity and ancillary activities of the accounting entity.

In the case that the owners’ equity is not in accordance with the requirements of the Commercial Code (meaning that it is negative) as at the end of a financial year, the management report must include a description of activities that have been performed or will be performed to be sustainable in the future or state if a different decision has been adopted.

Accounting entities that are subject to an audit obligation must include the main financial ratios concerning the financial year and the preceding financial year, and the methods for calculating the ratios (equations) in their management report.

Basic principles of preparing the annual report

• The company maintains separate accounts for its assets, liabilities, and business transactions, as well as those of its owners, creditors, employees, and customers.
• In preparing the report, it is assumed that the company will continue its activities as a going concern and does not intend to terminate its operations.
• The information disclosed in the report must be concise and unambiguous.
• The report includes all significant information affecting the financial situation, financial performance, and cash flows. Important information is considered to be any information whose non-disclosure may affect the economic decisions made by the reader of the report.
• The same accounting policies and presentation formats are used on an ongoing basis in the preparation of the report.
• Expenses related to the revenue earned during a given accounting period are deducted from such revenue.
• The information provided in the report must be objective and reliable.
• The report must be prepared prudently to avoid overestimating assets or revenue or underestimating liabilities or expenses.
• The report provides all information that enables the reader to obtain relevant and truthful insights about the company.
• Business transactions are recorded based on their substance, even if this does not correspond to their legal form.

The content of the annual report depends on the type of a company.

Reporting in English

If the company wants to prepare an informative report in English, the corresponding option should be selected in the general information of the report. Then, it is possible to fill in both Estonian and English forms in parallel and generate an informative English report. Only the Estonian version of the report is signed in the system and submitted to the register (e-Business Register).

Changing main and contact information

When compiling the report, it can be indicated whether the report is submitted with the aim of updating the data of the legal entity’s current means of communication in the Commercial Register or not. The email address submitted to the commercial register must be confirmed in advance (a corresponding letter will be sent to the email address, where the correctness of the email must be confirmed).

Deadlines for the submission of the Financial Statements

The annual report and the documents and data submitted with it must be submitted to the registration department of the county court within six (6) months of the end of the financial year.

A branch of a foreign company shall submit the annual report of a foreign company to the registration department of the county court within one (1) month of the approval of the company’s annual report or within seven (7) months of the end of the financial year.

The annual report must be submitted even if there was no economic activity during the reporting period.

Inspection and audit

The limits have been increased by 25% compared to the previously valid rates, and the new limits will apply to the annual report prepared for 2024. Companies that meet the criteria for mandatory review or audit should start selecting an auditor today, because currently the supply of auditors in Estonia is lower than the demand.

Inspection obligation

The inspection is mandatory for a company whose annual financial statements contain at least two of the indicators for the reporting year that exceed the following conditions:

1. Sales revenue or income – 2,000,000 euros.
2. Amount of assets as of the balance sheet date – 1,000,000 euros.
3. Average number of employees in the reporting year – 24 people.

In addition, an inspection is mandatory if one of the indicators exceeds the following limits:

1. Sales revenue or income – 6,000,000 euros.
2. Amount of assets as of the balance sheet date – 3,000,000 euros.
3. Average number of employees in the reporting year – 72 people.

Audit engagement

The audit obligation applies to a company whose at least two of its reporting year indicators exceed the following thresholds:

1. Sales revenue or income – 5,000,000 euros.
2. Amount of assets as of the balance sheet date – 2,500,000 euros.
3. Average number of employees in the reporting year – 50 people.

If at least one of the indicators for the reporting year exceeds the following thresholds, an audit is also required:

1. Sales revenue or income – 15,000,000 euros.
2. Amount of assets as of the balance sheet date – 7,500,000 euros.
3. Average number of employees in the reporting year – 180 people.

The post All You Need to Know About the Annual Reporting appeared first on Leinonen Estonia.

If the shareholders do not decide on the solution and choose to ignore the issue, a court may issue a ruling for a compulsory dissolution of the company. The company will then be deleted from the Commercial Register even if the company is active.

There are several options for restoring the equity and bringing the equity in compliance with the law. The most common options are:

1. reduction or increase of share capital either by monetary or non-monetary contributions;
2. merger, division or transformation of the company;
3. dissolution or submission of bankruptcy petition; or
4. other measures, including, but not limited to: involving investors, waiver of claim or formation of a voluntary reserve.

REDUCTION OR INCREASE OF THE SHARE CAPITAL

The most common ways to restore the equity are reduction or increase of the share capital.

The reduction of the share capital can be used in cases which the share capital is high. For example if the share capital is 100,000 euros the equity must be at least 50,000 euros. If the company decides to reduce the share capital to 2,500 euros, the equity must be only 1,250 euros. This measure reduces the company’s net asset requirement.

The increase of the share capital on the other hand is used in cases where the reduction of the share capital will not solve the issue. The increase of the share capital can be done either via monetary or non-monetary contributions, where the share capital is increased by minimum amount and the remaining amount is share premium.

Non-monetary contribution can be done either by using the shareholder’s loan, debt claim, various items, real estate, in other words- any right which can be claimed or property which are monetarily appraisable.

In case the company is a public limited company, an auditor must verify the adequancy of the assessment of the value of the non-monetary contribution. Private limited company’s non-monetary contribution must be verified by the auditor only in cases where the share capital is at least 25,000 euros or has been received on account of a non-monetary contribution or the nominal value of the share to be increased is at least 25,000 euros.

OTHER MEASURES

One of the „other measures“ is creating a VOLUNTARY RESERVE in case allowed by the Articles of Association of the company. As the voluntary reserve is part of the equity, the shareholders will make a monetary or non-monetary contribution into the voluntary reserve and restore the equity.

Other possible option is, in case in which the the company has obligations in front of the shareholder, for example unpaid invoices, the shareholder can WAIVE THE CLAIM against the company in order to restore the equity.

As the „other measures“ is not exhaustively defined by law, the possible measures will have to be evaluated separately for each company based on the company’s options and capabilities.

If you have found yourself in a situation where your company’s equity is not compliant with the law, legal advisors of Leinonen OÜ are ready to help you with restoring the equity of your company and support you during the process.

The post COMPANY’S EQUITY IS LESS THAN HALF OF THE SHARE CAPITAL – WHAT TO DO NEXT? appeared first on Leinonen Estonia.

Making the prestigious list on a consecutive basis demonstrates resilience. Leinonen’s values play a pivotal role maintaining a high level.

Individual focus on each client

One of Leinonen’s core values is personalized attention to every client.

“In our day-to-day work, we try to be there for our clients and help out as much as possible,” says Ly Selg, a chief accountant with over 20 years of experience at Leinonen.

Clients are contacted regularly to make sure their expectations are being met. Every client’s wishes are individually taken into account. Satisfaction and feedback are highly valued. The latter often also reveals opportunities for improvement.

“Today, clients value remote management and a quick and efficient flow of information,” says Liana of the company’s 2025 goal of transitioning to paperless accounting. “As a digital nation, keeping up with these developments is essential.”

Accounting for the bigger picture

Innovation aligns with Leinonen’s other core value – the pursuit of continuous improvement.

Chief Accountant Mari Sutri lays out the foundation of development at Leinonen: weekly training sessions on accounting, taxation, and legal topics. Colleagues also regularly share knowledge and skills with each other, resulting in both personal growth and a better service quality.

Accountants are increasingly expected to provide advice and take a broader view of financial matters. Mari shares an example: rather than simple bookkeeping, clients would like accountants to identify potential issues proactively, acting as strategic partners who help mitigate risks.

Supporting employee growth

Liana notes that 2024 saw significant effort being put into both recruitment and company development, something that will continue in 2025. Implementing Uku, an accounting management software, has helped accountants stay on top of their tasks.

This allows them to focus on what truly matters. Ly acknowledges that there’s always something to learn: “There’s constant self-development, whether small- or large-scale, all to provide a better, higher-quality service.”
Both Liana and Ly agree on a major advantage of working at an accounting agency – the diverse client base ensures there’s never a dull moment.

The right people and atmosphere

Liana emphasizes the value of finding employees who are a good organizational fit: “The key to growth is being surrounded by the right people. With the right team, you can grow and strive for bigger goals.”

There’s more to satisfaction than just good pay. Other benefits, such as team events, training, and working remotely, are highly sought after. “If a company can’t offer these benefits, retaining employees becomes much harder.”

Success is built on trust

Ethics and trust are central values at Leinonen – keeping promises is held in high regard. Employees and clients are valued, with collaboration and transparent communication being key to achieving results. “If something does take longer than expected, we will inform our clients of this,” adds Ly.

Äripäev has been compiling its TOP rankings since 1993. Only one percent of Estonian companies make the cut. Even fewer have been included for at least five consecutive years—just 0.32% of local enterprises.

The post “Accountants will never get bored here” – Leinonen’s acclaimed 6-year run appeared first on Leinonen Estonia.

In this article, we will cover the basics on this new tax, before answering five key questions on its implications for Estonian and foreign-owned businesses.

The two key Components of the Motor Vehicle Tax Act are:

• Motor vehicle tax. This is a yearly tax paid for by the owner or responsible user of a vehicle.
• Vehicle registration fee. This one-time tax is paid upon first registration of a new vehicle, or the first change of ownership of an already registered vehicle if the fee has not been paid earlier (i.e., for vehicles registered before 2025). The registration fee does not need to be paid for leased vehicles or those received as inheritance – it should be paid when the vehicle is sold on.

Are all Vehicles Affected by the Motor Vehicle Tax?

The majority of vehicles in Estonia are subject to motor vehicle tax, including passenger cars, vans, pickups, motorcycles, off-road vehicles, and wheeled tractors. Vehicles exempt from car tax in Estonia include motor vehicles of diplomatic missions, emergency vehicles, and vehicles belonging to NATO and its subsidiary bodies.

How is Motor Vehicle Tax Calculated?

A vehicle’s annual car tax rate will take into account:

• How old the vehicle is
• The vehicle’s CO₂ emissions (or engine power)
• The gross weight of the vehicle

Once these factors have been considered, the rate is multiplied by a coefficient determined by the age of the vehicle. This figure decreases over time, reaching zero for 20+ year old vehicles.

How are Vehicle Registration Fees Calculated?

Factors taken into account when calculating vehicle registration fees include:

• Base component
• CO₂ component (for non-electric vehicles). If CO₂ data is not available, an approximation will be calculated using the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) method
• Gross weight component (except for vans)

What Does the Introduction of Car Tax in Estonia Mean for Businesses?

Vehicles registered under a company are subject to the same motor vehicle tax and registration fees as privately owned vehicles. Below are five key questions answered for local and foreign-owned businesses in Estonia.

1. Is motor vehicle tax deductible as a business expense? Entrepreneurs can deduct motor vehicle tax as a business expense on a car they own. No corporate income tax is payable on this tax, either.
2. How should businesses register and pay car tax in Estonia? The MTA will send a notification about relevant car tax payments, and more information on what to expect can be found in the Motor Vehicle Tax Act. Similarly to other taxes, if car tax is not paid on time, a penalty will be added as per the Tax Administration Act.
3. Are there any incentives to switch to electric or low emission vehicles? While there are not yet any specific incentives for businesses to switch their fleet to electric or low emission vehicles, all-electric vehicles will generally have lower car tax rates, as they are not subject to the CO₂ component of the tax.
4. Who is responsible for the tax on vehicles leased or rented by a company? If a company rents or leases vehicles, the car tax liability falls on the responsible user.
5. Are there any additional considerations for foreign-owned businesses in Estonia? Foreign-owned companies must still pay motor vehicle tax on any vehicles registered in Estonia. This applies even if the vehicle is frequently used in other countries.

Consult With Leinonen for the Latest on car tax in Estonia

Adapting to new tax legislation can be time-consuming and complicated for both local and foreign-owned businesses in Estonia. Thanks to our sharp local knowledge and culture of transparency, accountability, and thorough compliance with the latest legal standards, Leinonen’s experts have been supporting foreign-owned businesses in Estonia for more than 34 years. Arrange a consultation today to find out how we can uplift your foreign-owned business in Estonia with our robust tax, payroll, and accounting expertise.

The post How Will the new Motor Vehicle Tax Act Affect Foreign-Owned Businesses in Estonia? appeared first on Leinonen Estonia.

When, by whom and under what conditions dividends can be distributed

Paying dividends means the distribution of profit, thus undistributed profit must exist to pay any kind of dividends. With the consent of the shareholder, the dividend may also be paid in other assets and not in money. The dividend shall be paid by the company.

The main grounds for paying dividends are:

1. The share capital of the company must be fully paid.
2. The approved annual report of the company (exception for public limited companies – see interim dividends) that shows there is profit that can be distributed (current financial year and/or previous financial years).
3. The shareholders make a decision to pay dividends.
4. The payment of dividends cannot damage the solvency of the company and the company equity must remain in the amount of at least half of the share capital amount.

In case the company shareholders decided on a simplified reduction of share capital (to cover losses) no dividends shall be paid to the shareholders during the financial year on which the decrease of the share capital was decided and for the two subsequent financial years.

Timing of payment and consequences of non-payment of dividends

Generally, the shareholder’s decision sets a payment date to the dividends or there is a payment date in the articles of association of the company. If no date has been set, the dividends shall be paid out during a reasonable time. The shareholder’s decision to pay dividends creates a claim against the company and this claim will expire in 3 years. In case of non-payment, the shareholder may also demand an interest of non-payment.

The shareholders can decide on the dividend payment when they approve the annual report but it is not mandatory. The shareholders can also decide to take out dividends as many times as they want, as long as all the grounds for paying the dividends are fulfilled.

In case a shareholder is made a payment of dividends which the shareholder does not have a right to receive, the shareholder must return the payment which is received without basis. If the shareholder did not know nor should have known that it was paid to the shareholder without basis, a return of the payment may be demanded only if it is necessary for satisfying the claims of the creditors of the company.

Interim dividends and preferred shares

Only a public limited company can pay interim dividends –  the articles of association may give the management board of a public limited company the right to make advance dividend payments to the shareholders with the consent of the supervisory board after the end of a financial year and before approval of the annual report on account of the presumed profit in the amount of up to one-half of the amount subject to distribution among the shareholders.

A public limited company may also issue non-voting shares which grant the preferential right to receive dividends and to participate in the distribution of the remaining assets of the public limited company upon dissolution (preferred shares). A holder of a preferred share shall be paid a dividend prior to the payment of dividends to other shareholders. The owner of a preferred share has all the rights of a shareholder with the exception of the right to vote.

Taxation: if the recipient is a natural person if a legal person

A dividend is a payment that is made from the net profit or the retained profits from previous years pursuant to a resolution of a competent body of a legal person, and the basis for which is the recipient’s holding in the legal person (ownership of shares, partnership in a general or limited partnership or membership in a commercial association, or other forms of holding pursuant to the legislation of the home country of the company).

The resident company pays income tax at the rate of 22/78 on the distribution of profit or dividends.

International tax treaties may exempt a non-resident natural person from paying withholding income tax on dividends:

• exempt from income tax (the United Arab Emirates, Bahrain, Georgia, Jersey, Cyprus, the Isle of Man and Mexico are the states, the residents of which are exempt from income tax being deduced from their dividend payments), or
• reduction of income tax rate to 5% (Bulgaria, Israel and North Macedonia are the states, the residents of which will receive dividend payments at a tax rate of 5%).

If you have any questions regarding Estonian dividend taxation, get in touch with Leinonen.

The post DIVIDEND PAYMENTS IN ESTONIA appeared first on Leinonen Estonia.

What are Employees Legally Entitled to During Public Holidays in Estonia?

An employee’s entitlements on Estonian public holidays vary depending on the nature of their work and the position they hold. In roles that reasonably allow for time off during public holidays, employees are legally entitled to the days off work. In positions that require work to continue on public holidays, employees are entitled to additional compensation for the inconvenience.

This compensation can be in the form of:

1. Double wages. This is required by law and is the usual form of compensation for working on a public holiday.
2. Extra days off. An employee can be compensated with additional time off, but only if they agree to it. In this case, they would receive their usual wage for the hours worked on the public holiday, and their usual wage for the extra day off, too.

Are There any Scenarios in Which Employees do not Have These Entitlements?

Yes – some employees in Estonia are designated as having ‘independent decision-making capacity’. This gives them the freedom to organise their own working hours. Because these employees have complete autonomy over when they work, the standard procedures for compensating work on Estonian public holidays do not apply.

How Does Overtime Work on Public Holidays in Estonia?

If an employee works overtime on an Estonian public holiday, they must be paid overtime rate (1.5x their usual wage), plus double wages for working on the public holiday. This means they should be paid 2.5x their usual wage (not 3.5x, which would mean the basic wage is counted twice).

When are Estonia’s Public Holidays?

• 1^st January: New Year’s Day.
• 24^th February: Independence Day and anniversary of the Republic of Estonia.
• Two days before Easter Sunday (18^th April in 2025): Good Friday.
• First full moon Sunday after vernal equinox (20^th April in 2025): Easter Sunday.
• 1^st May: May Day.
• Seventh Sunday after Easter Sunday (8^th June in 2025): Pentecost.
• 23^rd June: Victory Day.
• 24^th June: Midsummer Day.
• 20^th August: Day of Restoration of Independence.
• 24^th December: Christmas Eve.
• 25^th December: Christmas Day.
• 26^th December: Boxing Day.

Do any Specific Public Holidays Have Unique Regulations?

There are four public holidays in Estonia on which employers must shorten the immediately preceding working day by three hours. This rule is only applicable when the day before the holiday is a working day. For example, if a public holiday falls on a Sunday and the business does not operate on a Saturday, the employer is not obliged to shorten the Friday.

The four public holidays this rule applies to are:

• New Year’s Day.
• Independence Day and anniversary of the Republic of Estonia.
• Victory Day.
• Christmas Eve.

It is important to note that shortening the preceding working day by three hours is fixed, regardless of how many hours an employee usually works. This means that if an employee works part-time for three hours each day, they are not required to work at all the day before these public holidays.

If a business is unable to shorten the preceding working day, employees can be asked to work as usual. In this case, they should be paid an overtime rate of 1.5x their usual wage for any hours not shortened. If the employee refuses (and notifies their employer immediately), they are legally entitled to the time off. If no refusal is made, this can be interpreted as both parties agreeing not to shorten the working day.

How is Holiday pay Calculated in Estonia?

If the working time falls on a public holiday, the employer must pay 2 times the wages for the work. The calculation is as follows:

1. Determine the salary the employee receives for the specific month.
2. Divide this salary by the standard work hours for that month to find the hourly rate.
3. Multiply this hourly rate by two, which is the coefficient for working on a public holiday.
4. Multiply the result by the number of hours worked on the public holiday.

Leinonen’s accounting, payroll and tax experts specialise in cross-border commerce for foreign-owned companies doing business across northern and eastern Europe. With 34 years of operating in Estonia, you can rely on our local expertise already trusted by over 300 foreign-owned businesses in the country. Get in touch today to arrange a consultation.

The post Public Holidays and Holiday Pay in Estonia appeared first on Leinonen Estonia.

1. Salary taxation. Starting 01.01.2025, the income tax shall be 22% (previously 20%).
2. Motor vehicle tax. Starting 01.01.2025, this tax is paid by all owners or authorized users of motor vehicles registered in the motor register. The Motor Vehicle Tax Act provides for a motor vehicle tax (per calendar year) and a vehicle registration fee (paid upon first registration, NB! In case the tax has previously not been paid, earlier, the first change of ownership of a vehicle that has already been registered is also subject to payment). The tax amount can be calculated with the calculator provided by the Estonian Tax and Customs Board (https://avalik.emta.ee/mootorsoidukimaks/calc).
3. Value-added tax. Starting 01.01.2025, accommodation services and accommodation services with breakfast are taxed at 13% VAT (previously 9% VAT), and for press publications the tax rate will be 9% VAT (previously 5% VAT).

In addition to the previously described changes, the Estonian Parliament (or The Government of Estonia) is currently processing the following planned changes:

1. New value added tax rate. Starting from 01.07.2025, the new VAT rate is 24% (previously 22%)
2. Tax-free limits changes. The maximum tax-free amounts of business trip daily allowance and personal car compensation are changed starting from 01.01.2025 the following:
   • The personal car compensation maximum tax-free amount shall be 550 EUR (previously 335 EUR) per month and 0,5 EUR (previously 0,3 EUR) per km.
   • The business trip daily allowance maximum tax-free amount shall be 75 EUR (previously 50 EUR) per day for the first 15 days (maximum 15 days in a month) and afterwards 40 EUR (previously 32 EUR) per day.
3. Fringe benefit regulation limits change. Starting from 01.01.2025, the employer’s business-related expenses for the accommodation of an employee working on the basis of an employment contract are not deemed to be a fringe benefit if:
   • the expenses per accommodated employee are up to 500 EUR (previously 200 EUR) a calendar month in the event of accommodation in Tallinn or Tartu and up to 250 EUR (previously 100 EUR) in other events.
4. Income tax on gifts, donations, and costs of entertaining guests. Starting from 01.01.2025, income tax is not charged on goods delivered or a service provided for the purposes of advertising, the value of which without value added tax is up to 21 EUR (previously 10 EUR).
5. Security tax. Starting 01.01.2026, the 2% security tax shall be paid the following:
   • The additional 2% shall be paid from a person’s gross salary.
   • The additional 2% shall be paid from a company’s annual profit.

NB! As the planned changes are still being processed in the Estonian Parliament, the description of these changes might change before (and if) they come into force. Thus, we shall publish a part 2 to this article once more information becomes clear.

In addition, there is an another very important change coming up for employers:

Minimum salary. The Government of Estonia establishes the minimum salary on the basis of collective agreement concluded between the employers’ confederation and the central federation of trade unions. The currently agreed new minimum salary for full-time work starting from 01.01.2025 is 886 EUR (gross).

The post PLANNED TAXATION AND SALARY RELATED CHANGES IN ESTONIA (PART I) appeared first on Leinonen Estonia.