On 1 January 2025, Estonia’s new Motor Vehicle Tax Act came into force. Car tax applies to all vehicle owners and responsible users in Estonia, making it relevant not only to individuals but also to businesses with one or more registered vehicles.
In this article, we cover the essentials of the tax and answer five key questions about its implications for businesses operating in Estonia.
The Two Key Components of the Motor Vehicle Tax Act
- Motor vehicle tax. An annual tax paid by the vehicle’s owner or responsible user to the Estonian Tax and Customs Board.
- Vehicle registration fee. A one-time fee payable upon the first registration of a new vehicle (administered by the Estonian Transport Administration), or upon the first change of ownership of an already registered vehicle where the fee has not been paid previously (i.e., for vehicles registered before 2025). For leased or rented vehicles, as well as vehicles acquired through inheritance, payment of the registration fee may be deferred (for example, until the moment of ownership change), but the obligation itself does not disappear.
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. Exempt from car tax in Estonia are 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 takes into account:
- The age of the vehicle
- The vehicle’s CO₂ emissions (or engine power)
- The gross weight of the vehicle
The vehicle’s age influences the tax through a reducing coefficient. However, the tax does not automatically fall to zero for all vehicles over 20 years old; the exact impact depends on the vehicle’s specifications and the calculation methodology set out in the law.
How are Vehicle Registration Fees Calculated?
Factors taken into account when calculating vehicle registration fees include:
- Base component
- CO₂ component (for non-electric vehicles). Where CO₂ data is not available, an approximate value is 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 answers to five key questions relevant to both 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 company car. No corporate income tax is payable on this amount, provided the expense is genuinely connected to the business.
2. How should businesses register and pay car tax in Estonia?
The Estonian Tax and Customs Board (MTA) issues a notification for the relevant car tax payments, and further detail on what to expect is set out in the Motor Vehicle Tax Act. As with other taxes, late payment triggers a penalty under 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 transition their fleets to electric or low-emission vehicles, all-electric vehicles generally benefit from lower car tax rates, as they fall outside the CO₂ component of the tax.
4. Who is responsible for the tax on vehicles leased or rented by a company?
Where 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.
Car Tax Payment Deadlines in 2026
| Vehicle in the Traffic Register | Tax and Customs Board issues tax notice | Tax payment deadlines |
|---|---|---|
| As of 1 January | By 15 February | 15 June and 15 December |
NB! In the case of the purchase or sale of a used vehicle, the full annual tax is paid by the person who owned the vehicle on 1 January. The buyer’s tax obligation begins on 1 January of the following year.
| Vehicle registered for the first time in the Estonian Traffic Register | Tax and Customs Board issues tax notice | Tax payment deadlines |
|---|---|---|
| 1 January to 30 September | Within 15 working days of registration | 15 December |
| 1 October to 31 December | Within 15 working days of registration | 15 June 2027 |
Consult With Leinonen on Car Tax in Estonia
Consult with Leinonen for guidance on car tax in Estonia. Adapting to new tax legislation can be time-consuming and complex for both local and foreign-owned businesses. Leinonen has supported companies operating in Estonia for over 30 years, drawing on deep local knowledge and a consistent commitment to the principles of transparency, accountability, and regulatory compliance.
Arrange a consultation today to find out how our strong tax, payroll, and accounting expertise can support your business.
