1st January 2025 saw the introduction of Estonia’s new Motor Vehicle Tax Act. Car tax applies to all owners and responsible users of vehicles in Estonia, making it relevant not only to individuals, but also to businesses with one or more registered vehicle.
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.
- 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.
- 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.
- 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.
- 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.
- 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.
