PLANNED TAXATION AND SALARY RELATED CHANGES IN ESTONIA (PART I)

The Estonian legislator has been busy processing and adopting legislation for 2025 and forward, of which many include important taxation and salary related changes important for companies operating in Estonia. In this article, we have selected some of the main taxation and salary changes that are related to employers and businesses. Some tax changes have been adopted already; thus, the following changes are for certain to come into force:

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).