33% of employee's gross payment, minimum €178.20 monthly. 20% is for pension and 13% for health insurance.
0.8% of the employee's gross pay.
Benefit in kind
The Estonian tax regime is not favourable for the employer to provide motivation packages to employees. There are few possibilities to provide benefits in kind to employees without tax consequences.
Only the employer must pay taxes on the fringe benefits provided to employees. Fringe benefits are subject to 20/80 corporate income tax and 33% social tax (charged on the aggregate sum of the fringe benefit's value and the income tax calculated thereon).
Sample example calculation:
If the benefit's value is €100, the employer's income tax would be €25 (20/80 x 100), while the social tax due would be €41.25 (0.33 x 125), making up a combined total fringe benefits tax charge of approximately €66, or 66%.
The benefits that trigger the payment of taxes by the employer include:
- Full or partial cover of housing expenses
- Insurance premiums, unless law mandates the employer to pay them or they exceed €100 per employee quarterly for medical insurance
- Extending loans with lower than the minimum rate prescribed by law interest rate
- Transfer free of charge or sale or exchange at a price lower than the market price, of a thing, security, proprietary right or service
- Waiver of a monetary claim, unless the estimated costs of collecting the claim exceed the amount
- Costs for formal or informal education not related to the employer's business
- Birthday presents, regardles of the amount
- Catering, which is either free of charge or at a preferential price
An employee's sports and health costs are exempt from income and social tax in the sum of up to €100 per employee in one quarter.
Estonian residents pay tax on their worldwide income, while non-residents only pay tax on Estonian-source income. To be considered a resident, an individual must spend more than 183 days over 12 consecutive calendar months in Estonia or have a residence in the country as their primary home.
Residents are subject to tax on employment income, business income, gains from a property transfer, dividends, interest, rent and royalties, pension, scholarship, grants, benefits, lottery prizes, and insurance indemnities.
The employer withholds a flat income tax rate of 20% during payroll.
Joint filing is permitted if both spouses are residents or, subject to certain conditions if at least one spouse is a resident of another EU member state.
Yearly salaries below €25,200 trigger a decreasing basic tax exemption of up to €500 monthly or €6,000 yearly.
Employees must pay 1.6% of earnings to a mandatory pension fund, withheld by the employer during payroll.
For individuals born after December 31, 1982, there is a compulsory pension contribution of 2% of the employee’s gross pay, withheld during payroll.
If records are maintained, it is possible to compensate €0.30 per km, capped at €335 monthly for each employer without tax consequences.
If an employee incurs costs related to a business trip, they shall be reimbursed by the employer and not incur any taxation costs.
The minimum daily allowance is €22.37, with the possibility to lower the daily budget up to 70% if the trip includes free catering.
From a tax perspective, the maximum amount of per diem exempt from taxation is €50 daily (for international assignments) for the first 15 days and €32 for each of the following days.
All permanent residents and foreign citizens on a temporary residence permit or right can claim child allowance, paid monthly by the government. The assistance is between €60 and €100 per month, depending on the number of children.
Child allowance is paid from the child's birth until they turn 16. The assistance is extended until age 19, if the child studies at a lower or higher secondary school, or undertakes vocational training. If the child turns 19 during an academic year, the allowance is extended until the end of the academic year.
On addition to the child allowance, the state also provides a parental pension to one of the parents until the child turns three. This is an additional payment to pension pillar II.
Other one-off benefits paid through the Estonian National Social Insurance Board include:
- Childbirth allowance
- Adoption allowance
- Child care allowance
- Single parent's child allowance
- Guardianship allowance
- Allowance for families with many children
Residents can make certain deductions from their annual gross income. These include the basic personal allowance of €6,000 a year or €500 a month if the yearly income is below €14,400.
The yearly allowance for annual income over €14,400 is calculated using the formula:
6,000 - 6,000 / 10,800 x (sum of income - 14,400).
For annual income exceeding €25,200, the basic allowance will be zero.
Individuals can also deduct certain mandatory payments without any limitations, including unemployment insurance contributions, contributions to a compulsory accumulative pension scheme, and some obligatory contributions to foreign social security schemes.
Other allowed deductions include bank and leasing interest paid for purchasing a home, educational expenses, specific gifts and donations, and certain payments to personal pension schemes.
A resident can deduct an additional €2,160 for their resident spouse if their total combined taxable income does not exceed €50,400.
A 20% deduction is available for income from renting out immovable property.
Foreign tax relief
Estonian residents who have earned foreign-source taxable income can credit its tax against their Estonian income tax liability if they meet certain conditions. The tax credit is generally limited to 20% of foreign taxable income and is calculated separately for each country.