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There is no corporate income tax on retained and reinvested profits, 14-20% tax on distributed profits. Taxes can be declared fully online. Several useful grants and incentives available for foreign investors.
There is no corporate income tax on retained and reinvested profits.
This means that Estonian resident companies and the permanent establishments of foreign entities (including branches) are subject to 0% income tax for all reinvested and retained profits and a 20% income tax only for all distributed profits (both actual and deemed).
Distributed profits include:
A new fixed-term national security tax will be implemented in 2025, in effect until the end of 2028.
The fixed-term security tax consists of three parts:
The tax base is the accounting profit of the previous financial year before income taxation. The tax is paid in advance quarterly and in full after submitting the annual report. This allows the tax burden to be spread and paid in installments. This tax does not apply if a company is not profitable.
Fringe benefits are taxable at the employer’s level. The employer pays income tax and social tax on fringe benefits.
Dividends paid to non-residents are no longer subject to withholding tax, irrespective of participation in the share capital of the distributing Estonian company. However, various withholding taxes may still apply to other payments to non-residents if they do not have a permanent establishment in Estonia or unless the tax treaties otherwise provide.
As of 2019, the tax period for corporate entities is a month, income tax must be returned and paid monthly by the 10th day of the following month. You can read more about accounting requirements here.
Use our unique location attractiveness comparison tool to compare Estonia’s investment attractiveness to that of other European countries.
The rate of social tax is 33% (20% for social security and 13% for health insurance). Besides the social tax, unemployment insurance tax at a rate of 0.8% must be paid on the gross salary (an additional 1.6% is withheld from the employees’ salary).
Employers registered in Estonia (including the permanent establishments of foreign entities) must pay social tax on all payments made to employees, except on those specifically exempted by law. Fringe benefits and the income tax thereof are also included in the taxable base. The annual cost per employee can be calculated here.
Information about using the electronic tax system can be found here.
VAT is charged on the supply of goods and services in the course of business activities and the self-supply of goods and services. A taxable person is an individual engaged in business and registered as a taxable person. The threshold for obligatory registration is 40,000 EUR. The threshold for a taxable person with limited liability in the case of the acquisition of goods is 10,000 EUR. There is no threshold in the case of the acquisition of services.
The taxable period is one calendar month, and VAT returns must be submitted to the tax authority by the 20th day of the month following the taxable period.
The Estonian standard VAT rate is 22%, but as of July 1, 2025, it will increase by 2%.
There is also a reduced 9% rate that applies to certain goods and services including books, teaching/learning materials, newspapers and magazines (also online editions), accommodation services, medicines, and medical equipment, sanitary and toiletry products. The VAT rate for both physical and electronic press publications is 5% (from 1 August 2022).
Valid from 1 January 2025:
Accommodation services and accommodation services with breakfast are taxed at a 13% VAT rate (instead of the current 9%), and the VAT rate for press publications will rise from 5% to 9%.
The list of goods and services subject to a VAT rate of 0% can be found in the Value-Added Tax Act.
Overview of charging value-added tax.
Information about using the electronic tax system can be found here.
Residents pay taxes on their worldwide income. Taxable income includes, in particular, income from employment (salaries, wages, bonuses, and other remuneration); business income; interest, royalties, rental income; capital gains; pensions and scholarships (except scholarships financed from the state budget or paid based on law). Taxable income does not include dividends paid by Estonian or foreign companies when the underlying profits have already been taxed.
The amount of annual tax-free income can be calculated using the calculator.
The personal income tax is withheld from the employees’ gross salary every month and paid by the employer.
Non-residents pay personal income tax only on their income received from Estonian sources. Taxable income in Estonia includes:
Personal income tax declarations need to be filed once a year. Using a secure ID, a taxpayer logs onto the e-Tax system, reviews the data in pre-filled forms, makes any necessary changes, and approves the declaration form. The process typically takes three to five minutes. Even one-click tax returns are possible.
e-Tax is an electronic tax filing system set up by the Estonian Tax and Customs Board. Each year, around 98% of all tax declarations in Estonia are filed electronically.
The system enables you to:
Non-residents can choose a tax representative. The tax representative of a non-resident is a person to whom the Tax and Customs Board has issued a corresponding activity license authorised to represent the non-resident for the performance of obligations arising in Estonia. You can read more about accounting requirements here.
A wide range of grants and consultation services are offered to help you develop and expand your business activity in Estonia, covering different fields and target groups. The selection below is a short overview focused on foreign investors. For more detailed information, please use our e-consulting service.
Maximum grant: up to 3,000,000 EUR
Grant rate: self-financing at least 85%
Grant purpose: for industrial companies with 50M+ EUR turnover to start new manufacturing operations or expand manufacturing operations with new product lines.
Expected result: At least 6,7M EUR investment (including the grant) is made within a 36-month project period.
Total grant amount: 56,000,000+ EUR
Budget split: Manufacturing and mining industry 46.5 MEUR, other sectors 10 MEUR
Maximum grant: 300,000 EUR
The aim is to support automation and the adoption of digital technologies and robots.
Requirements: for private legal entities registered in the Estonian business register, whose average sales revenue for the 2 financial years preceding the submission of the application, according to the annual reports submitted to the business register, must be at least 200,000 EUR in the applicant’s main field of activity in Estonia.
Expected result: the maximum project period is 18 months (not later than 31.12.2025). The company’s technological intensity, productivity, sustainability and international competitiveness increase.
Grant amount: green audit up to 10,000 EUR and road map development implementation up to 200,000 EUR.
Grant purpose: In order for “green” to become an integral part of business operations, an industrial entrepreneur can use an external consultant to find out the company’s current green capabilities and discover and implement effective ways to ensure the continuity of production with a focus on sustainable development.
Target group: Companies registered in the Estonian Business Register as industrial entrepreneurs (EMTAK B, C), with the exception of stone and lignite mining (section B, subsection 05), oil and natural gas production and activities supporting production (section B, subsection 06 and 091) and the manufacture of tobacco products (section C, subpart 12).
Grant rate: self-financing at least 30%
Implementation: This support is financed from the resources of the European Union’s NextGenerationEU recovery fund. Therefore, the recipient of the grant is obliged to inform the public about the use of the grant.
Passing preliminary counselling is not mandatory.
Grant amount: up to 500,000 EUR.
Grant purpose: R&D support for companies aiming to develop and launch new products or services.
Grant rate: self-financing at least 550%
Expected result: increase the annual sales revenue and added value per employee.
The applicant’s average sales revenue for the last two financial years is at least 200,000 EUR.
Passing preliminary counselling is not mandatory.
Here are some useful links regarding taxation:
You are also welcome to send us an enquiry for more specific information.
What is it like to run a business in Estonia? How to benefit from the e-solutions and the efficiency of our business culture? What are the opportunities in specific sectors? Who to partner up with?
The Estonian Investment Agency’s team is happy to help you via its complimentary e-Consulting service, organize online or offline follow-up events such as virtual investment visits and guide you through the fairly simple process of investing in Estonia.
