The personal income tax system in Estonia applies a uniform (flat) tax rate to the taxable income of individuals. Taxpayers assess their tax dues themselves and are required to remit their taxes every month, based on the income they have earned.
An individual's liability for income tax in Estonia is determined by their residency status. Residents are subject to tax on their worldwide income, while non-residents are taxed only on income that originates within Estonia.
The Estonian tax system identifies several categories of taxable income, which include:
- Employment Income: Salaries, wages, bonuses, etc.
- Business Income: Profits derived from self-employment or business operations.
- Investment Income: This includes interest, dividends, and other income from investments.
- Rental Income: Income from renting out property.
- Capital Gains: Profits from the sale of assets.
| Taxable Income (EUR) | Tax Rate (%) |
|---|---|
| All income | 22 |
Note: The Estonian personal income tax rate will be adjusted to 22% from the earlier rate of 20% for 2025.
Estonia provides exemptions specified in the Income Tax Act, primarily in § 15. Additionally, exemptions are present for specific types of income to encourage certain activities and support social welfare, including:
- Educational Scholarships and Grants: Aimed at supporting students for their education.
- Social Benefits: Such as child benefits and maternity benefits, to support families.
- Inheritances and Gifts: To facilitate wealth transfer without tax implications.
These categories are outlined in the Estonian Income Tax Act (ITA), particularly in sections §§ 16-20.
Significant changes to deductions will be introduced in 2024, including the removal of deductions for child maintenance, spousal support, and housing loan interest. However, deductions for educational expenses and donations remain, subject to limitations.
From 2025, a uniform basic exemption of 700 euros per month (8,400 euros annually) will be implemented, streamlining the exemption process for most taxpayers, excluding pensioners who will have a different exemption scheme.
