Starting January 1, 2025, Estonia will implement several significant changes to its corporate tax system.
In this article, we highlight the tax changes that companies must consider when submitting declarations in 2025.
Tax Rates
- Increase in Corporate Income Tax Rate. The corporate income tax rate will rise from the current 20% to 22%. This means that distributed profits will be taxed at a rate of 22/78 of the net amount distributed. The personal income tax withholding rate is 22%, while for legal entities, it is 22/78 or 28.21%. This applies to payments and expenses made on or after January 1, 2025. The deferred corporate tax system remains unchanged – corporate income tax is only applied when dividends are distributed.
- Abolition of the Reduced 14% Tax Rate. The existing reduced corporate income tax rate of 14% on regular profit distributions will be abolished. Consequently, all profit distributions made from January 2025 onward will be subject to the standard 22% tax rate.
- The tax-free income threshold is €7,848 per year, or €654 per calendar month. For individuals who have reached retirement age, the tax-free income is €9,312 per year, or €776 per calendar month. The same tax curve as last year will apply in 2025.
- The contribution rate for the funded pension is either 2%, 4%, or 6%, depending on the individual’s preference. Before processing a salary payment, the individual’s contribution rate should be verified with the pension centre (Estonian Funded Pension Registry).
- The minimum obligation for social tax is based on a monthly rate of €820, resulting in a social tax amount of €270.60.
Tax-Free Limits
- The tax-free daily allowance limit for foreign business trips has increased. For the first 15 days (but not exceeding 15 days per calendar month), the limit is €75 per day. For each subsequent day, the limit is €40 per day.
- The tax-free limit for personal vehicle usage reimbursement has increased. Based on work-related mileage records, employers can reimburse €0.50 per kilometre tax-free, up to a maximum of €550 per month per employer providing the reimbursement.
- Meal expenses provided to members of a ship’s crew or civil aircraft crew during travel are tax-free up to €20 per person per day.
- Accommodation expenses for employees working under an employment contract are not considered fringe benefits if the expenses per employee are up to €500 in Tallinn or Tartu, and up to €250 in other locations. These expenses are not considered fringe benefits if the employee’s residence is at least 50 km away from the workplace and the employee does not own residential property closer to the workplace.
- Goods and services provided for advertising purposes, with a value of up to €21 excluding VAT, are not subject to income tax.
- The tax-free limit for entertainment expenses is €50 per calendar month, plus 2% of the total amount of payments subject to individual social tax in the same month.
Occupational Health and Wellness Promotion Expenses
The state tax system supports occupational health and wellness promotion expenses as tax-free allowances because these expenses align with broader public and economic policy objectives. We highlight three key reasons:
Encourages Employee Well-being
- Health and wellness initiatives improve employees’ physical and mental health. By making these benefits tax-free, the state motivates employers to invest in such programs.
Reduces Healthcare Costs
- Promoting wellness leads to healthier populations, which can lower the demand for expensive medical treatments. This helps reduce the overall burden on state healthcare systems.
Increases Productivity
- Employees who participate in wellness programs tend to have higher morale, better mental health, and increased productivity. Tax-free allowances make it financially easier for employers to offer these programs, benefiting both employees and businesses.
Here’s what’s new starting in 2025:
- Previously, occupational health and wellness promotion expenses required a prescription from an occupational health doctor or a risk assessment. Starting in 2025, tax-free status may also apply to expenses not specified by the Occupational Health and Safety Act, provided they are reasonable and necessary considering the nature of the work.
- Expenses made for the health promotion of employees, up to €400 per employee per year, are not taxed as fringe benefits if they are available to all employees. The list of eligible expenses now includes costs directly related to massage.
We assist you navigating the complexities of tax regulations and payroll processes. While working with us, you are not on your own.
At InCorpora, we specialize in taking the burden off your shoulders so you can focus on growing your business while we handle the rest.
As your Trusted Advisor, we make your tax compliance simple. Tax laws change frequently and can be overwhelming to manage, but that’s where we step in. Our team of experienced professionals ensures your business remains fully compliant with the latest tax regulations.
We provide:
- Accurate filings, on time, every time: Say goodbye to missed deadlines and penalties.
- Maximized deductions: We don’t just file your taxes – we uncover opportunities to save.
- Tailored strategies: Whether you’re a small business or a growing corporation, we align your tax plan with your goals.
- Flawless Payroll Management: Managing payroll is about keeping your employees happy, ensuring compliance, and avoiding costly errors.
Ready to simplify your finances and compliance? Contact us today for a consultation, and let’s start building your path to success.
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