What’s Changing for Estonian Businesses in 2026?

• What tax rates are applicable in 2026?
• What is the amount of the minimum wage?
• What is the minimum social tax obligation?
• How will personal income be taxed?
• Corporate Tax Benefits in 2026
• How will dividend taxation be applied?
• What is the procedure for sick leave compensation?
• How much will it cost to start a company in 2026?
• Entrepreneur Account 2026
• Special Scheme for Small Entrepreneurs

Taxes and rates in 2026 — payments to individuals (Estonia):

• The social tax rate in Estonia in 2026 is 33%.
• The personal income tax rate is 22%.
• Contributions to the second pension pillar may be 2%, 4% or 6%, depending on the individual’s choice.
• Unemployment insurance is 1.6% (withheld from the employee’s gross salary) and 0.8% (paid by the employer).
• The minimum wage will be €886 per month and €5.31 per hour — information as of 28.12.2025 (new rates for 2026 are expected to be approved).
• The minimum base for the employer’s social tax liability will increase to €886 in 2026. Accordingly, the employer must pay social tax of at least €292.38 per month for an employee working under an employment contract.
• The general personal allowance (tax-free income) will be €8,400 per year (or €700 per month) and does not depend on the amount of annual gross income.
• The tax-free income for old-age pensioners is a fixed amount of €9,312 per year (or €776 per month) and does not depend on the amount of annual gross income.

Tax rates in 2026 — companies (Estonia):

• Standard VAT rate: 24%
• Reduced VAT rate for accommodation services (e.g., AirBnB, Booking.com): 13%
• Reduced VAT rate for periodicals (printed and digital): 9%
• VAT registration threshold: €40,000
• Corporate income tax on distributed profits (dividends): 22/78 of the net amount or 22% of the gross amount (see more on dividend distributions below).

The minimum wage is €886 per month and €5.31 per hour. The minimum wage requirement applies to all employers in Estonia. This means that if an employee works full-time under an employment contract, their gross salary cannot be lower than €886 per month. The minimum wage level also affects the amount of certain social benefits.

Note: The above figures (€886 per month and €5.31 per hour) reflect the latest officially approved rates and are valid as of 28 December 2025. The information will be updated once the new rates are officially approved.

You can view the tax calculation for the minimum wage here.

The rate used to calculate the minimum social tax obligation will increase to €886 in 2026. As a result, employers will be required to pay at least €292.38 in social tax per month for an employee working under an employment contract.

This obligation applies even if the employee works part-time and their gross salary is less than €886 per month, provided that this job is their primary or sole employment.

Paying social tax starting from €292.38 per month is, in most cases, a mandatory condition for activating health insurance coverage (Tervisekassa).

You can read more about the minimum social tax obligation here.

From 1 January 2026, Estonia will abolish the “tax hump” (maksuküür) that has been in place for eight years and introduce a uniform tax-free allowance of €700 per month (or €8,400 per year), regardless of a person’s income level. For old-age pensioners, a higher tax-free allowance will still apply automatically — €776 per month (€9,312 per year). This means there is no longer any need to forecast income in order to calculate the allowance. To apply it on a monthly basis, an individual still needs to submit a free-form application to the income payer (usually the employer) — and it is important that the application is submitted to only one payer.

The allowance is applied monthly: in each calendar month, you can use a maximum of €700. This means that if you do not use the full amount in a particular month (for example, due to low income, no payments being made, or because no application was submitted), the employer cannot “carry over” the unused balance to the next month and increase the allowance there.

However, the allowance is not lost: if it was used only partially or not at all during the year, you can take it into account when filing your annual personal income tax return. In that case, the tax will be recalculated for the year, and any overpaid tax will be refunded (the return must be filed by 30 April).

In addition, the planned increase of the personal income tax rate to 24% has been cancelled — the rate in 2026 remains 22%.

Tax benefit limits in 2026

• Maximum daily allowance for business trips abroad — €75 (for the first 15 days, but no more than 15 days per month)
• Daily allowance for business trips abroad — €40 (for subsequent days)
• Minimum daily allowance for business trips abroad — €40
• Entertainment expenses for hosting clients and business partners — €50 per month + 2% of the gross payroll fund
• Promotional goods and promotional services — €21 excl. VAT
• Employee accommodation costs — €500 per month in Tallinn and Tartu
• Employee accommodation costs — €250 per month in other cities
• Compensation for the use of a personal passenger car for business purposes — €0.50 per kilometre, up to €550 per month
• Employee health promotion expenses — €400 per year

To apply these tax benefits, it is important to meet the required conditions and properly arrange the internal documentation within the company. We invite you to a Russian-language training on tax benefits on 17 February. Registration via the link.

The tax rate on distributed dividends is 22/78 of the net amount or 22% of the gross amount of dividends.

For dividends that were previously distributed at the preferential rate of 14/86 and where 7% was not withheld, the obligation to withhold the 7% is carried forward to future periods.

Mandatory conditions for paying dividends:

• For a private limited company (OÜ), the share capital has been paid in, this has been reported to the Commercial Register, and it is also reflected in the TSD return.
• The company’s annual report has been prepared and approved by the management board.
• The financial year ended with a profit, or the company has retained earnings from previous years; paying dividends will not harm the company’s financial position or solvency.
• After the dividend payment, the company’s equity will not be “consumed” (i.e., will not fall below the required level).
• There is a shareholders’ resolution approving the dividend distribution.

You can read more about dividend taxation here.

In accordance with the established procedure for sick leave compensation, employers are obligated to pay sick leave benefits from the 4th to the 8th day of illness at a rate of 70% of the employee’s average salary. Starting from the 9th day of illness or injury, compensation is paid by the Health Insurance Fund.

Employers have an expanded option (not an obligation) to pay or supplement sick leave compensation from the 1st calendar day of illness until the end of the sick leave at a rate of up to 100% of the employee’s average salary. Essentially, employers are encouraged to compensate employees for the difference between their average salary and the incapacity benefit while benefiting from slightly more favorable tax treatment for such payments.

It is important to note that only income tax at the rate of 22% is withheld from this payment to the employee. Social tax, unemployment insurance, and funded pension contributions do not apply to these payments. Sick leave compensation must be declared in the TSD form under payment code “24.” Any portion of the payment exceeding the average salary is taxed as regular salary and must be declared on a separate line under payment codes 10, 11, 12, 13, 21, 22, or 23, depending on the type of payment. This procedure also applies to members of the management board. The mandatory condition for this is the presence of a sick leave certificate.

State fees for company incorporation in 2026:

• Public limited company (AS) — €200
• Private limited company (OÜ) — €265 (€200 if filed via a notary)
• Sole proprietor (FIE) — €20

State fees for making changes to the B-card in 2026:

• Public limited company (AS) — €25
• Private limited company (OÜ) — €25
• Sole proprietor (FIE) — €10

The state fee for reinstating a company removed from the register in 2026 will be €200.

Let us remind you that an entrepreneurial account is a legal form designed for entrepreneurs with a small turnover of up to €40,000 per year. The entrepreneurial account can only be opened at LHV Bank. When payments are made to the entrepreneurial account, LHV Bank withholds a portion for taxes and transfers it to the Tax and Customs Board. Entrepreneurs using this account do not need to submit reports or maintain accounting records. Expenses cannot be deducted, and all income credited to the account is subject to taxation. This form of entrepreneurship is ideal for providing services to individuals (e.g., nanny, tutor, personal trainer) or selling self-made goods, provided that production and service-related costs are minimal.

A tax rate of 20% applies to all income up to €40,000 per year. If the owner of the entrepreneurial account is enrolled in the second pillar pension fund, an additional pension fund contribution (2%, 4%, or 6%) will be deducted from all incoming payments to the account. It is important to note that if the owner of the entrepreneurial account has no other employment, a minimum of €2,436,50 per month must be credited to the account in 2026 to qualify for state health insurance coverage.

Details about the entrepreneurial account number, the account holder’s name, and personal identification code is open data and available on the Tax and Customs Board’s website.

If a legal entity makes a payment to an entrepreneurial account for services, the legal entity is required to declare this payment in Annex 6 of the TSD form under code 6080. The tax rate for the legal entity is 22/78 of the amount paid for the service.

New Taxation Rules in the European Union

Introduced in 2025, the SME Scheme (Special Scheme for Small Enterprises will continue to apply in 2026.

This scheme is designed to simplify VAT obligations for businesses with a small turnover, such as those engaged in limited online sales across EU countries or renting out property in another EU member state.

Under the SME Scheme, a “small entrepreneur” is defined as an individual or entity that:

• Has a total turnover across all EU countries of no more than €100,000 for the current and previous calendar years, and
• Does not exceed the VAT registration threshold in any single country (e.g., in Estonia, this threshold is €40,000).

Required Actions for the SME Scheme:

1. Submit an application via the Estonian Tax and Customs Board. A separate application must be submitted for each EU country where the scheme will apply.
2. Await a decision: application reviews take up to 35 working days (approximately 1.5 months).
3. Obtain a registration number with the postfix “EX.”
4. Operate as a non-taxable entity in countries where authorization under the SME Scheme has been granted.
5. Maintain records of transactions by country.
6. Submit quarterly reports.

The SME Scheme is voluntary and aims to simplify recordkeeping and reduce administrative costs for entrepreneurs with small turnovers. Additionally, it allows businesses to avoid VAT registration in other EU countries.

As a reminder, registration obligations arise, for instance, if a business has a warehouse in another EU country or sells goods from an Amazon warehouse located in another member state.

You don’t have to keep all this information in mind. Contact us for accounting services, and we’ll take care of everything for you!

We hope the information we share on our website will be helpful to you in planning your business and in the upcoming year, 2026.

Thank you for reading to the end! If you enjoyed the article, feel free to share it with your friends!

The author and owner of the materials is PUNAMOON OÜ. Republishing the materials is not permitted. Sharing the materials online is allowed only in the form of an active link to the article.

Punamoon OÜ offers accounting, legal, and migration services. You can submit a request for any of these services using the form below.