Taxation of Gifts and Corporate Event Expenses in Estonia

The end of the year is rich in celebrations. Many companies have a tradition of organizing corporate events for employees and holiday parties for children. Gifts for clients and business partners during festive occasions have become a common courtesy for many businesses. Often, these gifts include promotional products with company branding, such as mugs, calendars, or promotional planners.

It is no surprise that, in practice, most organizations face questions about how gifts for employees and partners are taxed and whether such expenses should be included in company costs. To address these questions and help minimize tax risks, this article explores what Estonian law says about taxation regarding:

• Gifts,
• Celebration expenses,
• Products distributed for promotional purposes.

When taxing gifts, it is important to consider who they are intended for. As a rule, gifts are subject to corporate income tax at a rate of 25% (20/80) (28.20% (22/78) in 2025). This rule applies to gifts for clients and business partners.

Gifts made to employees and their children are considered a fringe benefit and are taxed at rates of 33% and 25% (20/80) (33% and 28.20% (22/78) in 2025). The total amount of taxes is comparable to payroll taxes. The difference is that taxes paid on fringe benefits are not tied to the employee, meaning they do not later affect sick leave or vacation benefits, parental pay, severance pay, or other social benefits.

The following are not considered gifts and are therefore not subject to taxation:

• Samples of products sold by the company;
• Expenses that do not have material value for the consumer (e.g., a balloon, a poster, a promotional leaflet, etc.);
• A gift made for advertising purposes, with a value not exceeding €10 (or €21 in 2025) excluding VAT;
• Write-offs of uncollectible accounts receivable or stolen goods;
• Sponsorships aimed at advertising the company (proof of advertising activity is required);
• Discounts provided.

Taxation of gifts and donations to non-profit organizations and charitable foundations is governed by specific rules. You can read more about it here.

If the value of a gift given for advertising purposes does not exceed €10 (or €21 in 2025) excluding VAT, and the gift has a promotional nature, there is no obligation to pay income tax. The cost of adding company branding to the product does not increase the value of the gift; this service is considered a separate advertising expense.

For example, a company purchased mugs for its clients. The mugs have the company logo printed on them. The cost of each mug excluding VAT is €9.50, and the cost of adding the logo is €1. Despite the total value of the promotional product being €10.50, which exceeds the tax-free limit of €10, there is no need to declare or pay taxes. It is considered that adding the company branding does not increase the perceived value of the gift for the client receiving it.

The taxation of expenses related to organizing a celebration also depends on who participates in the event: the company’s employees and management or business partners and clients. If employees participate in the event, it is important to determine whether they are attending for leisure or to perform work-related tasks.

The law includes the concept of “guest reception expenses,” which are sometimes referred to as “representation expenses.” Reception refers to an event with an entertainment purpose. Examples of such events include business lunches, company anniversary celebrations, or group outings to the theater or cinema. Guests are considered to be, for instance, clients and business partners. Company employees are not classified as guests. Guest reception expenses include costs for food, accommodation, transportation, and entertainment.

Let’s first consider the taxation rules when an event is organized for clients and business partners. Expenses for such events are considered partially related to business activities, and therefore, the law provides a tax allowance of €32 per month (in 2025, €50 per month). If the company has employees, an additional 2% of the gross payroll is added to the €32 (or €50 in 2025).

The tax allowance is cumulative, meaning unused allowance amounts are carried forward throughout the year. At the beginning of the new year, the tax allowance resets, and a new calculation period begins. A company can incur guest and client reception expenses and not pay taxes within the limits set by the law, i.e., up to the allowed amount.

Reception expenses for clients and guests that exceed the legal tax allowance are taxed at a rate of 20/80 or 25% (in 2025, 22/78 or 28.20%).

Practice shows that company employees are often present at such entertainment events. If a company organizes a celebration for its employees, the expenses are considered a fringe benefit and are taxed at rates of 33% and 25% (20/80) (in 2025, 33% and 22/78 or 28.20%). This rule applies to the company’s management, employees, their spouses, children, and other relatives of the employees.

If an employee attends an event to perform work-related duties (e.g., as a driver, waiter, cook, or translator), this does not qualify as a fringe benefit or as non-business-related expenses.

Each case should undoubtedly be considered individually. For instance, a group visit to the theater cannot be compared to a business dinner. During a theatrical performance, a company employee cannot perform their work duties; therefore, a theater ticket paid for by the company would be classified as a fringe benefit. Refreshments and meals provided to employees are always subject to taxation, regardless of the occasion or format of the event.

It should also be noted that the Tax and Customs Board may request additional information and documents, such as a list of gift recipients and their confirmations of receiving the gift. If necessary, the company must be ready to verify who received the gifts and who participated in the events.

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