What’s Changing for Estonian Businesses in 2025?

• What tax rates are applicable in 2025?
• 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 2025
• How will dividend taxation be applied?
• What is the procedure for sick leave compensation?
• How much will it cost to start a company in 2025?
• Entrepreneur Account 2025
• Special Scheme for Small Entrepreneurs
• Conclusion and Next Steps

Taxes and Rates in 2025 – Payments to Individuals:

• Social tax: 33%.
• Personal income tax: 22%.
• Pension insurance: 2%, 4%, or 6%, depending on the individual’s choice.
• Unemployment insurance: 1.6% (deducted from the employee’s gross salary) and 0.8% (paid by the employer on top of the gross salary).
• The minimum wage will be €886 per month and €5.31 per hour.
• The rate for calculating the minimum social tax obligation will increase to €820 in 2025. As a result, employers must pay at least €270.60 in social tax per month for employees working under an employment contract.
• The general tax-free income will range from €0 to €7,848 per year (or €0 to €654 per month), depending on the individual’s annual gross income.
• The tax-free income for old-age pensioners is fixed at €9,312 per year (or €776 per month) and does not depend on the individual’s annual gross income.

Tax Rates in 2025 – Businesses

• The standard VAT rate until June 30, 2025: 22%.
• The standard VAT rate starting from July 1, 2025: 24%.
• The reduced VAT rate for accommodation services (e.g., AirBnB, Booking.com) in 2025: 13%.
• The reduced VAT rate for periodicals (print and digital) will increase to 9%.
• The tax on paid dividends is 22/78 of the net amount or 22% of the gross amount (read more about dividend payments below).

The minimum wage in 2025 will be €886 per month and €5.31 per hour.

The requirement to pay the minimum wage applies to all employers in Estonia. This means that if an employee works under a full-time employment contract, their gross salary cannot be less than €886 per month.

The amount of the minimum wage also affects the size of certain social benefits.

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

The rate used to calculate the minimum social tax obligation will increase to €820 in 2025. As a result, employers will be required to pay at least €270.60 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 €820 per month, provided that this job is their primary or sole employment.

Paying social tax starting from €270.60 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.

The tax-free income threshold will remain unchanged.

In 2025, the tax-free income threshold will range from €0 to €7,848 per year (or €0 to €654 per month), depending on the individual’s annual gross income. This applies to all individuals who have not yet reached the old-age pension age.

For individuals who have reached the old-age pension age, the tax-free income threshold is different. It is a fixed amount of €9,312 per year (or €776 per month) and does not vary based on the individual’s annual gross income.

The current personal income taxation system assumes that each individual:

• Has a clear understanding of their annual and monthly income.
• Understands what is included in the concept of annual income under the law.
• Can independently calculate and inform their employer, via a declaration, of the appropriate amount of tax-free income to apply.

We advise our corporate clients and their employees to declare a tax-free income threshold of €0 if their financial situation allows for this option. Any overpaid income tax, if applicable, can be refunded when the employee files their annual income tax return.

This approach helps avoid unpleasant situations where, due to an incorrect estimation of the annual income, a significant tax payment must be made to the Tax and Customs Board within a short period.

In 2025, corporate tax benefits will undergo significant revisions.

Corporate Tax Benefit Limits in 2025

• Daily allowance for foreign business trips: €75 (first 15 days), €40 (subsequent days).
• Expenses for hosting clients and business partners: €50 per month + 2% of the gross salary fund.
• Promotional goods and services provided for advertising purposes: €21 (excluding VAT).
• Employee accommodation costs: €500 per month in Tallinn and Tartu; €250 per month in other cities.
• Compensation for using a personal vehicle for business purposes: €0.50 per kilometer, up to a maximum of €550 per month.
• Health-related expenses for employees: €400 per year, with an expanded list of covered services (e.g., massages and services provided by medical professionals or certified specialists).

Certain conditions must be met, and internal documentation must be completed to take advantage of these tax benefits.

We invite you to attend a Russian-language training on corporate tax benefits on April 9. Registration is available via the link.

Please note that starting from 2025, the dividend taxation system will change. The tax rate on distributed dividends will be 22/78 of the net amount or 22% of the gross amount. This means the tax on distributed dividends will increase. If you were planning to distribute dividends, it is advisable to do so in 2024.

The reduced tax rate on dividends (14/86) will be abolished; all dividends will now be taxed at a unified rate of 22/78. For dividends previously distributed at the reduced rate of 14/86, where the 7% withholding tax was not applied, the obligation to withhold 7% is carried forward to future periods.

Mandatory Conditions for Dividend Distribution:

• For a limited liability company (OÜ), the share capital must be paid in, reported to both the Commercial Register and the TSD form.
• The company’s annual report must be prepared and approved by the management board.
• The financial year must end with a profit, and the dividend distribution must not harm the company’s financial position or solvency.
• After dividend distribution, the company’s equity must not fall below the required minimum.
• A decision by the shareholders to distribute dividends must be in place.

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.

Starting from 2025, employers will 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, from 2025, 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 Formation in 2025:

• Public Limited Company (AS) – €250 (2024: €200)
• Private Limited Company (OÜ) – €350 (2024: €265) (€250 at a notary, 2024: €200)
• Sole Proprietor (FIE) – €50 (2024: €20)

State Fees for Amending the B-Card in 2025:

• Public Limited Company (AS) – €75 (2024: €25)
• Private Limited Company (OÜ) – €75 (2024: €25)
• Sole Proprietor (FIE) – €50 (2024: €10)

State Fee for Reinstating a Company Removed from the Register in 2025:

• €500

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.

Starting in 2025, the tax rate will change. A unified tax rate of 20% will apply 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 €2,255 must be credited to the account in 2025 to qualify for state health insurance coverage.

Details about the entrepreneurial account number, the account holder’s name, and personal identification code will become open data and will be 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 Starting in 2025

Beginning in 2025, the European Union will introduce a new taxation framework called the SME Scheme (Special Scheme for Small Enterprises). 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!

In this article, I have highlighted only some of the legislative changes that, in my opinion, are most important for entrepreneurs in 2025. However, these are far from all the updates. For instance, the rules requiring companies to obtain a VAT number and become VAT taxpayers have changed. New regulations have been introduced for investment account holders, as well as for those providing online training or consulting services to clients in other countries. Additionally, significant changes have been made to the taxation of real estate.

We hope the information we share on our website will be helpful to you in planning your business and in the upcoming year, 2025.

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.