Estonia has one of the simplest income tax systems in Europe: a single rate, one allowance, and no bands. Two things changed on 1 January 2026, and a third change was announced and then cancelled — which is why a lot of what you will read about Estonian tax is currently wrong.
22%, with a flat €700 a month tax free
Personal income tax is 22%, flat, with no progressive bands. The basic exemption is €700 a month — €8,400 a year — and since 1 January 2026 it no longer shrinks as you earn more.
You pay no social tax. Your employer pays 33% on top of your gross salary, which is covered under social tax.
Table of Contents
The Rate, and the Rise That Did Not Happen
The rate is 22%. It was 20% until the end of 2024 and rose to 22% on 1 January 2025.
It is not 24%, whatever your search results say
A rise to 24% was legislated in June 2025, to take effect on 1 January 2026, as the replacement for an abolished “security tax”. The Riigikogu repealed it in December 2025, before it ever entered force.
A number of major tax advisories and business bodies published the 24% figure ahead of the repeal and have not corrected it. If a page tells you Estonian income tax is 24% in 2026, it was written before December 2025. The Tax and Customs Board is the authority, and it says 22%.
Dividends and other distributions are a separate matter — Estonian companies pay 22% on distributed profit and 0% on what they retain, which is covered under e-Residency and company tax.
The Basic Exemption Is Flat Now
This is the change that actually affects your payslip. From 1 January 2026 the basic exemption (maksuvaba tulu) is €700 a month for everyone, regardless of income. People of pensionable age — born 1961 or earlier — get €776.
Before 2026 it worked very differently. It was up to €654 a month, and it tapered away as income rose: full value up to €14,400 a year, then reduced on a formula, then zero above €25,200. That taper created a band of income taxed at a brutal effective rate, known in Estonia as the maksuküür — the tax hump.
| Until 31 Dec 2025 | From 1 Jan 2026 | |
|---|---|---|
| Monthly exemption | Up to €654 | €700 |
| Annual exemption | Up to €7,848 | €8,400 |
| Tapers with income? | Yes — to zero above €25,200 | No |
| Pensioners | €776 | €776 |
If you find guidance describing an allowance that shrinks as you earn more, or that disappears entirely above €25,200, it is describing the rules that ended on 31 December 2025.
What Comes Off Before Tax
Estonia calculates income tax after two other deductions, which is unusual and works in your favour.
| Order | What | Rate |
|---|---|---|
| 1 | Unemployment insurance | 1.6% |
| 2 | Second pillar pension, if you joined | 2% / 4% / 6% |
| 3 | Basic exemption | €700 |
| 4 | Income tax on what is left | 22% |
Because the pension contribution is deducted before tax, raising your second-pillar rate costs you less than the headline number. Going from 2% to 6% on a €2,000 salary diverts €80.00 more into your pension but reduces take-home pay by only €62.40, because €17.60 of it comes out of tax you would otherwise have paid.
The salary calculator applies this ordering.
Who Estonia Taxes
Estonia taxes residents on worldwide income and non-residents only on Estonian-source income.
You become tax resident if you are here 183 days or more in any 12-month period, or if you have a permanent home in Estonia. Note that the second test has no day count — a permanent home plus the intention to live here can make you resident well before day 183.
This catches two groups. People on the digital nomad visa, which runs up to a year and therefore crosses the line if used in full. And e-residents, who often assume the reverse — that an Estonian company makes them Estonian taxpayers. It does not. e-Residency confers no tax residency at all, and you remain taxable where you actually live.
Common Mistakes
Using 24%
Legislated in June 2025, repealed that December, never in force for a single day. It is the most-published wrong number about Estonian tax.
Expecting the allowance to taper
It did until 31 December 2025, down to zero above €25,200. From 2026 it is flat at €700 for everyone, whatever you earn.
Budgeting for social tax out of your pay
It is 33% and your employer pays it on top of your gross. None of it is deducted from you.
Ignoring the deduction order
Unemployment insurance and the pension contribution come off before income tax is calculated, so raising your second-pillar rate costs less than the headline number.
Assuming an Estonian company makes you an Estonian taxpayer
It does not. e-Residency confers no tax residency, and you remain taxable where you actually live.
Missing the permanent-home test
183 days is the well-known trigger. A permanent home in Estonia has no day count at all and can make you resident well before day 183.
Frequently Asked Questions
What is the income tax rate in Estonia in 2026?
22%, flat, with no bands. A rise to 24% was legislated in June 2025 and repealed in December 2025 before taking effect, which is why some advisories still publish 24%.
How much can I earn tax free?
€700 a month, or €8,400 a year, flat for everyone since 1 January 2026. People born in 1961 or earlier get €776 a month.
Does the allowance still shrink as I earn more?
No. That was the pre-2026 system and it produced the so-called tax hump. From 1 January 2026 the exemption is flat regardless of income.
Do I pay social tax on top?
No. Social tax of 33% is paid by your employer on top of your gross salary and is never deducted from your pay. What comes out of your pay is unemployment insurance at 1.6%, your pension contribution if you joined, and income tax.
When does Estonia start taxing my worldwide income?
When you become tax resident — 183 days or more in any 12-month period, or having a permanent home here. The second test has no day threshold, so it can apply sooner than people expect.
Related Guides
Disclaimer. General guidance, not tax advice. Your position depends on residency, income sources and any applicable double tax treaty. Confirm with the Estonian Tax and Customs Board or a qualified adviser.