Basic tax exemption represents the part of income that is not subject to income tax. Estonia applies different basic exemption rates on citizens that have reached the pensionable age and to those who are to reach it within a year. For people at pensionable age the tax exemption remainsunchanged for 2025 and 2026 set at 9,312 euros per year (776 euros /month). For the rest, the basic exemption in 2025 will be up to 7,848 euros per year (654 euros/month) increasing in 2026 to 8,400 euros per year (700 euros/month).
Key Reform Effective From 2026
A significant reform takes effect in 2026: the basic exemption will become a fixed amount, no longer decreasing as income grows. This means that regardless of a person’s total annual income, the full exemption of €8,400 per year will apply, simplifying the system and providing greater predictability for taxpayers.
Applying the Basic Exemption
The basic exemption can be applied only by one employer or payer on the basis of a written application of an employee. This means that if a person works for several employers, they can submit the application for basic exemption to only one employer. If the employee does not submit the written application, the employer must withhold income tax from the first euro.
Refunds and Adjustments
Employees may specify the amount of exemption they want to apply ranging from 0 to 700. If an individual has not used their entire basic exemption during the year, they receive a refund of the overpaid income tax after submitting an income tax return.
Consequences of Incorrect Application
If the basic exemption is applied in excess of what a person’s total annual income allows, for example, when multiple employers apply the exemption simultaneously, the individual will be required to pay additional income tax when filing their annual tax return. Any underpaid amount must be settled by 1 October of the following year.
How Eurofast Can Help
Eurofast’s tax and payroll specialists in Estonia provide clear guidance on applying the basic exemption correctly, managing multi-employer situations, and ensuring accurate monthly withholding. We also support employees and companies with annual tax return preparation and compliance checks to avoid unexpected tax liabilities.
For tailored assistance, contact us at [email protected].