Broadly speaking, the focus of the Estonian tax system in 2026 is shifting positively towards increasing people’s net income and supporting economic growth. Below you will find a clear and practical overview of the tax amendments that came into effect at the beginning of 2026, which rates remained stable, and what individuals and companies should consider.
General Picture: Income Tax Rate Hike Is Canceled
The good news for both employees and business owners is that the planned income tax rate increase for 2026 was decided against. With the aim of stimulating the economy, the current tax rates will remain in force:
- Personal Income Tax remains at 22%.
- Corporate Income Tax (distribution of dividends and fringe benefits) also remains at 22% (22/78).
Key tax rates in 2026
|
Did not change |
Changed |
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| Income tax and tax-exempt income | The tax-exempt income for old-age pensioners remains at 776 euros per month or 9,312 euros per year. | Tax-exempt income increased from 654 euros to 700 euros per month, or from 7,848 euros to 8,400 euros per year, regardless of the size of the income. |
| Social security and labor taxes | Employer tax obligations Social tax: 33% Unemployment insurance premium: 0.8% Total employer cost: 33.8% Employee deductions Unemployment insurance premium: 1.6% Mandatory funded pension: 2%, 4% or 6% (according to selection) |
Minimum social tax obligation increased The base amount for the monthly rate increased from 820 euros to 886 euros The minimum monthly obligation increased from 270.60 euros to 292.38 euros |
| Business-related taxes | Corporate income tax: 22% (22/78) Entrepreneur account income tax: 20% Standard VAT rate: 24% Reduced VAT rates: 13% and 9% VAT registration threshold: €40,000 Good to know: No new standard rate changes are planned in the VAT Act in 2026 |
Most important changes and reliefs in 2026
Uniform tax-exempt income
The biggest systemic change is the introduction of a uniform tax-exempt income, which means that the previous progressive system of tax-exempt income dependent on income is replaced by a single rate, and the so-called “tax hump” disappears. In short, tax-exempt income no longer depends on a person’s annual income. For a person earning the average salary, this change means an increase in net income of over 1,800 euros per year. This also simplifies both the monthly payroll accounting and the process of filling out the income tax return.
Minimum wage rate
The rate established for 2025, 886 euros per month, is currently still in effect. An increase in the minimum wage rate is expected, but representatives of employers and trade unions have not yet reached an agreement.
Tax burden relief for families with children
The state budget also takes into account changes related to the motor vehicle tax, which reduce the tax burden for families with children by up to 100 euros for each child under the age of 19. This is a targeted measure aimed at supporting multi-child families in particular.
Tax concession for training expenses expands
A change that came into force in the second half of 2025 also has a significant impact on the submission of the 2026 income tax return:
- Childcare and private kindergarten fees are treated as training expenses.
- It is possible to apply for an income tax refund on these expenses, provided that the service was provided by an institution with a corresponding activity license.
Upper limit for sickness benefits
As of January 1, 2026, the following daily upper limit of 126.87 euros is set for temporary incapacity benefits paid by the Health Insurance Fund (starting from the 9th day of sickness).
Excise duty rate increase
The new year also brings some changes that increase costs:
- Excise duty rates on alcohol and tobacco products increase by 10%.
Summary
The new year’s tax amendments clearly steer the tax system towards a simpler and more predictable tax environment. The uniform tax-exempt income, the canceled income tax increase, and targeted reliefs for families with children will improve the net income of many people. For entrepreneurs, a stable tax rate environment means better planning opportunities and fewer unpleasant surprises.
If you have questions about the Estonian tax system or the upcoming changes, book a meeting with us and let’s discuss how Aaroni accountants can assist you.
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