Basic exemption 2026: €700 for everyone – the new tax-free minimum

From 1 January 2026 the basic exemption – Estonia’s tax-free minimum – is the same for everyone, €700 a month, and the income tax withholding rate is 22%. Below is everything an employee and an employer need to know: who gets which amount, when a new application is needed and what to watch in payroll.

Income tax 2026: 22% rate and €700 basic exemption

• The income tax withholding rate is 22%.
• The corporate income tax rate is 22/78.
• The basic exemption is €700 a month, or €8,400 a year, and it no longer depends on how much a person earns.

All 2026 tax rates in one table: tax rates and tax changes in Estonia 2026.

Basic exemption 2026 – what changed

• The basic exemption no longer depends on how much a person earns.
• Unused basic exemption cannot be carried forward to later months.

For old-age pensioners: €776 a month

At retirement age the basic exemption is €776 a month, or €9,312 a year.

• The Social Insurance Board applies the basic exemption to the old-age pension automatically.
• If the old-age pension is below €776 and the person also works, they can hand their employer a written application to have the unused part of the exemption applied to their salary or other income.

Basic exemption application to the employer

To have the basic exemption applied, the employee must hand in a written application. In the application, the employee can choose:

• the maximum rate
• an amount up to €700
• no basic exemption at all

If the employee has already handed in an application for the maximum rate, no new one is needed – though they may submit one if they wish.

If the employee has been using the basic exemption and wants to stop, or wants to change the amount, a new application is required.

The basic exemption can only be used with one employer at a time!

Without an application, the basic exemption cannot be applied!

Use this basic exemption application form (in Estonian) – you or your colleagues can generate a PDF application in a minute.

Minimum social tax when the basic exemption is used

Using the basic exemption can trigger the minimum social tax.

• In 2026 the monthly base for the minimum social tax is €886 (up from €820 in 2025), so the employer’s minimum social tax is €292.38 a month.
• The basic exemption cannot be split between several employers.
• The basic exemption can also be applied under a contract for services (töövõtuleping), an authorization agreement (käsundusleping) or another contract under the Law of Obligations Act.

What to watch in payroll

Send basic exemption applications to your accountant well before payroll is run!

If the December 2025 salary is paid out in January, the basic exemption that applies is the 2026 one!

If the employer and employee have agreed on a net salary, it makes sense to also agree whether the basic exemption is used, and to take into account the employee’s funded pension rate of 0%, 2%, 4% or 6%.

Need help with payroll or with handling basic exemption applications?

Tähelend is your trusted accounting partner. Get in touch and make sure your company’s payroll meets the 2026 rules!

Sources

• Tax changes in 2026 – Estonian Tax and Customs Board
• Income Tax Act – Riigi Teataja (in Estonian)