Tax rates and tax-free limits: what changes in 2025

Minimum wage 2025

From 1 January 2025, the minimum wage is €886 a month and the minimum hourly wage is €5.31. That is a rise of €66, or 8%.

In 2024 the minimum wage was €820 a month and €4.86 an hour – a rise of €95, or 13%, on the year before.

In 2023 the minimum wage was €725 a month and €4.30 an hour.

Minimum social tax

In 2025 the monthly base for the minimum social tax is €820, so the employer’s minimum social tax is €270.60 a month.

In 2024 the monthly base was €725, which made the employer’s minimum social tax €239.25 a month.

If the employee’s main job is with you, you must pay the minimum monthly social tax even while they are on unpaid leave, or in any month where their gross pay is below the monthly base.

Business trip per diems

Under § 13(3)(1) of the Income Tax Act, the tax-free limit on the foreign business trip per diem from 01.01.2025 is:

• €75 a day for the first 15 days of a foreign business trip, up to a maximum of 15 days per calendar month (until 31.12.2024 it was €50/day).
• €40 for each further day of the trip (until 31.12.2024 it was €32/day).

Note: anything above the tax-free limit is taxed as salary.

On the excess, the employer must calculate and pay all withheld taxes, plus 33% social tax and the employer’s 0.8% unemployment insurance contribution.

If the employer covers the employee’s meals (for example, breakfast, lunch or dinner is listed separately on the hotel invoice), the per diem is reduced by that amount.

Note: there is no tax-free per diem for a domestic business trip within Estonia.

If an employer pays a per diem for a domestic trip anyway, it is taxed as salary – the employer must calculate and pay all withheld taxes, plus 33% social tax and the employer’s 0.8% unemployment insurance contribution.

On a domestic trip, travel, accommodation and other trip-related costs can be reimbursed tax-free, as long as the employee hands in properly completed receipts and invoices.

Under the Employment Contracts Act, an employee is on a business trip when the employer sends them to do their job somewhere other than the agreed, usual place of work.

Only a company’s own employees and members of its management or supervisory board can be sent on a business trip. Every business trip needs a trip report.

Examples:

1. If the employment contract names Tallinn as the place of work, then working in Pärnu, Tartu or anywhere else in Estonia is a domestic business trip.

2. If the employment contract names Estonia as the place of work, then working in Pärnu, Tartu or elsewhere in Estonia is not a business trip.

3. If the employment contract names Tallinn, another place in Estonia, or simply Estonia, then working in Finland is a foreign business trip.

4. If an employee is on a foreign business trip for 18 calendar days, a per diem of €75/day can be paid for 15 days and €40/day for the remaining 3 days.

5. If an employee has already been on a foreign business trip for 15 days and goes on another trip in the same month, the tax-free per diem for the days falling in that same month is €40/day.

Income Tax Act: https://www.riigiteataja.ee/akt/120122024005

Extract from the Income Tax Act

§ 13. Salary income

(3) Income tax is not charged on: 1) reimbursement paid by an employer, or by a third party on its behalf, to an official, employee or member of the management or supervisory body of a legal person for costs related to a service, employment or official business trip, and the foreign business trip per diem and foreign business trip allowance, as well as reimbursement of such costs paid for a family member of the person, and reimbursement of relocation costs related to an appointment to a post in a different locality. The tax-free limit on the foreign business trip per diem is €75 for the first 15 days of a foreign business trip, up to a maximum of 15 days per calendar month, and €40 for each following day. The Government of the Republic establishes, by regulation, the procedure for the tax-free payment of the reimbursements and per diem referred to in the first sentence of this clause; RT I, 20.12.2024, 2 – entry into force 01.01.2025

Tax-free limit on the personal car allowance

Under § 13(3)(2) of the Income Tax Act, the tax-free limit on the personal car allowance from 01.01.2025 is:

• €0.50 per kilometer of business driving, based on a mileage log
• up to €550 a month from each employer paying the allowance.

Note: anything above the tax-free limit is a fringe benefit, taxed with income tax and social tax.

Until 31.12.2024 the limit was €0.30 per kilometer of business driving, up to €335 from each employer paying the allowance.

Note: if an employee uses their own car for work, the only thing you can pay them on the basis of a mileage log is the car allowance – you cannot also pay for fuel, repairs, insurance or any other car costs.

The mileage log must show:

1. the date of the trip

2. the odometer reading at the start and end, and the kilometers driven

3. where the trip started and where it went

4. the purpose, reason or description of the trip

Keep a separate mileage log for each month

If a personal car is leased or handed over to the company for its use, and the Transport Administration’s register marks it as 100% business use, the car counts as a company car: it can only be used for business driving, and a mileage log must be kept. The odometer reading at the start of each trip must match the reading at the end of the previous one.

If a personal car has been handed over to the company 100%, the company can pay for fuel, repairs and other costs. If the company is VAT registered, it can deduct 100% of the input VAT on a car marked as 100% business use. In that case, no car allowance can be paid on top.

The annual vehicle tax is paid by the car’s owner, or by whoever is listed as the holder in the Transport Administration’s register, and the company cannot reimburse it.

Income Tax Act: https://www.riigiteataja.ee/akt/120122024005

Extract from the Income Tax Act

§ 13. Salary income

(3) Income tax is not charged on: 2) reimbursement paid to an official, employee or member of the management or supervisory body of a legal person in connection with the use of a personal car for the performance of service, work or official duties. A personal car for the purposes of the first sentence is a car used by the person referred to, which is not owned or held by the employer. The tax-free limit on the reimbursement paid to one person, where records of trips are kept, is €0.50 per kilometer, but not more than €550 per calendar month per employer paying the reimbursement. The Government of the Republic establishes, by regulation, the procedure for keeping trip records and paying the reimbursement; RT I, 20.12.2024, 2 – entry into force 01.01.2025

Employee accommodation costs

Under § 48(56) of the Income Tax Act, the business-related cost of housing an employee on an employment contract is not a fringe benefit if both conditions are met:

1. the employee lives at least 50 kilometers from the place of work, owns no home closer to it, and both of these stay true for the whole time the accommodation is provided;
2. the cost per housed employee is no more than €500 a calendar month for accommodation in Tallinn or Tartu, and no more than €250 elsewhere.

Until 31.12.2024 the tax-free limits were €200 in Tallinn or Tartu and €100 elsewhere.

Promotional gifts and entertainment costs

Under § 49 of the Income Tax Act, from 01.01.2025 no income tax is charged on:

• subsection 1 – goods handed over or services provided for advertising purposes, worth up to €21 excluding VAT.
• subsection 4 – a legal person’s entertainment costs of €50 a calendar month, plus 2% of the personalized payments subject to social tax made in the same calendar month.

Tax-free gifts from associations on the list of entities eligible for income tax incentives:

• subsection 6(4) – souvenirs given to participants of a youth camp or youth project camp, up to €85 per participant;
• subsection 6(5) – souvenirs given to participants of a sports competition, up to €85 per participant.

Occupational health and health promotion costs

A cost is business-related if it is incurred to earn taxable business income, or if it is needed to keep the business running or develop it, and the business reason is clear.

All reasonable and necessary costs an employer incurs to create and maintain a safe and healthy workplace, and to meet occupational health and safety requirements, including obligations under the Occupational Health and Safety Act (TTOS), are business-related.

What changed: a risk assessment, an occupational health doctor’s prescription or any other document is no longer required before incurring such costs.

The following health promotion costs are not a fringe benefit up to €400 per employee per year, provided the employer offers them to all employees:

• point 2 – costs directly related to regular use of a sports or exercise facility, or to massage;
• point 4 – dental care, rehabilitation, psychological treatment, physiotherapy or speech therapy provided by a licensed health care provider, and nutrition counseling by a certified nutrition counselor.

What changed: the old limit of €100 per quarter is gone. It is now €400 for the whole year, and you can reimburse it in one payment or as the costs come in.

Business account and taxes

• From 1 January 2025 the business income tax rate is 20%, applied to all income received. Previously the rate depended on how much came in (a two-tier system).
• A business account user who has joined pillar II pays a business income tax rate that is higher by their funded pension contribution rate (2%, 4% or 6%). So the rate is now 20% (not joined), 22%, 24% or 26%.
• To get health insurance, at least €2,255 must be received into the business account in a calendar month.
• A business account user who receives more than €40,000 a year must continue in another business form (as a sole proprietor or through an OÜ).
• If you provide a service to a resident company, non-profit, foundation or religious association, keep in mind that the legal person receiving the service owes additional income tax (at 22/78), which brings the tax burden up to that of a regular employment relationship.
• This additional tax exists so that regular jobs are not rerouted through the more favorable business account.
• If a legal person pays a fee into a business account for a service, it must pay income tax at 22/78 on the fee and declare it on TSD annex 6 under code 6080.

A business account suits private individuals who sell goods or services to other private individuals. A business account holder does not need to register as a business owner or keep records of income and expenses. A business account holder cannot be VAT registered, and cannot work as a sole proprietor (FIE) in the same or a similar field.

FAQ

Q: Does the minimum wage rise in 2025? A: Yes. The minimum wage rises to €886, which is 8% more than in 2024.

Q: What is the new personal car allowance rate? A: In 2025 it is €0.50 per kilometer, capped at €550 a month.

Q: How do foreign business trip per diems change? A: The rate for the first 15 days is €75/day (previously €50), and €40/day (previously €32) for the days after that.

Sources

• Income Tax Act
• Employment Contracts Act
• Occupational Health and Safety Act

Note: this article is based on the 2025 legislative changes. For advice on your own situation, talk to our accountants.