2026 brought several important tax and regulatory changes in Estonia.
Some were planned and then cancelled. Others quietly reshaped payroll, social tax, and employment rules.
For companies operating in Estonia, especially those with employees, foreign founders, or cross-border activity, the real impact is not in the headlines but in how payroll, tax declarations, and compliance are handled month by month.
This guide explains the Estonian tax changes in 2026 from a practical business perspective: what changed, what did not, and what companies should review now.
Income tax in Estonia in 2026 remains at 22%
The personal income tax rate in Estonia remains 22% in 2026.
Although an increase to 24% was previously planned, the Riigikogu adopted amendments in December 2025 cancelling the increase. As a result, employers and payroll calculations continue to apply the 22% rate.
Key point for businesses:
No system changes are required for income tax rate adjustments in 2026.
No corporate profit tax introduced in Estonia
Despite earlier proposals, Estonia did not introduce a corporate profit tax in 2026.
Estonia continues to apply its well-known corporate income tax system where:
profits are not taxed when earned
corporate income tax applies only on distributed profits
the standard rate remains 22/78
For Estonian companies and e-resident businesses, this preserves Estonia’s core tax principle and predictability for dividend planning.
Uniform tax-free income introduced in 2026
One of the most significant changes for employers is the abolition of the income-dependent tax-free allowance.
From 1 January 2026:
Tax-free income is €700 per month (€8,400 per year)
The amount no longer decreases as income increases
The rule applies based on payment date, not earning period
This means:
December salary paid in January 2026 follows the new rules
December salary paid in December 2025 follows the old rules
Employer obligations
Tax-free income can only be applied after receiving a written application
If an employee has multiple employers, the application can be submitted to only one
If no application is submitted, income tax must be withheld from the first euro
Employee responsibility
Employees are responsible for monitoring their total annual income and ensuring the €8,400 limit is not exceeded.
Minimum social tax obligation increases in 2026
From 1 January 2026:
Monthly minimum social tax base: €886
Minimum social tax obligation: €292.38 per month
This affects:
part-time employees
low-salary positions
employers with irregular working hours
Companies must ensure payroll systems reflect the updated minimum obligation to avoid underpayment and future corrections.
Changes to unemployment insurance benefits
The unemployment insurance system was restructured in 2026.
What stayed the same
Income-based unemployment insurance remains
Eligibility rules did not change
What changed
A new flat-rate unemployment insurance benefit was introduced
Applies when income-based benefits are not available
Amount in 2026: €374.50 per month
Paid for up to 180 days (with possible extension)
Employers are not directly responsible for benefit payments, but HR and payroll teams should be aware of the new structure when advising employees.
Temporary incapacity benefit cap introduced
For the first time, Estonia introduced a cap on sickness benefits.
From 1 January 2026:
Maximum benefit: €126.87 per day
This affects high-income employees and payroll calculations during sickness periods.
Foreign labour rules tightened in 2026
Several important changes affect companies employing foreign workers.
Key requirements:
Employer must be entered in the Estonian Commercial Register
Branches not entered in the register can no longer employ foreigners
Employer must show six months of actual economic activity before applying for residence permits
Processing time for temporary residence permits extended to 90 days
These changes directly affect:
international groups
startups hiring foreign specialists
companies using posting or service provision models
Entrepreneurship account tax rate stays at 20%
The planned increase of entrepreneurship account tax from 20% to 22% was cancelled.
For users of an entrepreneurship account:
Tax rate remains 20%
No changes to calculation or reporting in 2026
Digital access to local government services via eesti.ee
Starting in 2026, Estonia began consolidating local government services into the eesti.ee state portal.
By the end of 2026:
Entrepreneurs will access municipal services through a single portal
Nearly 1,600 services mapped and categorised
Construction and planning services are the largest category
This improves transparency but also means:
less tolerance for missed permits or approvals
faster cross-checks between authorities
What Estonian companies should review now
For 2026, companies operating in Estonia should review:
payroll settings for tax-free income applications
minimum social tax compliance
employment contracts involving foreign workers
dividend planning under the unchanged corporate tax system
digital access and notifications in state portals
How 1Office supports Estonian companies in 2026
1Office supports Estonian companies, e-residents and employers with:
payroll and tax compliance
employee tax-free income applications
social tax calculations
accounting and annual reporting
practical guidance on regulatory changes
If your company operates in Estonia or plans to hire, expand or distribute profits in 2026, it is worth reviewing these changes before they surface through corrections or audits.
Frequently asked questions about Estonia tax changes in 2026
Q1: Did income tax increase in Estonia in 2026?
No.
The Estonian income tax rate remains 22% in 2026. The previously planned increase to 24% was отменed by amendments adopted by the Riigikogu in December 2025.
Q2: Is there a corporate profit tax in Estonia in 2026?
No.
Estonia did not introduce a corporate profit tax in 2026. Corporate income tax continues to apply only when profits are distributed, at the standard rate of 22/78.
Q3: How did tax-free income change for employees in Estonia in 2026?
From 1 January 2026, tax-free income is:
€700 per month
€8,400 per year
no longer dependent on income level
Employers may apply the exemption only after receiving a written application from the employee.
Q4: What happens if an employee does not submit a tax-free income application?
If no application is submitted, the employer must withhold income tax from the first euro. Employers are not allowed to apply the exemption automatically.
Q5: Did the minimum social tax obligation change in 2026?
Yes.
From 2026, the minimum monthly social tax base is €886, which results in a minimum social tax obligation of €292.38 per month.
This mainly affects part-time and low-salary employees.
Q6: Are December salaries paid in January taxed under 2026 rules?
Yes.
Taxation in Estonia is cash-based, meaning the applicable tax rules depend on the payment date, not the period when the work was performed.
Q7: Did the entrepreneurship account tax rate change in 2026?
No.
The entrepreneurship account tax rate remains 20%. The planned increase to 22% was cancelled.
Q8: What changed for foreign employees in Estonia in 2026?
Key changes include:
Employers must be entered in the Estonian Commercial Register
Six months of proven economic activity required before applying for residence permits
Processing time for temporary residence permits extended to 90 days
These changes affect international companies and e-resident businesses hiring in Estonia.
Q9: Is sickness benefit capped in Estonia in 2026?
Yes.
From 1 January 2026, temporary incapacity for work benefits are capped at €126.87 per day.
Q10: How do the 2026 tax changes affect e-resident companies in Estonia?
E-resident companies are affected in the same way as resident companies, particularly regarding:
dividend taxation
payroll and social tax obligations
foreign labour requirements
reporting and compliance deadlines
Q11: Where can entrepreneurs find local government services in Estonia in 2026?
Local government services are being integrated into the eesti.ee state portal, giving entrepreneurs centralised access to municipal permits, approvals and service information.
Q12: Do Estonian employers need to update payroll systems for 2026?
Yes.
Payroll systems should be reviewed to ensure:
correct application of tax-free income
updated minimum social tax thresholds
correct handling of payment-date taxation
compliance with new foreign labour rules
