Our guide to Payroll in Estonia

Doing Business in Estonia

Investing in Estonia

Estonia remains one of the most digitally advanced, entrepreneur-friendly economies in Europe. Key advantages include:

• 0% corporate tax on retained/reinvested profits
• Full EU single-market access
• e-Residency enabling foreigners to run fully online EU companies remotely
• Transparent, digital governance (99% of state services online)

High-growth sectors include ICT, fintech, engineering, electronics, wood products, and telecommunications.

Basic Facts about Estonia

Capital: Tallinn

Population: ~1.3 million

Currency: Euro (EUR)

Languages: Estonian (English widely spoken)

Digital Society: 99% of public services online

How to Say

Hello: Tere

Good Morning: Tere hommikust

Good Evening: Tere õhtust

Do you speak English? Kas te räägite inglise keelt? (formal) / Kas sa räägid inglise keelt? (informal)

Goodbye: Head aega / Nägemist

Thank you: Aitäh / Tänan

See You Later: Näeme hiljem

Public Holidays

Official national public holidays include:

• Jan 1 – New Year’s Day
• Feb 24 – Independence Day
• Apr 3 – Good Friday
• Apr 5 – Easter Sunday
• May 1 – Spring Day
• May 24 – Pentecost
• Jun 23 – Victory Day
• Jun 24 – Midsummer Day
• Aug 20 – Independence Restoration Day
• Dec 24–26 – Christmas Holidays

Registrations & Establishing an Entity (2026)

The most common legal entity is the Private Limited Company (OÜ).

Company formation highlights

• Incorporation can be completed entirely online via the e-Business Register.
• Minimum share capital: €0.01 (symbolic requirement).
• State electronic registration fee: €265.
• e-Residency card fee: €150 (required for non-resident founders).

Companies must comply with Estonia’s Commercial Code and file annual accounts.

Setting up a Legal Structure

Options include:

• OÜ (private limited company) – best for SMEs, digital entrepreneurs.
• AS (public limited company) – for large businesses.
• Partnerships / Commercial associations.

Banking

Remote founders may use fintech banking (e-money institutions) if traditional banking is more restrictive. Banking access is not automatic with e-Residency.

Working Week

Standard full-time work: 40 hours/week.
Flexible working time agreements were introduced in 2026, allowing voluntary additional hours and variable scheduling under defined conditions (written agreement; hourly wage ≥1.2× minimum).

Employment Law

Holiday Accrual / Calculations

• Minimum annual leave: 28 calendar days (excluding public holidays).
• Additional leave may apply for minors, disabled workers, or hazardous work environments.

Maternity/Paternal Leave

Updated regulations include:

• 100% paid maternity leave financed by the Health Insurance Fund.
• Paternal leave available under family benefits framework.
• Parental benefits linked to salary (minimum wage influences minimum benefit).

Sickness

• Employer pays days 1–5 at their discretion (often unpaid).
• Health Insurance Fund pays from day 6 onwards.
• New 2026 cap: €126.87/day for temporary incapacity benefits.

National Service

• Estonia has no compulsory conscription for non-citizens.
• Estonian citizens may be required for national defense service; employment protections apply.

Labour Law

• Flexible working time agreement introduced (voluntary extra hours allowed).

• Adjusted rest‑time rules: employees must receive 48 consecutive hours weekly (standard schedule).

Tax & Social Security

Tax Rates (2026)

Personal Income Tax

• 22% flat rate (planned increase to 24% cancelled).
• Universal basic exemption: €8,400/year (€700/month).
• Higher exemption for retirees: €9,312/year.

Corporate Tax

• Tax applies only when profits are distributed:
• Standard rate: 22/78 (22%).
• 0% tax on retained/reinvested profits.

VAT

• Standard rate: 24% (increased July 2025).

Social Security (2026)

Employer Contributions

• 33% social tax (pension + health).
• 0.8% unemployment insurance premium.

Employee Contributions

• 1.6% unemployment insurance premium.
• 2 / 4 / 6% pension (mandatory 2% for those born after 1982).

Minimum Social Tax Base

• €886/month salary base, minimum employer contribution €292.38/month

Reporting

Payroll Reporting

• Monthly TSD return due by the 10th of the following month.

Minimum wage in 2026

• €946/month from April 1, 2026.
• Negotiated by trade unions & employers; pending government adoption.

Payroll

Reports

Typical required filings include:

• Monthly TSD tax return (income tax, social tax, unemployment, pension).
• Annual reports for companies (due six months after year-end).
• Records of working time and holiday balances (mandatory under Estonian law).

New Employees

• Must be registered in the Employment Register before employment begins.
• Employer must ensure tax-free allowance requests are submitted if applicable.

Leavers

• Employment termination must be updated immediately in the Employment Register.

Employee Benefits

Typical statutory and common benefits include:

• State health insurance
• State pension (pillar I & II)
• Paid parental benefits
• Sickness benefits (from Health Insurance Fund)
• Employer-funded wellness allowance up to €400/year tax-free

Visas & Work Permits

Key 2026 Immigration Reforms

• Employers must demonstrate 6 months of active business operations before hiring foreign workers on residence permits.
• Employer must be registered in the Estonian Business Register.
• Salary thresholds increased for short-term employment (e.g., €2,092/month from March 2026).

Types of permits

• D-Visa (short-term up to 1 year)
• Temporary Residence Permit for employment
• EU Blue Card
• Startup Visa route

Key changes for 2026

Major legislative and economic updates include:

Tax & Payroll

• Uniform basic exemption (€700/month) → replaces tax-hump system.
• Income tax remains 22% (planned 24% increase cancelled).
• Minimum social tax base increased to €886.
• Minimum wage increased to €946.

Employment Law

• Flexible working time agreements introduced.
• New cap on sickness benefits.