Which tax changes will enter into force in 2026?

The new year will bring changes to tax legislation which will affect both companies and individuals. Below is an overview of the main tax changes that will enter into force in 2026, as well as changes already adopted and entered into force during 2025.

2026 tax rates at glance

• Corporate income tax rate 22% (22/78).
• Personal income tax rate 22%.
• Entrepreneur account income tax rate 20%.
• Non-taxable income (basic exemption) is 700 € per month and 8400 € per calendar year regardless of the person’s income.
• Non-taxable income (basic exemption) in retirement age is 776€ per month and 9312 € per calendar year.
• Social tax rates:
  • Employer’s liability: 33,8% (consists of 33% social tax and 0.8% unemployment insurance premium).
  • Employee’s liability (withheld from gross salary): 1,6% unemployment insurance and 2%, 4% or 6% contribution to second pillar pensions fund.
• Monthly minimum social tax base 886 €, i.e. minimum social tax obligation 292,38 €.
• Standard VAT rate 24%, reduced VAT rates 13% and 9%.
• VAT registration threshold 40 000 €.

2026 tax changes

Income Tax

• From 01.01.2026 the so-called tax hump will be abolished and instead a uniform basic exemption of 700 euros per month, i.e. 8400 euros per year, will apply.
  • For persons of retirement age, the basic exemption is 776 euros per month, i.e. 9312 euros per year.
  • For a more detailed overview, see our article „Calculating the Basic Exemption from 2026“.
• From 01.09.2025, fees paid for childcare services and private kindergartens are treated as training expenses, which give the right to an income tax refund.
  • The exemption applies only to documented training expenses, which are paid to institutions with a license and registration for the relevant curriculum – for example, childcare providers operating under the Early Childhood Education Act.
    
• The income tax exemption for donations and gifts made for the purpose of supporting Ukraine has also been extended until the end of 2027.
  • Legal persons do not have to pay corporate income tax on donations made to the following organizations: Estonian Refugee Council, NGO Mondo, Ukrainian Cultural Centre, National Defence Promotion Foundation, Estonian Red Cross, Rescue Association, Rotary Club Tallinn Vanalinn, and non-profit association Freedom Convoy.
    

Value-Added Tax

• No changes to the VAT Act are planned for 2026.
• In 2027, there are changes expected in data content of the VAT return.
  • The separate intra-community supply report (VD) will be abolished, and such transactions must be reported in the main VAT return.
  • The VAT return annexes (INF A and B) will be abolished and sales and purchase invoices to be declared will need to be reported in the data content of the main return.
• A reminder, that from 01.07.2025 the standard VAT rate is 24%.
  • The rate increase is indefinite, and the previously applicable transitional measures have ended. For more information, see our article.

Defense Tax  

• As of 18.07.2025, the Defense Tax Act is no longer in force.
  • The defense tax was a new temporary tax type that was planned to come into force from 01.01.2026 and apply to corporate profits and individuals’ gross income.

Motor Vehicle Tax Act

• Retroactively from 01.01.2025, the taxation period is shortened where, during the taxation period, the vehicle has been deleted from the traffic register or has been temporarily removed from the register due to theft.
  • Within 15 working days of the entry in the traffic register, the Estonian Tax and Customs Board will automatically issue a decision to shorten the taxation period. Any overpaid tax will then be refunded to the taxpayer’s prepayment account.
  • Tax notices issued before the amendment entered into force will be cancelled if, during the period 01.01.2025–30.11.2025, the vehicle has been deleted from the traffic register or temporarily removed from the register due to theft. New tax notices will be issued by the Tax and Customs Board at the latest by 14.12.2025.

• Retroactively from 01.01.2025, a tax reduction is granted to parents (and guardians), in one taxation period, 100 euros per child may be deducted from the tax on M1- and N1-category vehicles (passenger cars and minibuses).
  • For the purposes of the Motor Vehicle Tax Act, a child is up to 18 years old (inclusive), and a parent is a guardian who has valid custody rights. This means that under this Act a child may have more than two parents.
  • The amount reducing the tax liability is divided equally between the parents. If one parent’s tax liability is smaller than the reduction available to that parent, the remaining part is allocated to the other parent(s).
  • The reduction of the tax liability is applied automatically. For example, if a child is born in the middle of the taxation period, the Estonian Tax and Customs Board will automatically issue a new, reduced tax notice.
    • However, no recalculation is made and the tax liability is not increased if custody ends in the middle of the year, for example when the child turns 19 or custody is withdrawn.
  • As a result of the reduction, any overpaid tax amount is refunded to the parent(s)’ prepayment account(s).
  • The Estonian Tax and Customs Board will review the motor vehicle tax notices issued in 2025 and, where necessary, issue new tax notices with reduced tax amounts.

• From 15.11.2025, a motor vehicle tax notice is treated as an administrative decision, to which the provisions of the Taxation Act concerning tax assessments apply.

• From 15.11.2025, when the registration fee has been paid in an amount higher than due, it will be possible to submit an application to the Transport Administration for the refund of the overpaid amount. Unlike motor vehicle tax, the registration fee is not refunded automatically; the refund is based on an application submitted by the taxpayer.
  
  
• From 01.01.2026, M1-category motor vehicles (i.e. passenger cars) with more than seven seats will be taxed at the rate applicable to N1-category motor vehicles (vans/minibuses).
  • This amendment reduces tax liability on average from 183 euros to 63 euros, thereby supporting in particular large families.
    • The annual tax on M1-category vehicles is calculated on the basis of three components: base amount 50 euros, CO₂ emissions and weight.
    • The annual tax on N1-category vehicles is calculated only on the basis of two components: base amount 50 euros and CO₂ emissions.
  • The amendment applies not only to the annual tax but also to the registration fee.

• From 01.01.2026, a state fee of 15 euros will apply to the deletion from the traffic register of lost or destroyed vehicles that do not have a certificate of destruction.
  • From 01.01.2027, the state fee for removal of a lost or destroyed vehicle from the register will increase to 800 euros.
• NB! Until the end of 2025, removal from the register of vehicles with a suspended register entry is free of charge.
  • The removal from the register will remain free of charge if a valid certificate of destruction is presented.

• From 01.01.2027, the annual motor vehicle tax will also apply to vehicles with a suspended register entry.

Social tax

• From 01.01.2026, a daily upper limit of 126.87 euros will be introduced for temporary incapacity benefits paid by the Health Insurance Fund (i.e. from the 9^th day of illness).
  • A new upper limit will be set for each calendar year.
  • The upper limit does not apply to incapacity benefits paid to person who went on sick leave or care leave before the beginning of 2026.
• Where an employee’s average daily pay exceeds the established upper limit, the employer is allowed to compensate the amount not paid due to the upper limit to the employee with no social tax applicable.
• The possibility to compensate the amount not received due to the upper limit with no social tax applicable also applies to sole proprietors (FIEs).

Excise duty

• From 01.01.2026, excise duty rates on tobacco products and alcohol will increase by 10%.
  • Excise duty rates on alcohol and tobacco products will increase by 5% in both 2027 and 2028.
• From 01.05.2026, excise duty on electricity and many other fuels will increase as follows:

Land tax 

• From 01.01.2026, local governments will be able to independently set the annual upper limit for a land tax increase within a range of 10–100%.
  • Previously, a uniform national limit applied – up to 50% or 20 euros if a 50% increase in the tax amount was less than 20 euros.
• From 01.01.2026, the homeowner’s tax relief will become a fixed amount-based relief, with the exact amount in the range of 0–1,000 euros to be determined by local governments.
  • Previous national wide tax relief was area-based – 0,15 hectares in densely populated areas (towns and small towns) and up to 2 hectares elsewhere.
  • In addition, local governments may introduce an additional allowance for pensioners and/or repressed persons.
  • If local government does not set the allowance amount for 2026, the allowance will be deemed to be 0 euros.

An overview of the 2026 land tax rates and allowances can be found here: the Tax and Customs Board table of tax rates and allowances.