Estonia Tax Rates 2026 Tax Guide

Estonia has long had one of the most competitive tax regimes in Europe thanks to a 0% corporate tax rate and a digital tax infrastructure. However, the 2025–2026 period marks a reform process where significant rate increases are being implemented for both income tax and VAT.

This table makes tax planning more critical than ever for investors and professionals planning to establish a company, relocate an IT team, or move individually to Estonia. As we enter 2026, clarifying both the rates and what these rates mean in practice is essential for proper structuring.

Estonia Tax System in 2026: General Framework

Estonia still maintains a simple, flat-rate, and digital-focused tax structure. The most important features include:

• Corporate tax is only levied on distributed profits (retained and reinvested profits are 0%).
• Personal income tax and corporate tax rate will be 24% in 2026.
• The standard VAT rate has been permanently raised to 24%.
• A temporary 2% defense tax will be applied on corporate profits between 2026–2028.

Despite the increased rates, this structure still makes Estonia particularly attractive for companies that redirect profits into reinvestment and scalable digital business models.

2026 Personal Income Tax (PIT): Rates and Allowances

Flat Rate Income Tax 24%

As of January 1, 2026, the personal income tax rate in Estonia will rise from 22% to 24%. The flat-rate system remains unchanged; all taxable incomes are subject to the same rate.

Accordingly:

• If you are a tax resident of Estonia, your worldwide income will be subject to 24% (subject to exceptions and double taxation treaties).
• If you are not a tax resident in Estonia, only your Estonian sourced income will be taxed.

Basic Allowance

While the rate is increasing, there will also be an improvement in the basic exemption to partially protect low and middle-income earners:

• The basic exemption, which was €7,848 annually in 2025, will be €8,400 annually in 2026.
• The annual €9,312 exemption for those who have reached retirement age remains unchanged.

Simple Example Calculation

Let’s assume a tax resident in Estonia has an annual gross income of €40,000 in 2026:

• Exempt amount: €8,400
• Tax base: 40,000 – 8,400 = €31,600
• Calculated tax: 31,600 x 24% = €7,584

Here, the effect of the rate increase is partially balanced by the increase in the exemption; however, the overall tax burden will significantly increase, especially for higher income groups.

Note for Foreign Professionals and Digital Nomads

If you plan to work, provide freelance services, or work remotely in Estonia:

• Your tax residency status (duration of stay in Estonia, “center of vital interests,” double taxation treaties) determines your tax burden.
• Incorrect structuring can lead to the risk of taxation in both Turkey and Estonia.

Therefore, restructuring your personal income streams (salary, freelance, dividends, crypto, etc.) according to Estonia’s flat-rate system is critical for tax optimization.

2026 Corporate Income Tax (CIT): 24% on Distributed Profits + 2% Defense Tax

Basic System: 0% on Undistributed Profits

The Estonian corporate tax system retains its essence in 2026:

• No corporate tax on retained and reinvested profits (0%).
• Tax arises at the moment of profit distribution (dividends, hidden profit distributions, certain expenses, etc.).
• This structure is cash-based; that is, the rate of the year in which the distribution occurs is applied.

Rate Increase: From 22% to 24%

As of January 1, 2026:

• The standard corporate tax rate on distributed profits increases from 22% to 24%.
• The tax will be applied on the tax base calculated by dividing the distributed net dividend amount by 0.76.

Simple example:

• The company wants to distribute a net dividend of €76,000 to shareholders.
• Tax base: 76,000 / 0.76 = €100,000.
• Calculated corporate tax: 100,000 x 24% = €24,000.
• Total cost (net dividend + tax): €100,000.

Thus, the effective tax burden on the dividend remains at 24%.

Temporary 2% Defense Tax

Between 2026 and 2028, Estonia will implement a temporary 2% defense tax on corporate profits to finance defense expenditures:

• Both profits earned by Estonian resident companies,
• And profits earned by foreign companies through a permanent establishment in Estonia will be subject to this tax.

This tax will increase the total effective tax rate, especially for groups showing high profitability. Additionally, since the EU’s Global Minimum Tax (Pillar Two, 15%) rules are also on the agenda starting in 2026, it is important to structure Estonia’s framework in line with the global tax position.

Strategic Importance of Distribution Timing

Due to cash-based taxation:

• Profits distributed in 2025 will be subject to the 22% rate, while
• Profits distributed in 2026 and thereafter may carry a higher burden due to the 24% + temporary 2% defense tax effect.

Therefore, for Estonian companies with accumulated profits in the 2024–2025 period, timing and amount planning for dividends is a significant area for tax optimization.

VAT (Value Added Tax) 2026: Standard Rate Permanently at 24%

Standard VAT Rate

On July 1, 2025, the standard VAT rate was increased from 22% to 24%, and this increase has become permanent as of 2026.

Thus, in 2026, for most goods and services in Estonia:

• Standard VAT rate: 24%

Reduced VAT Rates

Estonia maintains reduced VAT rates in certain social and cultural areas:

• 9% VAT: Books, educational materials, newspapers, magazines, medicines, medical devices, certain hygiene products, and some printed publications.
• In accommodation services (only accommodation or including breakfast): The rate raised from 9% to 13% as of January 1, 2025, will also apply in 2026.

Additionally, 0% VAT applications under the EU VAT Directive, such as for exports, continue.

Impact of VAT Increase on Pricing and Cash Flow

For businesses working B2C, the 24% VAT:

• Directly affects pricing strategy and margin calculations.
• Creates a complex need for cross-border VAT management for companies engaged in international e-commerce and selling to countries with different VAT rates.

In B2B-focused companies, VAT is generally a “pass-through” item, so the main issue is managing cash flow and refund processes.

2026 Defense Tax and Other Indirect Effects

The 2% defense tax to be applied between 2026 and 2028 may seem small on its own, but:

• It can mean millions of euros in additional burden for groups reporting large volumes of profits.
• It may require a reevaluation of the Estonian structure concerning intra-group transfer pricing and profit allocation.

Additionally, the BEPS 2.0 and global minimum corporate tax rules from the EU and OECD make it even more important to determine how Estonia’s “taxation only on distribution” model positions itself in the effective tax rate calculation on a group basis.

2026 Estonia Tax Rates – Summary Table

What Does This Mean for Whom?

For Those Looking to Establish a Company in Estonia or Through Estonia

The 2026 reforms require careful tax planning, especially for the following profiles:

• Digital product and SaaS companies (global sales, high profitability).
• Groups relocating IT and engineering teams to Estonia.
• Investors looking to establish holding and IP (intellectual property) structures.

The main opportunity remains the same: retaining and reinvesting profits within the company means effectively a 0% corporate tax. However, the impact of the 24% + defense tax on dividend distributions post-2026 must be considered alongside group cash needs and tax burdens in Turkey and other countries.

Companies Employing and Sending International Personnel

For Turkish and other companies sending programmers, engineers, or project teams to Estonia, the 2026 tax environment directly affects cost calculations in posted worker and payroll/EOR models:

• Where salaries will be taxed,
• In which country and at what rate social security contributions will be paid,
• Whether it will be considered a temporary assignment or permanent residence,

are critical questions that should be clarified according to Estonian and sending country legislation. Incorrect structuring can lead to double taxation, penalties, and retroactive contribution risks for both the worker and employer.

How Corpenza Can Support You in This Process?

The 2026 Estonian tax environment, while simple in numbers, requires quite strategic decisions in practice: Where to establish the company, where to retain profits, where to distribute, which country the employee appears on the payroll, where social security is paid, etc.

Corpenza offers end-to-end consulting and operational support in Europe and globally on:

• Company establishment and restructuring in Estonia and other EU countries,
• International corporate structuring and holding structures focused on tax optimization,
• Management of local employer obligations with payroll and EOR solutions,
• Minimizing tax and social security risks when sending personnel abroad with the posted worker model,
• Analysis of the tax implications of investment residency and investment citizenship programs,

In Estonia specifically, we prepare personalized scenario analyses on how to restructure your company and personal setup without losing the advantages offered by the system despite the tax increases in 2026. Thus:

• You can limit the negative effects of short-term rate increases,
• In the medium to long term, you can maximize the 0% corporate tax advantage.

Conclusion: Estonia Remains Competitive in 2026, But “Planning is Essential”

In summary, the 2026 Estonian tax regime conveys the following message:

• Income tax and VAT are increasing; nominal tax burden is rising.
• However, 0% corporate tax on reinvested company profits is preserved.
• The temporary defense tax and EU-sourced minimum tax rules make strategic planning mandatory for large and international groups.

If structured correctly, Estonia will continue to be extremely attractive in 2026, especially for technology companies, startups, scalable digital business models, and investors looking to establish international structures. However, working with a team experienced in international mobility and tax optimization that can read the tax legislation of both Estonia and Turkey and other relevant countries simultaneously will make a difference.

Disclaimer

The information in this text is for general informational purposes; it does not constitute legal, tax, or financial advice. Tax legislation can change frequently and rapidly; the rates and regulations mentioned here may become outdated over time.

Before making any decisions, you should check the current legislation and official sources (such as the Estonian Tax and Customs Board – EMTA and the relevant country tax authorities) and obtain professional advice specific to your situation. Corpenza and the author cannot be held responsible for any consequences arising from decisions made based on this text.