On 4 December 2024, the Estonian Parliament approved several amendments to the income tax legislation, which will be effective from 1 January 2025. The most significant tax changes can be outlined as follows:
- The general tax-exempt allowance of resident individuals will not be increased to EUR 700 per month and the abolition of restrictions applying to the use of that allowance, as well as the increase of that allowance will be postponed to 2026. Thus, from 2025 there will be no changes in the application of general tax-exempt allowance of resident individuals and under certain conditions the tax-exempt allowance will be still EUR 654 per month (if the amount of total income derived by the individual will not exceed the limits applying to the use of tax-exempt allowance).
- Tax-exempt daily allowance for foreign business travel will be increased from EUR 50 to EUR 75, regardless of the country of destination. However, this amount of daily allowance can be applied only for up to first 15 days of the business travel and overall for no more than for 15 days per calendar month. For the rest of the days of foreign business travel, the tax- exempt amount will be increased from EUR 32 to EUR 40.
- The compensation for the use of the personal car for business purposes of the employer will be increased from EUR 0.30 to EUR 0.50 per km, but not exceeding in total EUR 550 per month (until the end of 2024 that limit is 335 per month).
- The total compensation for certain health and sporting costs per employee will be limited only to EUR 400 per annum. The existing quarterly restriction of EUR 100 for such costs will be abolished. In addition to existing services, the list of tax-exempt health compensations will be extended to costs incurred in relation to massage services and other listed health experts with professional license in dental care, psychological treatment and nutritional consultant with respective qualification.
- The tax-exempt limits for covering certain accommodation expenses of an employee (whose place of residence is located at least 50 km from the place of work and who does not own any residential real estate closer to the place of work) working on the basis of an employment contract will be increased from EUR 200 to EUR 500 per month in Tallinn or Tartu and from EUR 100 to EUR 250 elsewhere in Estonia or abroad.
- The fixed monthly limit of tax exempt representation costs will be increased from EUR 32 to EUR 50. Thus, from 2025 only representation costs exceeding monthly limit of EUR 50 plus 2% of the payroll subject to social tax will be subject to 22/78 monthly corporate tax by the company.
- The tax-exempt limit of cost of meals given to a ship crew member during voyage and to a member of the crew of civil aircraft during flight will be increased from EUR 10 to EUR 20 a day per person.
- The definition of expenses directly related to business will be extended so that they will include any reasonable or necessary expenses, which the employer incurs for creating and ensuring the safe and healthy work environment, not only expenses which arise from its liabilities under the Occupational Health and Safety Act or from prescriptions of the occupational health doctor.
- The tax-exempt limit for goods delivered or a service provided for the purposes of advertising will be increased from EUR 10 to EUR 21 (value without value added tax).
- Non-profit entities entered to the list of entities with income tax incentives may provide certain tax-exempt souvenirs to participants in youth camps or in sports events. These tax-exempt limits will be increased from EUR 32 to EUR 85 per participant.
- Non-profit association Freedom Convoy will be added to the list of entities to which gifts and donations for the benefit of Ukraine can be made on a tax exempt basis.
Finally, it is important to remember that according to the income tax amendments adopted previously in 2023, from 1 January 2025 the Estonian income tax rate is rising and the reduced rate for regular profit distributions is abolished:
- The individual and corporate income tax rate is increased from 20% to 22% and the reduced 14% corporate tax rate, which was applied to regular profit distributions from the year 2019, is abolished.
- This increase of corporate income tax rate inter alia affects the tax burden on fringe benefits, which will increase from 66.25% to 70.52% of the value of the benefit.