Running Payroll in Estonia

Estonia is recognized globally for its advanced digital infrastructure, which extends to nearly all aspects of business administration, including payroll. The country's commitment to e-governance means that most payroll-related processes are conducted entirely online. In line with this digital-first approach, key payroll functions such as employee registration, tax declarations, and social security contributions are handled via online platforms.

Foreign companies planning to carry out business activities in Estonia on a permanent basis, such as offering goods or services, must establish a local entity (e.g., a subsidiary) or a branch. These entities must be registered with the Estonian Commercial Register. Upon registration, the entity is automatically recognized as a tax withholding agent by the Estonian Tax and Customs Board (EMTA), and no separate application for tax withholding status is necessary.

Foreign businesses without a permanent establishment in Estonia that intend to hire Estonian tax residents are required to register as non-resident employers with the EMTA. Similarly, foreign employers hiring non-resident employees to perform work within Estonia must also register.

All employees—both residents and non-residents—must be registered in the Employment Register, which is maintained by the EMTA. Employers must register employees before their first working day. This registration is done electronically via the e-MTA portal (Estonia’s electronic tax portal).

All companies—local or foreign—should further register for access to the e-MTA system to handle tax declarations, social contributions, and employee data. Non-resident employers can authorize a local representative (such as an accountant or payroll provider) to manage their e-MTA account on their behalf.

Setting up a local Estonian bank account is not mandatory. Employers can pay salaries and taxes from foreign bank accounts, provided that payments are made in euros and comply with local banking and reporting standards.

Estonia’s tax and social security system is known for its simplicity. A flat 22% income tax rate applies to most types of employment income. Social security contributions are clearly defined, with fixed rates for both employers and employees, making payroll calculations straightforward compared to many other EU countries.

Tax Considerations

Estonia applies a flat income tax rate of 22% to all types of employment-related income, including salaries, bonuses, holiday pay, and other compensation. This rate applies uniformly to both residents and non-residents earning income in Estonia.

A basic tax exemption of up to EUR 7,848 per year (up to EUR 654 per month) is available to Estonian tax residents, though this benefit is phased out for individuals earning more than EUR 14,400 annually and eliminated entirely at EUR 25,200 or above (valid for 2025).

Additional deductions for residents may include:

• Charitable donations and educational expenses (up to certain limits), and

• Voluntary pension contributions (third-pillar pension schemes)—provided they meet the conditions set under Estonian tax law.

An individual is considered a tax resident of Estonia if they:

• Have a permanent residence in Estonia, or

• Stay in Estonia for 183 days or more during any 12-month period.

Tax residents are subject to taxation on their worldwide income, while non-residents are taxed only on income earned from Estonian sources.

Tax Withholding and Reporting

Employers must withhold income tax at source. These amounts must be declared and paid monthly to the Estonian Tax and Customs Board using the TSD (income and social security declaration) via the e‑MTA portal. Both payment and filing are due by the 10th day of the month following the payroll month.

The Estonian tax year follows the calendar year. Individual income tax returns are filed annually through the e‑MTA system. The filing deadline is April 30 of the year following the income year.

Social Security Contributions

In Estonia, social security contributions are primarily the responsibility of the employer. These contributions cover state pension insurance, public health insurance, unemployment insurance, and mandatory funded pension schemes. All related payments and declarations must be submitted monthly to the Estonian Tax and Customs Board.

Employers are required to pay the following contributions on an employee’s gross monthly salary:

• Social Tax: 33%, which consists of 20% for state pension insurance and 13% for public health insurance;

• Unemployment Insurance: 0.8%

Employees are also subject to certain statutory deductions from their salary, which the employer is obligated to withhold and remit:

• Unemployment Insurance: 1.6% of gross salary;

• Funded Pension Contribution (Pillar II): 2% of gross salary

Participation in the funded pension scheme is mandatory for employees born in 1983 or later who have joined the system. Employees may voluntarily increase their contribution rate to 4% or 6%. In addition, employees may opt to participate in a voluntary supplementary pension scheme (Pillar III). If requested, employers must facilitate payroll deductions and contributions to the scheme.

All social security contributions—both employer and employee portions—must be declared and paid to the Estonian Tax and Customs Board using the TSD. The declaration must be submitted electronically via the e-MTA portal by the 10th day of the month following the payroll month.

Employees in Estonia are entitled to various benefits. These include:

• Annual leave and public holidays: 28 calendar days, 12 public holidays

• Maternity leave: 140 days (starting between 30 and 70 days before birth) on full pay

• Paternity leave: 30 calendar days which can be taken until the child turns 3

• Parental leave: Paid parental leave in Estonia can be taken until the child turns 3 years old. Either the mother or father may take up to 435 days of leave, which can be consecutive or split into multiple periods.

• Sick leave: first 3 days unpaid; days 4 to 8 paid by employer; from day 9 onwards, Health Insurance Fund pays sickness benefits at a rate of 70%

For more information on employee benefits and other employment requirements in Estonia (including severance pay and termination procedures), check out our Global Hiring Guide.

As of January 1, 2025, the statutory monthly minimum wage in Estonia is EUR 886, or EUR 5.31 per hour based on a 40-hour workweek. Sector-specific collective agreements may set higher minimum wages. Overtime work must be compensated at 150% of the regular wage or with equivalent time off. Work on public holidays is compensated at 200% of the regular rate. Estonian law does not require a 13th-month salary or annual bonuses.

Employers in Estonia process payroll on a monthly basis. Wages and salaries are typically paid via bank transfer (cash is allowed but uncommon). They must also issue payslips—either paper or electronic—after every payroll run, ensuring transparency and compliance with Estonian labor regulations.