Starting from 2026, several important tax changes will come into effect, impacting both micro- and small-sized businesses operating in Estonia, as well as e-residents who manage their companies internationally. Below is an overview of the most important points company directors should be aware of to ensure that their financial processes comply with the 2026 requirements.
1. Unified Tax-Free Income – €700 per Month for All Employees
From 1 January 2026, the system for calculating tax-free income will become significantly simpler. A unified tax-free income of €700 per month (€8,400 per year) will apply to all employees, regardless of their total income.
This update is especially relevant for e-residents and small businesses using flexible forms of employment. This change means that employees and management board members will see an increase in their net income.
2. Income Tax Rate of 22% – Remains Stable in 2026
Although earlier discussions included the possibility of an income tax increase, negotiations of the state budget have confirmed that the rate will remain 22% in 2026.
This applies to:
- Personal income tax
- Corporate distributed profits
- Dividend taxation (22/78 method)
- Management board member remuneration
From an e-resident’s perspective no significant change in the company’s overall tax burden.
3. VAT Standard Rate of 24%
Since the VAT increase to 24% took effect in the summer of 2025, it will be fully in force throughout 2026.
Although the change was not introduced specifically in 2026, it continues to significantly influence daily pricing decisions and the cost structure of businesses.
4. Planned 2% Corporate Tax Rejected – No Additional Corporate Tax Burden in 2026
In previous public discussions, the Estonian government considered introducing an additional 2% corporate income tax, which would have applied to companies regardless of whether profits were distributed. This proposal raised concerns among both local entrepreneurs and e-residents, as it would have fundamentally changed Estonia’s internationally recognised zero-tax system on retained earnings.
However, the government has since withdrawn the proposal, confirming that no new corporate tax will be implemented in 2026.
What does this mean for e-residents and small businesses? Estonia’s highly valued deferred corporate tax model remains unchanged – profits that are reinvested or kept in the company continue to be tax-free.
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