As entrepreneurs, understanding the intricacies of taxation is crucial for optimizing financial strategies and maximizing returns.

It’s important to remember that taxes are essential for society and public services, benefiting all citizens. Alongside this, there are various tax exemptions aimed at encouraging specific spending and activities and stimulating the economy, among other goals. Understanding your rights and options regarding taxes is beneficial for both employers and employees, with many nuances affecting both parties.

We’ve compiled a comprehensive list of all the tax breaks you can take advantage of in 2024.

Surprisingly, there are far more tax exemptions available than one might imagine.

For instance, the work allowance is tax-free for individuals receiving support from the European Union funds, aimed at reimbursing expenses related to participating in employment services and encouraging such participation. Essentially, this means expenses incurred during work-related trips, like transportation and accommodation costs, are not taxed.

Additionally, you can declare the following expenses tax-free:

• Mandatory pension contributions and unemployment insurance payments, excluding contributions made by self-employed individuals.
• Voluntary pension contributions, subject to a 15% deduction limit but not exceeding €6,000 annually.
• Mandatory social security payments in foreign countries.
• Additional tax-free income of up to €5,000 from selling timber or forestry rights on privately owned land, including Natura 2000 forest support, after deducting forestry management expenses.
• Educational expenses.
• Gifts and donations.

According to the tax authority, educational expenses, gifts, and donations can collectively be deducted up to €1,200 from income. However, deductions cannot exceed 50% of the taxpayer’s taxable income in Estonia for the same taxation period.

With a positive outlook, individuals can deduct educational expenses paid for themselves or for a child, grandchild, sibling, or niece/nephew under 26 years of age within the calendar year. If these relatives are not present, one can deduct the educational expenses of one Estonian resident under 26 years of age. There’s no age limit for deducting the taxpayer’s own educational expenses. Documented gifts and donations can also be deducted from income if made to individuals listed in the tax authority’s approved list of nonprofit organizations, foundations, and religious associations eligible for tax benefits. For the upcoming year, individuals will enjoy an increased tax-free allowance.

Starting in 2025, individuals have the right to deduct €700 per month from their taxable income, regardless of their earnings. This translates to a uniform tax-free allowance of €700 per month or €8,400 per year, except for retirees, who may see a proposed tax-free allowance of €776 from January 1st, subject to parliamentary discussion. Moreover, a significant increase in tax-free income will be realized through changes to pension contributions, with rates of 2%, 4%, or 6% taking effect from January 1st, 2025, depending on the individual’s declaration to the pension registry holder.

It’s worth highlighting the multitude of tax exemptions available to legal entities.

Unlike many other countries, classic corporate income tax doesn’t apply to businesses in Estonia, as long as profits are reinvested in the company’s growth and investments. Corporate income tax obligations only arise when profits are withdrawn in any form. This means that corporate profits of resident legal entities and state-funded institutions are subject to taxation upon distribution, regardless of the method or form of distribution.

Additionally, taxation applies to gifts, donations, and reception expenses. Moreover, expenses and payouts unrelated to business activities and the company’s statutory objectives, as well as assets withdrawn from permanent establishments, are subject to taxation. This year, payouts are taxed at a rate of 20/80, increasing to 22/78 from 2025 onwards. Social tax at a rate of 33% is applied to fringe benefits, and until the end of this year, dividends can be paid at a lower rate (14/86) with a 7% withholding tax when paid to individuals. Businesses enjoy numerous tax benefits, including the opportunity to reimburse €100 worth of health promotion expenses per quarter, compensate home office costs, cover €335 per month tax-free for employees’ personal car usage, and reimburse public transportation expenses for commuting to and from work.

In summary, it’s worth keeping an eye on things. There are many legal options, not all of them fit into this article, but we hope they were helpful.