5 Tax-Free Benefits Your Estonian Company Can Give You

Estonian tax law provides several allowances that your company can pay out completely free of income tax and social tax. These aren't loopholes — they're explicit provisions in the Income Tax Act, with defined limits, documentation requirements, and consequences if you exceed them.

Since 1 January 2025, all five of the main allowance limits were increased substantially. If you haven't revisited your company's use of these allowances since then, the updated numbers are worth knowing.

Here are the five main tax-free benefits, what each requires, and what happens if you go over the limit.

1. Foreign Travel Daily Allowance

When your company sends you (or an employee) on a foreign business trip, a daily allowance can be paid tax-free.

Tax-free limits (from 1 January 2025):

Before 2025, these were EUR 50 and EUR 32 respectively.

Requirements:

• The destination must be at least 50 km from the border of the settlement where the workplace is located
• No overnight stay is required — a one-day trip abroad qualifies. The departure day counts if transport leaves for abroad by 21:00, the return day if it arrives back after 03:00
• The employer must issue a travel order (lähetuskorraldus) documenting the employee's name, destination, purpose, dates, and per diem amount
• Receipts for the per diem itself are not required — it's a flat daily rate
• Receipts are required for other trip expenses (flights, hotels, etc.)
• If free meals are provided, the employer can reduce the daily allowance by up to 70%

This allowance applies to foreign business trips only. There is no tax-free daily allowance for domestic travel within Estonia.

Example: A 5-day business trip to Berlin would allow a tax-free daily allowance of 5 x EUR 75 = EUR 375.

2. Personal Car for Business Use

If you use your own car for business purposes, the company can reimburse you per kilometre driven.

Tax-free limit (from 1 January 2025):

Before 2025, the rate was EUR 0.30/km with a EUR 335/month cap.

Requirements:

• You must maintain a trip log (sõidupäevik) recording: date, route (start and end points), distance in km, purpose of each trip, odometer readings, and vehicle registration number
• The vehicle must be your own (or one you have a documented right to use) — not a company car
• Fuel costs are included in the EUR 0.50/km rate and cannot be claimed separately

The annual reporting of tax-free car compensation is done on the INF 14 form (Part I), due by 1 February following the calendar year.

Example: Driving 800 km in a month for business: 800 x EUR 0.50 = EUR 400 — fully tax-free and within the EUR 550 monthly cap.

3. Health and Sports Benefit

Your company can cover health and sports expenses for employees tax-free.

Tax-free limit (from 1 January 2025):

Before 2025, the limit was EUR 100 per quarter. It's now a single annual limit, which is more flexible — the full EUR 400 can be used in any month(s) during the year.

Requirements:

• The benefit must be part of a documented employer wellness program available to all employees
• Covers gym memberships, sports club fees, swimming pools, physiotherapy, health check-ups, and similar expenses
• The employer pays the service provider directly or reimburses the employee against receipts

Example: An employee's annual gym membership costs EUR 360. The company pays the gym directly. The full amount is tax-free.

4. Employee Accommodation

When an employee lives far from the workplace, the company can cover accommodation costs tax-free.

Tax-free limits (from 1 January 2025):

Requirements:

• The employee's residence must be at least 50 km from the workplace
• The employee must not own residential property closer to the workplace
• The employer pays or reimburses documented accommodation costs (rental agreement, invoices)

Important restriction: This allowance is available for employees only. Board members are not eligible. If your company pays accommodation for a board member, the entire amount is treated as a fringe benefit and taxed accordingly. This is a common mistake for solo OÜ owners who are both shareholder and board member but not employed by the company.

5. Representation Expenses

Your company can incur hospitality and entertainment costs for business purposes within a tax-free limit.

Tax-free limit (from 1 January 2025):

Before 2025, the fixed base was EUR 32/month.

Rules:

• The fixed EUR 50/month applies per company, not per employee
• The 2% is calculated on the month's payments subject to social tax (in practice, gross payroll) and added to the EUR 50 base
• The allowance is cumulative through the calendar year — if you don't use the full amount in a given month, the unused portion carries forward
• Covers: business meals with clients and other hospitality (reception) expenses
• Gifts to business partners are not representation expenses. They are taxed at 22/78 from the first euro, apart from advertising gifts up to EUR 21 (see below)
• The excess is subject to corporate income tax at 22/78 only, with no social tax
• Entertainment expenses and gifts are declared on TSD Annex 5 for every month in which they occur, even when no tax is due

Example: A company with EUR 2,000/month gross payroll has a monthly representation limit of EUR 50 + (2% x EUR 2,000) = EUR 90/month. Over a full year, the cumulative limit is EUR 1,080.

Bonus: Promotional Gifts

Separately from representation expenses, your company can give branded promotional items tax-free up to EUR 21 per item (excluding VAT). The item must carry the company's name, logo, or trademark. Items without company branding are treated as regular gifts and taxed as deemed distributions. The limit is all-or-nothing: a branded item worth EUR 25 is a taxable gift in full, so the 22/78 CIT applies to all EUR 25, not just the EUR 4 above the limit.

What Happens When You Exceed a Limit

How the excess is taxed depends on the allowance:

For representation expenses, EUR 100 over the limit costs EUR 100 x 22/78 = EUR 28.21 in corporate income tax.

Fringe benefit tax is steeper. The excess amount is "grossed up" using the CIT formula, then both corporate income tax and social tax are applied to the grossed-up amount.

Worked example — EUR 100 of fringe benefit over the limit:

That's an effective surcharge of roughly 70% on the net excess amount. Put differently: for every EUR 100 of fringe benefit over a limit, the company pays an additional EUR 70.52 in tax.

Fringe benefits are declared on TSD Annex 4 by the 10th of the month following the month the benefit was provided.

Summary Table

All limits above are effective from 1 January 2025.

Tracking Your Allowances

Staying within the limits means keeping good records and knowing how much of each allowance has been used at any point during the year. Arvello tracks your tax-free allowance usage automatically — showing remaining balances on your dashboard so you can see exactly where you stand before making payments.

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