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Global Payroll Team
Written by Global Payroll Team
Last updated May 7, 2026
Expert Reviewed
Payroll in Estonia
Tax in Estonia
Immigration in Estonia

Estonia map

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Mercans offers complete payroll, PEO and HR services in Estonia

Estonia presents many advantages for businesses and its investment climate remains attractive. A digitally enabled nation, it provides a pro-business environment and is consistently recognized for digital capability, innovation and ease of doing business. Great opportunities are present across sectors such as IT, R&D, electronics, food production, shared services and startups.

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Doing Business in Estonia

Establishing a company in Estonia remains straightforward, with many procedures available online. Estonia continues to attract investment through strong digital infrastructure, transport links and a highly international startup ecosystem. Enterprise Estonia and related public agencies continue to support foreign investors and business development locally.

Entity Registration and Incorporation Requirements

Setting up a new business or expanding an existing one in Estonia is straightforward. Choose how your company operates from a range of entity types that suit your individual circumstance.

Banking

Banking Hours: 8:00 am to 5:30 pm from Monday to Friday.

Working Week

The standard working week is generally 40 hours, usually worked from Monday to Friday.

Labor Law

Employment relations in Estonia are mainly governed by the Employment Contracts Act. The legal environment favors entrepreneurship, while foreign investors and local businesses are generally subject to the same rights and obligations under Estonian law.

Main Industries

Information technology, electronics, shared services, banking, wood processing, oil shale energy and logistics

GDP Growth

1.5%

Dates & Numbers

dd/mm/yyyy

Official State Name

Republic of Estonia Eesti Vabariik

Population

1.36 million

Capital

Tallinn

Major Languages

Estonian

Currency

Euro

Internet Domain

.ee

International Dialing Code

+372

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Estonia
Tallinn, EE
9:07 am, May 30, 2026
13°C
clear sky
58 %
Wind Gust: 0 mph
Clouds: 0%
Sunrise: 4:18 am
Sunset: 10:18 pm

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Payroll

Estonia remains a highly digital payroll environment in which wages are usually paid monthly and the employer is responsible for calculating, withholding and remitting payroll taxes. Since 1 April 2026, the minimum monthly wage for full-time work is 946 EUR and the minimum hourly wage is 5.67 EUR.

It is acceptable to provide employees with online payslips

Payslip

Payroll reports must be kept for 7 years

Reports

Employees are entitled to receive paid annual leave of 28 calendar days

Annual Leave

Employees are generally entitled to temporary incapacity benefits under the applicable sickness rules, and sick leave can extend for up to 182 calendar days per case

Sick Leave

Employees are entitled to up to 100 calendar days of maternity leave and 30 calendar days of paid paternity leave

Maternity & Paternity Leave

At least 15 calendar days’ notice must be provided in certain employer termination cases, increasing with length of service

Employee Termination

There are no provisions mandated by law regarding the 13th month salary

13th month salary

5.67 EUR per hour

Minimum Wage

OT: time off or 1.5x; max 48h/week avg.

Overtime

In case of lay-off, the employer generally pays compensation equal to one month’s average wages, and additional unemployment insurance benefits may apply

Severance Pay

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Tax and Social Security

A resident is liable to tax on worldwide income whereas non-residents are taxed on Estonian-source income. Estonia’s tax and social insurance system remains relatively simple, with income tax, social tax, unemployment insurance premiums and, where applicable, mandatory funded pension contributions handled through payroll.

Tax

Estonia applies a 22% flat income tax from 2025 onward. Its corporate tax system remains distinctive, with a 22/78 income tax generally applying to distributed profits. The standard VAT rate is 22%.

22%

Corporate Income Tax

22%

Personal Income Tax

22%

Sales Tax

22%

VAT

Social Security

Foreign workers who are registered at the Employment Register and meet the applicable conditions may obtain healthcare coverage in Estonia. Employers generally pay social tax and unemployment insurance, while employees generally contribute unemployment insurance and, if applicable, mandatory funded pension.

≤ 37.4%

Social Security Rate

33.8%

Social Security Rate for Employers

≤ 3.6%

Social Security Rate for Employees

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Employment Law

Employment and labor contracts are regulated by the Employment Contracts Act.

Employment Agreement

A successful startup hub, the process of hiring is straightforward. Contracts may be entered into for a fixed term or an unspecified term and must set out details such as name and place of residence, description of duties, agreed remuneration, place of work, working time and procedures for compensating overtime and more.

Working condition

Overtime may be done by mutual agreement but working time may not generally exceed an average of 48 hours per seven-day period over a reference period of four months.

Leaves

Annual vacation is 28 calendar days and national holidays are not included in this calculation. There are also additional leave categories such as maternity leave, paternity leave, parental leave and sick leave.

Employment termination

There are a number of ways in which an employment contract may be terminated such as mutual agreement, expiry of term, death, ordinary cancellation or extraordinary cancellation due to misconduct or redundancy.

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15 days

Minimum notice period for terminating an employee

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12 days

Total number of public holidays

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40

Working hours per week

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Not specified

Total number of days for Compassionate & Bereavement Leave

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Immigration

While there is an annual immigration quota for many non-EU nationals, a number of important categories remain exempt, including certain startup and top specialist routes.

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Residency permits

Where the foreign worker comes from an EU country and intends to work for over 3 months, the worker will generally need an Estonian personal identification code and registration steps so that the employer can complete employment registration. For many non-EU workers staying longer than 365 days, a temporary residence permit is the main route and may be issued for up to 5 years depending on the grounds.

Work Permit Validity

Up to 5 years depending on the permit type

Required Documents

A job offer by an Estonian employer

A recognized work contract

A letter of invitation from the Police and Border Guard Board where applicable

A travel document issued within the previous 10 years that is valid for at least three months after the visa expires and has two blank pages for visas

A completed and signed application form

A photo

An insurance policy with at least EUR 30,000 coverage for the duration of the employee’s stay

Documents showing the purpose of the employee’s journey, such as a letter from the host, work documents, study documents, proof of family ties, and proof of accommodation

Biometrical data including 10 fingerprints

Compliant, reliable, error-free and touchless payroll in Estonia

Build the best team and hire top talent compliantly in Estonia. Get in touch with Estonia payroll outsourcing & PEO specialists for a free consultation!

This document was prepared for informational purposes only. As local laws & regulations keeps on changing. Please consult your tax & legal advisors as well.
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    FAQs

    What is an Employer of Record (EOR) in Estonia and how does it work for foreign companies?

    An Employer of Record in Estonia acts as the legal employer for staff on behalf of a foreign company. It handles employment contracts, payroll, tax and social contributions and ensures compliance with local labour laws while the client company directs the daily work.

    Why should businesses use an EOR instead of establishing a local entity in Estonia?

    Choosing an EOR avoids forming a local company and saves setup time, cost and complexity. It enables fast market entry, reduces administrative burden and ensures compliance with Estonian employment and tax regulations.

    How does payroll outsourcing in Estonia ensure compliance with tax and labour regulations?

    Payroll outsourcing ensures salaries, tax withholdings, social contributions and filings are handled according to Estonian law. The provider tracks statutory requirements such as tax returns, payslips and employer contributions to keep the employment fully compliant.

    Can an Employer of Record in Estonia hire employees and manage work permits for international companies?

    Yes. An EOR in Estonia can hire local employees on behalf of a foreign company and assist with obtaining work and residence permits for non-local nationals, handling HR, payroll, and immigration-related tasks.

    What are the key benefits of using EOR and payroll services in Estonia for global expansion?

    Key benefits include rapid workforce onboarding without setting up a local entity, full legal and tax compliance, reduced operational and administrative risk, access to local expertise, and flexibility to scale operations while focusing on your core business.

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