Basic Exemption 2026 in Estonia: €700 for Everyone — What Changed?
From 2026, Estonia's general basic exemption is up to €700 per month and no longer depends on income. What employees and employers should know.
Read MoreGross vs Net Salary in Estonia: What Is the Difference and How to Calculate It
Gross salary is the pay agreed in the employment contract before employee contributions and income tax. Net salary is the amount transferred to the employee after deductions. The difference comes from Estonian payroll taxes, the basic exemption and the employee’s funded-pension choice.
For a quick calculation, use our salary calculator for Estonia 2026. The explanation below shows what is deducted from gross salary and why the employer’s total cost is higher than the contractual salary.
What is deducted from gross salary?
For 2026 payroll in Estonia, the usual salary calculation uses these rates.
| Line | Paid by | 2026 rate |
|---|---|---|
| Employee unemployment insurance | from gross salary | 1.6% |
| Mandatory funded pension, pillar II | from gross salary | 2%, 4% or 6% |
| Income tax | after permitted deductions | 22% |
| Social tax | additional employer cost | 33% |
| Employer unemployment insurance | additional employer cost | 0.8% |
| General basic exemption | based on the employee’s application | up to €700 per month |
Income tax is not always calculated on the full gross salary. Employee unemployment insurance, the funded-pension contribution and the basic exemption stated in the employee’s application are taken into account first. From 2026, the general basic exemption is up to €700 per month and no longer decreases as income rises.
Example: €2,000 gross salary per month
Take a simple example: gross salary is €2,000, employee unemployment insurance is 1.6%, the funded-pension rate is 2%, and the employer applies a €700 basic exemption.
The result is:
- net salary of €1,657.84;
- employee unemployment insurance of €32.00;
- funded-pension contribution of €40.00;
- withheld income tax of €270.16;
- total employer cost of €2,676.00.
You can test the same example in the salary calculator for Estonia 2026 by changing the funded-pension rate, the basic exemption or the calculation direction. If you enter a target take-home salary, the calculator shows the required gross salary and employer budget.
Why is employer cost higher than gross salary?
Gross salary is not the company’s final payroll cost. The employer adds 33% social tax and usually 0.8% employer unemployment insurance. That is why a €2,000 gross salary costs the company €2,676, even though the employee receives a lower net amount.
This difference matters when budgeting. If you are hiring a first employee, planning a bonus or comparing compensation options, look at all three figures together: gross salary, net salary and total employer cost.
When can the result differ?
A simple gross-to-net calculation does not cover every exception. Payroll can change when a payment includes holiday pay, sickness benefit, multiple employers, foreign social-security coverage, fringe benefits or part-time work. For low salaries, the minimum social-tax obligation also needs to be checked.
If payroll needs to run correctly every month with TSD reporting, see our payroll services in Estonia. Sources: Estonian Tax and Customs Board, 2026 tax rates and calculation of basic exemption.