Taxation of fringe benefit costs in Estonia

Fringe benefits and expenses not related to business

Fringe benefits are subject to income tax at the employer’s level at a rate of 22/78 (24/76, starting from 01.01.2026) and social tax at a rate of 33%. Social tax is levied on the amount that includes both income tax and non-deductible VAT.

For example

Price of fringe benefit (for example, housing expenses) 1000 euros

Income tax 282 EUR = 1000 x 22/78

Social tax 423.08 EUR = (1000 + 282) x 33%

The total cost to the employer is 1,705.07 EUR, which is 1,000 + 282 + 423.08 EUR in payments.

On a practical level, it is wise to avoid fringe benefit costs altogether due to their high taxation, similar to payroll taxation. An additional disadvantage is that it raises accounting costs, as each extra transaction or document adds to the workload.