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Hiring in Estonia

Hiring employees compliantly in Estonia means doing it yourself or using an Employer of Record like Global Expansion. You should be careful using independent contractor agreements in Estonia so that you don’t run afoul of employment laws. To hire an employee compliantly and offer them mandatory benefits and compliant agreements, you can:

(a) Establish your own new legal entity, banking, accounting and payroll service in Estonia; or

(b) use an Employer of Record like Global Expansion who can handle all of the details for you.

Need assistance hiring in Estonia? Contact us about our International EOR  Service

Labor Laws in Estonia

Employee Probation Period

  • Estonia offers the possibility of probationary period that cannot be longer than 4 months

Annual Leave in Estonia

  • The employee's annual leave entitlement is 28 calendar days.
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Holidays in Estonia

Public holidays in Estonia consist of religious and national holidays observed by Estonians across the country

New Year’s Day 1st January
Independence Day 24th February
Good Friday 10th April
Easter Sunday 12th April
Spring Day 1st May
Pentecost Sunday 31st May
Victory Day 23rd June
St. John’s Day 24th June
Independence Restoration Day 20th August
Ethnicity Day 17th October
Christmas Eve 24th December
Christmas Day 25th December
Boxing Day 26th December
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Maternity Leave Estonia

  • Mothers in Estonia are given 140 days of fully paid pregnancy and maternity leave, which may begin 30-70 days before the expected delivery date

Paternity Leave Estonia

  • Fathers in Estonia are entitled to 10 business days of paternity leave.

Sick Leave in Estonia

  • In case of sickness, the employee can be given up to 182 calendar days of paid sick leave (max 250 days per year).
  • The gross wage during this period is 70% of his or her last years` average salary.
  • The employer pays the wage from the 4th to 8th day of sickness and the state starting the 9th day.

Work Hours in Estonia

  • The standard workweek is 40 hours with an 8-hour day.
  • Business hours are Monday to Friday, from 9 a.m. to 6 p.m. with an hour for lunch.

Overtime in Estonia

  • Overtime is compensated by granting time off, which must be granted to the employee as soon as possible after working overtime.
  • Time off is granted from the employee’s work time to the extent equal to the overtime and must be remunerated as normal work time.
  • The employee and employer may agree that overtime is compensated by 1.5 times of the wages.

Termination of Employment in Estonia

  • An employment contract may be terminated by a declaration of termination made in a format which must be reproduced in writing. 
  • A declaration of termination made in breach of the formal requirement or a contingent declaration of termination is void. 
  • An employer shall justify termination. 
  • Before termination of the employment contract with the employees’ representative the employer shall seek the opinion of the employees who elected the person to represent them or the trade union about the termination of the employment contract.
  • The employer shall take the opinion of the employees into account to a reasonable extent.
  • The employer shall justify disregard for the opinion of the employees. 

Notice Period in Estonia

  • An employer must give an employee advance notice of extraordinary cancellation which depends on the time the employee’s employment relationship with the employer has lasted:
    • less than one year of employment – no less than 15 calendar days
    • one to five years of employment – no less than 30 calendar days
    • five to ten years of employment – no less than 60 calendar days
    • ten and more years of employment – no less than 90 calendar days.

Severance in Estonia

  • The law provides for severance pay in the event of economic dismissals and an employee is entitled to 1 month's wages upon termination of employment contract due to a lay-off.
  • In the case of lay-off, redundancy pay is 1 month's wages and it does not increase with increase in the length of service.
  • If an employee terminates an employment contract extraordinarily, the employer is entitled to compensation to the extent of 3 months' average wages to the employee.
  • In the event of termination for economic reasons, the Estonian Unemployment Insurance Fund pays an additional compensation to the employee which varies according to the employee's length of service, in the following manner:
    • 1 month's wages for 5 to 10 years of service
    • 2 months' wages for over 10 years of service

Estonia Salary and Wages

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13th / 14th Month Salary in Estonia

  • No
  • There is no statutory requirement to pay the 13th or the 14th month salary.
  • It is not customary for those to be paid.
  • Employees give benefits in the form of health insurance or other non monetary means.
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Income Tax in Estonia

  • An individual who is a resident of Estonia is liable to tax on worldwide income, irrespective of the origin of the income. Non-residents are taxed on their Estonian-source income.
  • Taxable income includes both active income, such as employment and business income, as well as passive income, such as capital gains, rents and royalties, interest, dividends, certain insurance proceeds, pensions, scholarships, grants, prizes and lottery winnings, etc. This list is not exhaustive; consequently, any income derived by a resident individual not falling within the above categories is taxable, unless a tax exemption is available.
  • Most items of personal income are taxed on a gross basis, mainly through withholding at source, whereas business income and capital gains are taxed on a net basis subject to certain conditions.
  • There are no special taxation rules for expatriates.
  • Estonia has a proportional (i.e. flat) tax rate of 20%, which applies to all items of income derived by a resident taxpayer. From 2018 onwards, dividends that have been subject to the reduced rate of 14% at the level of the distributing Estonian company will have WHT of 7% levied. Certain pension payments are subject to 10% income tax.
  • There are no local taxes on income.

Income Tax Rate

Standard Flat Rate

20%

Reduced Rate (Dividends)

14%

Reduced Rate (Pension Payments) 10%
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Social Security in Estonia

  • Social tax is levied on employers at a rate of 33%; employees are not liable for social tax. No ceiling applies to the amount of salary subject to social tax.
  • In addition, unemployment insurance and mandatory pension fund (subscription mandatory for persons born after 1983) charges are imposed on gross salary.
  • The unemployment insurance rates are 0.8% for employers and 1.6% for employees.
  • The mandatory pension fund rate is 2%, which applies only to employees.
  • The unemployment insurance and mandatory pension fund charge are withheld by employers.
  • Self-employed persons must pay social tax at a rate of 33% on their net business income, subject to a maximum amount of annual income equal to 10 times the sum of the minimum monthly wages for the tax year (maximum amount of EUR64,800 for 2019).
  • Self-employed persons must make quarterly advance payments of social tax to the Tax and Customs Board by the 15th day of the third month of the second, third and fourth quarters.
  • Each payment must be at least EUR495 (EUR1,980 for the calendar year).

Social Security Contributions

Contribution

Group 1083

Social Tax

Unemployment Insurance

Mandatory Pension Fund

Self Employed

Group 1083

-

1.6%

2%

Employee Group 1083 8% to 11%    
Employer Group 1083 33% 0.8% -

Immigration Estonia

  • Citizens of the EU, the EEA and Switzerland can stay Estonia and work here without a visa or residence permit. If they want to work in Estonia for more than 3 months, they just need to register as an Estonian resident in the Population Register of Estonia during the first 3 months of their stay.
  • If citizens of a non-EU country want to stay and work in Estonia for a longer time (longer than one year), they shall apply for a residence permit. At first, they have to apply for a temporary residence permit (for work up to 2 years with the first permit). After having lived in Estonia for 5 years on a temporary residence permit, they can then apply for a long-term residence permit.
  • The residence permits to the third country nationals and persons with undetermined citizenship are issued under the Aliens Act. Residence permit may be temporary (validity period up to five years) or long-term. Temporary residence permit may be issued to a foreigner:
    • for settling with a spouse;
    • for settling with a close relative
    • for settling permanently in Estonia;
    • for study;
    • for employment;
    • for business
    • to participate in Criminal Proceedings.
  • Foreigners, residing in Estonia on the basis of residence permit, are, in general, permitted to work in Estonia. Separate work permits are not issued.
  • In addition to the employment in Estonia on the basis of a residence permit, a citizens of a non-EU country may work in Estonia temporarily for up to 365 days during a 455-day period if
    • he/she stays legally in Estonia on the basis of visa or on the basis of visa-free stay and
    • whose employment has been registered prior to the commencement of work.
  • Short-time employment for participation in seasonal work can be registered for up to 270 days during a year.

EU Blue Card

  • Highly qualified non-EU citizens can apply for a EU Blue card they must submit application for temporary residence permit (blue card) with the Police and Border Guard Board.
  • Alternatively, you may prove your qualifications by showing at least five years of professional experience.
  • The potential employer must contact the Estonian Unemployment Insurance Fund for consent. The consent of the Estonian Unemployment Insurance Fund is not required for certain employment categories and in case of renewal.
  • An applicant’s salary must be at least 1.5 of the most recent annual average monthly wage in Estonia
Need assistance hiring in Estonia? Contact us about our International EOR  Service

Type of Visa/Permit

Documentation

Validity

Eligibility

Temporary Residence Permit
  • Application forms
  • an application for temporary residence permit, when temporary residence permit is applied for
  • an application for the extension of temporary residence permit, when the extension of temporary residence permit is applied for
  • data of close relative and family members, when temporary residence permit is applied for and upon extension of residence permit, if the data has changed.
  • an identity document
  • 1 digital color photo
  • a document certifying the payment of the state fee
5 years (can be extended to 10 years) 
  • An alien may apply for residence permit for employment with an employer registered in Estonia and for scientific or research works, if the institution has been entered with the register of science and development institutions.
  • Temporary residence permit can be attained on the basis of the following
    1. EU Blue Card
    2. Scientific Research
    3. Employment as a top specialist
    4. Employment as a temporary agency worker
    5. Working at a start up
EU Blue Card
  • Provide an assessment of a competent agency as regards the attestation of a professional qualification or documents or data that prove that the alien has at least five years of professional experience.
  • By signing the invitation, you confirm that you have concluded with the alien an employment contract that is valid for at least 1 year or made a binding job offer
  • Application forms
  • an application for temporary residence permit, when temporary residence permit is applied for
  • an application for the extension of temporary residence permit, when the extension of temporary residence permit is applied for
  • data of close relative and family members, when temporary residence permit is applied for and upon extension of residence permit, if the data has changed.
  • an identity document
  • 1 digital color photo
  • a document certifying the payment of the state fee
5 years (can be extended to 10 years)
  • High Skilled worker
  • An applicant’s salary must be at least 1.5 of the most recent annual average monthly wage in Estonia
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Value Added Tax (VAT) in Estonia

  • VAT is levied on the sale of goods and the provision of services within Estonia, intracommunity acquisition of goods, the import of goods and the provision of services that are taxable in Estonia and supplied by a foreign taxable person
  • The standard VAT rate is 20%
  • A reduced rate of 9% is available on items such as books, newspapers, medicines and accommodation.
  • Zero-rated items include exports, intracommunity supplies of goods, the sale of certain services to foreign persons and goods supplied on vessels and aircraft.

VAT Rates

Standard Rate

Group 1083

20%

Reduced Rate Group 1083 9%
Zero-rated Group 1083 0%
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Mandatory Benefits in Estonia

  • These are mandatory benefits as prescribed by law
  • These benefits include annual leave, public holidays, sick leave, maternity leave, paternity leave, sick leave, notice period, severance pay.
  • Statutory benefits also include social security benefits such as unemployment insurance and pension fund.
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Mandatory Benefits Overview

  • Annual Leave

  • Public Holidays

  • Sick Leave

  • Maternity Leave

  • Paternity Leave

  • Notice Period

  • Severance Pay

  • Social Security Benefits (e.g. unemployment insurance and pension fund)

Payments And Invoicing

  • The tax year in Estonia is the calendar year.
  • An individual must file an income tax return if his or her annual income exceeds the amount of the basic exemption applicable to him or her and if he or she would be required to pay additional income tax based on the income tax return or if he or she would like to claim applicable tax deductions.
  • Resident individuals also need to submit a tax return to report their foreign income. Individual income tax returns must be filed by 31 March of the year following the tax year. Individuals must pay income tax due by 1 July of the year following the tax year.
  • Resident individuals who declare business income, foreign income or gains from the transfer of property are required to pay any additional amount of tax by 1 October of the year following the tax year.
  • Spouses cannot file a joint tax return.

Payroll Accrual in Estonia

Country Accruals Additional Information

Pension insurance  20.00%
Health Insurance 13.00%
Unemployment 0.80%
Maternity 140 days a year
Vacations 8.33%
Severance per year of service 8.33%

Description

Employers operating in Estonia (including non-residents having a permanent establishment [PE] or employees in Estonia) must pay social tax on certain payments to individuals at the rate of 33% (whereof 20% is used for financing public pension insurance and 13% for financing public health insurance). Social tax paid by employers is not capped and mainly applies to salaries, directors’ fees, and service fees paid and fringe benefits granted to individuals. The period of taxation is a calendar month. The net business income derived by individuals registered as sole proprietorships is also subject to 33% social tax (capped). Sole proprietorships are required to make quarterly advance payments of social tax in fixed amounts, which are credited against the final annual social tax liability.

Payroll Accruals Additional Information

 

 

Employment Accruals

Annual Leave The employee's annual leave entitlement is 28 calendar days. This equals 7.67% (28/365 days) of annual income

Maternity Leave Mothers in Estonia are given 140 days of fully paid pregnancy and maternity leave, which may begin 30-70 days before the expected delivery date.  This equals 38.3% (140/365 days) of annual income

Paternity Leave Fathers in Estonia are given two weeks of paid time off to promote extra bonding with their child. This equals 3.84% (2/52 weeks) of annual income

Sick Leave In case of sickness, the employee can be given up to 182 calendar days of paid sick leave (max 250 days per year).
The gross wage during this period is 70% of his or her last years` average salary.
This equals 70% of 49.8% (182/365 days) of annual income

Overtime The employee and employer may agree that overtime is compensated by 1.5 times of the wages. Depends on the number of overtime hours worked
Severance In cases of termination of the employment contract due to redundancy, the employer must pay compensation in the amount of one month's average wage of the employee calculated on the basis of the previous six months' wage. This equals 8.33% (1/12 months) of annual income
Social Security Social tax is levied on employers at a rate of 33%. The unemployment insurance rates are 0.8% for employers This equals 33.8% of annual income
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Accrued Benefits in Estonia

Christmas Bonus % 0%
Christmas Bonus Over Vacations % 0%
Severance per Year%

Employees are entitled to severance pay that equals one month's pay after one year of service (8.33% of annual salary)

8.33%
Of annual
salary
Vacations %

The employee's annual leave entitlement is 28 calendar days (7.26% of annual salary)

7.26%
Of annual
salary
Notice %

Employees are entitled to 14 days of notice period for one year of service or more (3.84%)

3.84%
Christmas Bonus Over Notifications % 0%
Vacations Plus % 0%

Total percentage of Salary (yearly)

The total employment accruals as a percentage of salary per anum are equal to 19.71%

19.71%

Why use Global Expansion to hire in Estonia

Establishing a branch office or subsidiary in Estonia can be time-consuming, expensive and complex. With such a robust labor market in place, one must pay great attention to detail when structuring employment because Estonia labor laws are complex.

The company also has a responsibility to comply with specific employment practices dictated by Estonia law to maintain its good standing as an equal opportunity employer.

Global Expansion makes it easy for you to expand into Estonia. We'll help you hire your candidate of choice, handle HR matters and payroll, and ensure that you comply with local laws without the burden of setting up a foreign branch office or subsidiary. In addition, you'll have complete control and direction over your employees.

We enable you to stay in control of everything. Our Estonia Global Professional Employer Organization (PEO) and Employer of Record (EOR) solution provides you with peace of mind to focus on running your company and the security to enter new markets.

 

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