Tax on rental income in Estonia

What rental income is taxable?

The taxable income of a resident natural person includes, among other things, rental income and royalties (TuMS § 12 lg 1 p 4) [1]. Rental income means rent, lease payments, fees for creating a right of superficies and for tolerating a real encumbrance, and other fees received for tolerating a restriction on the use of property arising from law or a transaction (TuMS § 16 lg 1) [2].

Rental income does not include bearing ancillary costs and encumbrances on behalf of the recipient of the rental income, or reimbursing them to the recipient (TuMS § 16 lg 1) [2]. Under the Law of Obligations Act (võlaõigusseadus, VÕS), ancillary costs (kõrvalkulud) are fees for services and acts of the landlord or a third party that relate to the use of the property and are not connected with improving the subject of the contract or eliminating its defects (VÕS § 292 lg 1) [7]. So if the tenant pays these costs or reimburses them to you, that is not your rental income.

The income tax rate is 22% (TuMS § 4 lg 1) [3]. A basic exemption of 8400 euros is deducted from a resident natural person's income for the taxation period; it does not apply from the taxation period in which the person reaches old-age pension age (TuMS § 23 lg 1) [8]. The basic exemption at old-age pension age is laid down in a separate provision (TuMS § 23⁵) [9].

What expenses can be deducted from rental income?

For letting a dwelling, the Act provides a fixed deduction: from rent received under a residential lease within the meaning of the Law of Obligations Act, 20% is deducted in the tax return to cover the costs of letting (TuMS § 39¹) [4]. The provision does not link this percentage to the amount of your actual costs. Under VÕS, a dwelling is a residential building or apartment that can be used for permanent living (VÕS § 272 lg 1) [10].

Business is treated differently. Business income may also include rental income (TuMS § 14 lg 4) [11]. A sole proprietor (FIE) entered in the commercial register may make the deductions the Act allows from their business income (TuMS § 14 lg 5) [11], including all documented business-related expenses incurred during the taxation period (TuMS § 32 lg 1) [12]. If an expense is only partly business-related, it may be deducted only to that extent (TuMS § 32 lg 3) [12].

How and when do I declare rental income?

The taxation period for a natural person's income tax is the calendar year (TuMS § 3 lg 1) [13]. The tax return must be filed with the Tax and Customs Board (Maksu- ja Tolliamet) by 30 April of the year following the taxation period at the latest; through the e-service it can be filed from 15 February of the following year (TuMS § 44 lg 1) [5].

The Tax and Customs Board pre-fills the tax return with the data it holds, but the taxpayer must check that the data are correct and, if they are wrong or incomplete, file a corrected and supplemented return (TuMS § 44 lg 1¹) [5]. A resident natural person who owns an apartment ownership or immovable property in Estonia, or is a member of a building association (hooneühistu), confirms in the tax return whether or not they received rental income (TuMS § 44 lg 1⁴) [5].

Any additional tax must be paid by 1 October of the calendar year following the taxation period at the latest (TuMS § 46 lg 3) [6].

If your rent is paid by a withholding agent, for example a resident legal person or a sole proprietor (TuMS § 40 lg 1) [14], income tax is withheld from rental income paid to a resident natural person (TuMS § 41 p 7) [15] at the 22% rate (TuMS § 43 lg 1 p 1; TuMS § 4 lg 1) [16] [3]. Tax withheld is deducted from the total income tax for the taxation period (TuMS § 46 lg 2) [6], and any overpaid tax is refunded (TuMS § 46 lg 6) [6].

How is short-term accommodation taxed?

Under the Tourism Act (turismiseadus, TurS), an accommodation service is the offering of a temporary place to stay overnight: „Majutusteenus on ajutise ööbimisvõimaluse pakkumine.“ (TurS § 17 lg 2) [17]. Accommodation for which a residential lease is concluded is not considered an accommodation service (TurS § 17 lg 3 p 2) [17]. The types of accommodation establishment include the guest apartment (külaliskorter), where an apartment is given as a whole to the guest, and home accommodation (kodumajutus) (TurS § 18 lg 8 and 9) [18].

The distinction matters because the 20% deduction is tied to a residential lease within the meaning of the Law of Obligations Act (TuMS § 39¹) [4]. The VÕS provisions on leasing dwellings and commercial premises do not apply to leases of premises of an accommodation establishment and of premises intended for holidays for a term of up to three months, or to leases of other premises concluded for temporary use (VÕS § 272 lg 4 p 1) [10].

Business is a person's independent economic or professional activity aimed at earning income, including from providing services (TuMS § 14 lg 2) [11]. Business income is subject to income tax (TuMS § 14 lg 1) [11]. If offering accommodation meets the definition of business, the income received is business income (TuMS § 14 lg 1 and 2) [11]. Business-related expenses can be deducted from business income by a sole proprietor entered in the commercial register or in the register of another EEA state (TuMS § 14 lg 5; TuMS § 32 lg 1) [11] [12]. The provider of an accommodation service ensures that guests are registered, as a rule on the basis of a travel document or identity card, before the accommodation service begins (TurS § 24 lg 1) [19].

What the law says

• „Tulumaksuga maksustatakse üür, rent, tasu hoonestusõiguse seadmise ja reaalkoormatise talumise eest“ (TuMS § 16 lg 1) [2] – rent is taxable income.
• „Võlaõigusseaduse tähenduses eluruumi üürilepingu alusel saadud üürist (§ 16 lõige 1) arvatakse tuludeklaratsioonis üürimisega seotud kulude katteks maha 20%.“ (TuMS § 39¹) [4] – the deduction is made in the tax return.
• „Tulumaksu määr, välja arvatud lõigetes 2 ja 5 ning § 43 lõikes 4 nimetatud juhtudel, on 22%.“ (TuMS § 4 lg 1) [3] – the general rate applies to rental income.
• „Majutusteenus on ajutise ööbimisvõimaluse pakkumine.“ (TurS § 17 lg 2) [17] – accommodation for which a residential lease is concluded is not an accommodation service (TurS § 17 lg 3 p 2) [17].

What to do

1. Keep a record of the rent received during the calendar year (TuMS § 3 lg 1) [13] and separate from it the reimbursements of ancillary costs and encumbrances, which are not rental income (TuMS § 16 lg 1) [2].
2. Check whether your contract is a residential lease; if so, 20% of the rent is deducted in the tax return (TuMS § 39¹; VÕS § 272 lg 1) [4] [10].
3. Open the pre-filled tax return (from 15 February), check the data and add any missing rental income (TuMS § 44 lg 1 and 1¹) [5]. Confirm whether or not you received rental income (TuMS § 44 lg 1⁴) [5].
4. File the return by 30 April and pay any additional tax by 1 October at the latest (TuMS § 44 lg 1; TuMS § 46 lg 3) [5] [6].
5. If you offer short-term accommodation as a business, take into account the rules on business income (TuMS § 14 lg 2 and 5) [11] and the duty to register guests (TurS § 24 lg 1) [19].

Frequently asked questions

What if the payer of the rent has already withheld tax?

Tax withheld is deducted from the total income tax for the taxation period (TuMS § 46 lg 2) [6]. For rent from a dwelling, 20% is deducted in the tax return (TuMS § 39¹) [4]; overpaid tax is refunded (TuMS § 46 lg 6) [6].

Are the utility bills paid by the tenant my income?

Rental income does not include bearing ancillary costs within the meaning of § 292 of the Law of Obligations Act on behalf of the recipient of the rental income, or reimbursing them to the recipient (TuMS § 16 lg 1) [2].

Can I deduct repair or loan costs?

From rent for a dwelling, 20% is deducted to cover the costs of letting (TuMS § 39¹) [4]. Documented business-related expenses can be deducted by a sole proprietor entered in the commercial register (TuMS § 14 lg 5; TuMS § 32 lg 1) [11] [12].

Do I have to pay VAT on rent?

Letting immovable property or part of it is exempt from VAT, but the exemption does not apply to the provision of accommodation services (KMS § 16 lg 2 p 2) [20]. The obligation to register as a VAT payer arises when a person's turnover for the calendar year with its place of supply in Estonia exceeds 40 000 euros from the start of the year; it does not arise if the entire turnover consists of exempt turnover and turnover taxed at the zero rate (KMS § 19 lg 1) [21].

I live abroad but let an apartment in Estonia. Do I pay income tax in Estonia?

A non-resident's rental income is taxed if it is received from property that is entered or must be entered in an Estonian register (TuMS § 29 lg 6 p 2) [22]. Income tax is withheld from rental income paid to a non-resident (TuMS § 41 p 7) [15], and it is the final tax on that income from an Estonian source, unless the income was received through a permanent establishment in Estonia (TuMS § 43 lg 4) [16]. A non-resident files a tax return only for income from which income tax has not been withheld (TuMS § 44 lg 1) [5].