Car tax 2025 - what do companies and individuals need to know?

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From From January 1, 2025 A new car tax came into effect in Estonia, bringing significant changes for both companies and individuals. The aim of the tax is to reduce the environmental impact of cars, motivate people and companies to choose less polluting vehicles, and meet the state budget. In this article, we will provide an overview of the main aspects of the car tax and what to keep in mind when introducing it.

Nature and structure of car tax

The car tax consists of two main parts: a one-time registration fee and an annual annual tax. It applies to all vehicles registered in Estonia, with a few exceptions, such as emergency vehicles. The amount of the tax depends on several factors, including the age of the vehicle, CO₂ emissions (or in some cases engine power) and gross vehicle weight.

The tax is charged to the name of the owner or responsible user in the register as of January 1 of each year. Payment must be made twice a year: by June 15 and December 15. The Tax and Customs Board sends tax notices for the current year no later than February 15, which gives owners enough time to plan and pay the tax.

Registration fee as part of car tax

The registration fee is a one-time tax that must be paid upon initial registration of a new or used vehicle in Estonia, as well as upon the first change of ownership after the car tax comes into effect in January 2025. It is important to note that if the vehicle is purchased from a leasing company or inherited, the registration fee does not have to be paid - the fee must be paid only upon the next sale transaction.

For passenger cars, the registration fee consists of a base component, a CO₂ component and a gross vehicle weight component. For fully electric vehicles, there is no CO₂ component. For vans, the registration fee only includes a base component and a CO₂ component. If CO₂ data is not available in the vehicle register, the WLTP reference value is used for the calculation.

The motor vehicle tax rate is multiplied by a coefficient depending on the age of the motor vehicle, which decreases as the age increases and reaches zero for a 20-year-old vehicle.

Annual tax and its calculation

The annual tax is calculated taking into account CO₂ emissions, engine power, gross vehicle weight, and age coefficient.

The age coefficient is also an important element of the annual tax, which reduces the car tax for all vehicles based on engine power and gross vehicle weight. For cars over 20 years old, it reaches 0 euros, which means that only the basic fee will be paid in the future.

Looking ahead, the Ministry of Finance has announced planned price increases in 2028 and 2031. These increases will affect registration fees for both cars and vans. In addition, the share of CO₂ emissions in the registration fee will increase, and the base and mass fraction rates will also increase.

Tax benefits and exemptions

Emergency vehicles, diplomatic vehicles, and vehicles related to certain defense activities are exempt from the annual tax and registration fee.

The car tax liability of the parent with custody of the child or the natural person guardian is reduced by up to 100 euros for each child. If the child has multiple parents, the amount reducing the tax liability is divided equally between the parents.

If a vehicle is sold abroad and deleted from the Estonian traffic register, the taxation period is shortened until the date of the deletion entry.

If a vehicle is stolen, it will be temporarily removed from the register. No annual fee will be charged for vehicles that have been temporarily removed from the register.

The lessee does not have to pay a registration fee when purchasing a vehicle from the leasing company and transferring it to their own name, or when registering an inherited vehicle in their own name.

What do companies and individuals need to consider?

The introduction of a new car tax requires thorough financial planning from both companies and individuals. Companies that use a large fleet of vehicles in their operations must assess the impact of the car tax on their cost structure. Individuals should consider how the new tax will affect their monthly expenses when planning a vehicle purchase.

When choosing a vehicle, it is worth considering investments in electric or hybrid vehicles, as the new tax system favors more environmentally friendly options. Before making a purchase decision, it is wise to analyze the tax rates of different vehicles in order to find the most suitable and cost-effective solution for you.

Accounting and tax advice become particularly important in the context of car tax. Companies should ensure that their accountants are familiar with the car tax law and are prepared to implement the relevant changes. Individuals may find it useful to consult a tax advisor to find the optimal solution for their situation.

Summary

Starting in 2025, the car tax will bring significant changes to Estonian car owners. Both companies and individuals must factor the new tax into their financial and vehicle plans. Timely preparation and thorough analysis help to avoid unexpected costs and make the best choices in the new tax environment.

It is important to remember that the exact car tax rates are set by law and special calculators have been created to calculate them. We recommend using official sources to calculate the exact tax amount to avoid unpleasant surprises.

Exact car tax rates are stipulated by law. Use it calculator to calculate the exact tax amount.

Reference to the Motor Vehicle Tax Act.

Transport Authority vehicle data request.

Want to know more about the impact of car tax on your business or personal finances? Contact Grow Finance experts for a personal consultation!