The Estonian government has drawn up a draft law to make citizens' state pension income exempt from tax, Estonian Public Broadcasting (ERR) has reported.

It is planned for the law to come into effect from January 2023, the country’s Minister of Finance Keit Pentus-Rosimannus (Reform) said. The state pension is currently tax-exempt for payments up to €500 per month, but anything above that is taxed. Under the new law, any state pension income will be tax-exempt, regardless of additional income.

However, by 2023, it is expected that there will be more than 200,000 pensioners receiving a pension of more than €500, with the state pension planned to rise to €622 per month, from just above €500 per month now.

Pentus-Rosimannus said: “In essence, this is the first stage of streamlining the income tax system. The principle that the average old-age pension remains exempt from income tax in Estonia will come into force again and the income tax exemption will no longer decrease as the pension increases or, for example, if a person who has reached retirement age wants to continue working."

The law will apply to those in receipt of the old-age pension, survivor’s pension, national pension, or incapacity pension.

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