An Estonian company can put money in a person's pocket without payroll tax in a small number of specific situations. They are genuinely useful and widely misused, and the difference between the two is nearly always paperwork rather than intent.
Personal car used for work
Where an employee or board member uses their own car for the company's business, the company can pay a mileage-based compensation free of tax, up to a monthly cap per person. The rate is per kilometre and the cap applies per employer, per month.
Two conditions carry the exemption, and both are absolute:
- There is a written basis for the payment - a decision or order stating who is compensated and on what terms
- A journey log is kept, recording the date, purpose, route and kilometres for each business trip
Without the log, the payment is not a tax-free compensation. It is salary, taxed as salary, and reassessed as such if the Tax Board looks. The log is the exemption; the payment is just a payment.
Commuting between home and the office is not business travel. This is the single most common error, and it is the first thing checked, because a log showing the same route twice a day every working day describes a commute rather than business use.
Anything above the monthly cap is taxable in the normal way. Paying a flat monthly amount without any log at all is the version that most reliably becomes a reassessment.
A company car is a different regime entirely
If the company owns or leases the car and it is available for private use, none of the above applies. That is a fringe benefit, taxed on the employer under its own rules based on the vehicle's power rating, and it is a materially more expensive arrangement. Do not conflate the two: reimbursing someone's own car is cheap, providing a car is not.
Phone and internet
Where the phone and internet connection are genuinely used for work, the company can cover the cost without it being a taxable benefit. The test is business necessity, not convenience.
How this holds up in practice:
- The cleanest arrangement is a contract in the company's name, paid directly by the company
- Where the contract is personal, reimburse the business-related share rather than the whole bill, and be able to explain how you arrived at that share
- Reimbursing a family mobile plan in full is not defensible, and it is easy for an inspector to spot
- Keep the invoices. A bank transfer with 'phone' in the reference is not documentation
Why these get reassessed
These payments attract attention because they are small, regular and easy to check. The recurring pattern in reassessments is always the same shape: a round monthly amount, paid on the same day each month, with no underlying calculation and no log. That looks like salary with a label on it, and it is treated accordingly.
The fix is unglamorous. A written basis for each type of payment, a log where a log is required, invoices retained, and a share that can be explained. Any competent accountant can set this up once and then it simply runs.
For the one-person company
All of this applies to a sole board member paying themselves, and the scrutiny is if anything higher, because there is no separation between the person deciding and the person benefiting. The documentation requirement does not soften because you are the only employee. If anything, it is the situation where keeping the log matters most.
Frequently asked questions
Can I compensate myself for using my own car in Estonia?
Yes, up to a monthly cap per person, tax free, provided there is a written basis for the payment and a journey log recording date, purpose, route and kilometres for each business trip.
What happens if I do not keep a journey log?
The payment is not a tax-free compensation. It is treated as salary and taxed accordingly, and it will be reassessed on that basis if the Tax Board reviews it.
Does driving between home and the office count?
No. Commuting is not business travel. It is the most common error in mileage claims and the first thing checked.
Can the company pay my phone and internet bill?
Where the connection is genuinely used for work, yes. The cleanest arrangement is a contract in the company's name. If the contract is personal, reimburse only the business-related share and keep the invoices.
Tagscar compensationphone and internet reimbursementfringe benefittax free allowance
General information, not tax advice
This article reflects Estonian law as it stands on the date shown. Rules change and individual circumstances differ - confirm your own position with us before acting.