Estonia's car tax to hit larger vehicles harder than initially planned

Traffic on Laagna tee in Tallinn's Lasnamäe District.
Traffic on Laagna tee in Tallinn's Lasnamäe District. Source: Ken Mürk/ERR

The Ministry of Finance on Monday pulled the cover from draft legislation to introduce a vehicle tax in Estonia, the CO2 emissions component in which is greater than what was initially planned. Owners of heavier and more polluting vehicles will have to pay more.

Minister of Finance Mart Võrklaev (Reform) said that the new tax is aimed at reducing environmental impact and motorization.

The tax favors using existing vehicles for longer in that older vehicles will be subject to a lower tax.

Tax collection would start in 2025, and Estonia wants to generate €230 million in tax revenue during its first full year.

The annual component of the tax is due by October 1, paid either by the owner or lessee of the vehicle, with the Tax and Customs Board in charge of monitoring receipt.

Võrklaev said the government wants to slow down the trend of motorization by 1-3 percent compared to the 2021 level.

Registration fee

While the initial version of the bill prescribed a fee for every time a vehicle changes hands, the latest version of the bill provides that the registration fee is due only when a new or used vehicle is first registered in Estonia.

The registration fee is made up of three components where a base amount of €300 is complemented by a CO2 component and a gross vehicle weight component, starting from 2,000 kilograms for ICE cars and 2,400 kilograms for electric vehicles. The registration fee of a full electric vehicle consists only of the base component and the weight component.

While vehicles owned by private individuals will become cheaper to register the older they are, there is no such exception for company cars.

Võrklaev said that the vehicle age factor will be introduced because not everyone can afford to buy a new and more economical car right away.

The registration fee will start to fall for cars older than five years, reaching 10 percent of the price of registering a new car for vehicles 14 years old and dropping to zero for 20-year-old and older vehicles. The age coefficient does not affect the base component of the tax.

The registration fee of commercial vans is two-part, consisting of a €500 base component and the CO2 component. The latter is €30/g for vehicles emitting 205-250 g/km, €35/g for emissions of 251-300 g/km and €40/g for emissions of over 300 g/km of CO2.

If the vehicle does not have an official CO2 emissions figure, the fee will depend on the base component, engine displacement and power.

The base component of registering a fully electric van is €300. The registration fee of vans does not depend on the age of the vehicle.

Annual tax

A vehicle's annual tax will also consist of a base component, CO2 component and gross weight component. The base component grew from €30 in the initial version of the bill to €50 in the current version.

If a vehicle does not have an official CO2 emissions figure, every cubic centimeter of engine displacement is multiplied by €0.05 and every kilowatt of power by €0.80 to which the base component will be added.

The annual tax of full EVs will only consider the base and weight components.

The same vehicle age coefficient will be applied to the annual tax of privately owned vehicles.

The annual tax of vans does not consider vehicle weight as it correlates with the CO2 emissions component, the minister suggested.

Tax breaks and exceptions

Rescue vehicles, ambulances, police cars and other alarm vehicles are exempt from the car tax. This does not apply to the official cars of ministers and officials.

Cars specifically modified to carry people with disabilities will also be exempt, while persons with disabilities will not get a general tax break. Võrklaev said that there are many different types of disabilities, and that the ministry will consider whether additional exceptions are needed before the law enters into force.

The minister also said that the Ministry of Climate is working on a solution for the problem of so-called phantom cars (vehicles that are registered but no longer participate in traffic and may not even exist – ed.).

Võrklaev said that while owners of such vehicles will be given a grace period until 2026, it falls to them to prove that the vehicle no longer exists. "They must at the very least try to prove it. The goal is to collect all the wrecks and dispose of them in accordance with the law," the finance minister said, adding that the goal is definitely not to tax people for something they don't have.

While there is no exception for classic cars, Võrklaev said that owners of vehicles over the age of 20 will have to pay the €50 base component, which he believes collectors should be able to afford.

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Editor: Barbara Oja, Marcus Turovski

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