Good to know
- From a person's taxable income, first the basic exemption, the increased basic exemption for a parent and, under § 28² of the Income Tax Act, up to 1,200 euros in expenses (housing loan interest, education expenses, gifts and donations) are deducted, and then the contributions to the third pension pillar are deducted. Since the tax exemption for third pension pillar contributions is obtained through a refund of income tax, it should be taken into account when making the contributions whether there is any income tax to be refunded after all the deductions. If the income tax paid is already refunded by means of other deductions, the third pillar contributions remain taxable.
- The deductibility of contributions to the III pension pillar is not subject to the limit of 1,200 euros set out in § 28² of the Income Tax Act.
- Table 9.2 of the natural person’s income tax return is pre-filled with information on the contributions made to III pension pillar. The pre-filled data comes from AS Pensionikeskus, which forwards the data to the Tax and Customs Board according to the acquisition of pension fund units. Therefore, when making contributions to the III pillar on the last days of the year (e.g. 30 or 31 December), it should be noted that the transfer may not reach AS Pensionikeskus or AS Pensionikeskus may not be able to purchase fund units with the money received by the end of the year. If fund units are not purchased in the last days of the year, the amount will not be included in the deductions in table 9.2 of the pre-filled income tax return.
In such situation, a person has the right to manually add to the income tax return the amount that was transferred to the account of AS Pensionikeskus in the last days of the year. If necessary, the person must be prepared to prove the correctness of the amount to the Tax and Customs Board. In addition, the person must remember that next year the pre-filled income tax return must be reduced by the same amount in order to avoid double deduction of the amount of the III pillar in the income tax return.
Legal basis
§ 28 of the Income Tax Act
Insurance premiums and acquisition of pension fund units
Personal taxable income, from which 15% is deducted
- income from employment earned in Estonia (remuneration paid under employment contracts and in the public service, remuneration paid for services provided under a contract governed by public law and remuneration paid to a member of a management or supervisory body)
- parental benefit
- unemployment insurance benefit and sickness benefit
- income from employment earned abroad on which foreign income tax is allowed to be deducted from Estonian income tax (setting-off method, table 8.1 of a personal income tax return)
- business income
- gain on asset disposal
- income from rent and licence fees
- interests
- dividends on which income tax of 7% has been withheld
- taxable pensions (including disbursements from the II and III pillar subject to withholding tax of 20% or 10%), scholarships, grants, bonuses
In the deduction of contributions to the III pillar the following is not considered as taxable income of the individual and is not included in the 15% deduction
- business income taxed under the Simplified Business Income Taxation Act
- income from employment received from abroad and dividends that are tax exempt in Estonia (exemption method, table 8.8 of a personal income tax return)
Last updated: 13.02.2023