The amount of motor vehicle tax depends on the vehicle’s environmental impact

Estonia’s car fleet ranks among the highest in Europe for CO2 emissions and motorisation is on the rise. For this reason, the new tax design prioritises reducing motorisation, increasing sustainable mobility and encouraging people to opt for more environmentally friendly vehicles.

‘The amount of motor vehicle tax depends on the vehicle’s environmental impact. The underlying logic is simple: the greater the environmental impact of a vehicle, the more polluting and heavy it is, the higher its tax,’ explained the Minister of Finance, Mart Võrklaev. He added that this primarily applies to the registration tax, with the growth being more gradual for the annual tax. ‘The purpose of the tax is to direct people to make more sustainable choices when purchasing new vehicles.’

Võrklaev also added that one of the most notable changes compared to the legislative intent is that the registration fee is now due only upon the first registration of the vehicle in Estonia. This will exempt initial sales transactions within Estonia from the tax. 
 
‘Indirectly, this serves as a lever through which the future car fleet of Estonia can be shaped to make it more environmentally friendly. By waiving the registration fee for domestic transactions within Estonia, we hope to motivate people to give up their older and more polluting vehicles. Anyone who wishes to swap their vehicle for a slightly newer and more sustainable one will continue to have the opportunity to do so without the added cost of a registration fee,’ the Minister of Finance explained. ‘In the case of purchase of new vehicles, the registration fee is structured in a way that it increases exponentially once a certain CO2 threshold and mass are reached.’

The renewal of the car fleet is a lengthy process and not everyone will be able to buy a new and more sustainable vehicle immediately. This consideration has primarily been addressed in the design of the annual tax, which is reduced by the age of the vehicle in the case of vehicles used by private individuals. ‘Additionally, this approach allows us to indirectly take into account people’s financial capacity, regardless of whether they live in rural or urban areas. At the same time, there is still a strong environmental element here: it is more economical to own a sustainable older vehicle than a vehicle with high emissions and mass. Therefore, it also offers the option to choose a more sustainable choice among used cars and continue driving them until they reach the end of their useful life,’ the minister stated.

The annual tax for vehicles and vans consists of a base component, supplemented by a CO2 component and a mass component from a certain threshold in the case of passenger cars. However, the mass component does not apply to vans. If the vehicle has no emissions figure, it will be calculated using a substitution formula that includes the base component, engine capacity component, engine power component, and, in the case of heavier vehicles, the mass component. The substitution formula for vans does not include the mass component. For electric vehicles, only the base component applies, while the mass component applies for heavier vehicles.  
 
Motorcycles, ATVs and UTVs are only subject to annual tax. Tax rates are differentiated according to engine size.

The registration fee is calculated based on the same principles, however, it will be collected by the Transport Administration upon the first registration of the motor vehicle in the Estonian traffic register.

The motor vehicle tax will come into effect at the beginning of 2025. The annual vehicle tax must be paid in one instalment, generally by 1 October.

For vehicles with suspended registration, the tax will start to apply a year later, ie in 2026, to allow adequate time for so-called scrap and phantom vehicles to be deleted from the register. The Ministry of Climate will be responsible for developing the necessary solutions for this purpose.