Estonia's tax revisions 2024-25: A comprehensive overview of changes
Estonia’s tax landscape is poised for significant transformation in the years 2024 and 2025. The Estonian Parliament has ratified amendments to tax laws that will impact a spectrum of areas, from value-added tax (VAT) to corporate and personal income tax, excise duties, and gambling. This article examines the key modifications, their implications, and some pending proposals.
VAT Rate Increase on January, 1
The standard VAT rate is slated to rise from the current 20% to 22% on January 1, 2024. Further, the reduced VAT rates applicable to accommodation services and press publications will witness an increase starting January 1, 2025. The government's key objective behind these changes is to balance the state budget by augmenting tax revenue collection.
Until December 31, 2025, provided that the goods or services supplied are subject to a standard VAT rate, the user of cash accounting for VAT may pay VAT at the rate of 20% on the supply of the goods or services generated after December 31, 2023, if an invoice was issued to the purchaser and the goods were dispatched or made available or the service was supplied before January 1, 2024.
The second transitional provision concerns transactions relating to long-term contracts, in particular transactions relating to immovables. If a taxable person signed a written contract before May 1, 2023, they can use the 20% VAT rate for goods or services supplied until December 31, 2023. This is as long as the contract says that the price of the goods or services includes VAT at a rate of 20% or that VAT at a rate of 20% is added to the price, and the contract does not say that the price will change because of a possible change in VAT rates.
Accommodation Services and Press Publications
Starting in January 2025, the reduced VAT rate of 9% will no longer apply to accommodation services. VAT on accommodation services will be calculated using a new reduced rate of 13%. From January 1, 2025, the current reduced VAT rate of 5% applicable to press publications will increase to 9%.
Corporate Income Tax: Significant Overhauls
Starting 2025, Estonia will abolish the preferential tax rate of 14% on regularly paid dividends. This move might impact the existing dividend policies of companies adversely. The lower income tax rate of 14% applicable to regularly distributed profits of companies and nonresidents' permanent establishments will no longer apply.
Income Tax Changes
Income tax for both corporations and individuals will increase from 20% to 22% in 2025. The currently available preferential corporate income tax rate of 14% on regularly distributed profits and the related 7% withholding tax on dividends paid to natural persons will be abolished in 2025.
A Uniform Basic Tax Exemption
From January 1, 2024, a uniform basic tax exemption of €8,400 will apply to all natural persons, replacing the present tax exemption, which is dependent on the amount of annual income. Concurrently, certain tax exemptions and deductions, like the deduction for housing loan interest, will be abolished.
Increase in Excise Duties on Alcohol and Tobacco Products
The excise duty on alcohol, which was last raised in 2018, will increase by 5% annually in 2024—2026. The excise duty on cigarettes and smoking tobacco, which has been raised by 5% per year in recent years, will also increase by the same amount in 2024—2026.
Increase in Gambling Taxes
According to the amendment, the current tax rate of 5% on online betting and lotteries will increase to 6% in 2024 and to 7% in 2026. The tax rate on lotteries and commercial lotteries will increase from 18% to 22% in 2024.
These are all changes for now. Delegate accounting and tax-related questions of your company to Enty and feel free to contact our team to help with your case.
