Taxes in Estonia as of 1.1.2025.
Unlike Lithuania, where the CIT rate increased from 5% to 6% (for small businesses) and from 15% to 16% for others, there are many more changes in Estonia. What exactly has changed there?
Income tax
CIT and PIT rates increased from 20% to 22%;
The 14% CIT rate (+7% PIT if the recipient is a natural person) for regularly paid profits has been abolished;
The CIT payable in advance by credit institutions has been increased from 14% to 18%.
In the automatic account mode (similar principle to our economic activity income account system), the 2nd pillar pension fund rate (2% or 4% or 6% for volunteers) is added to 20% PIT rate. In Estonia this system works for Estonian tax residents - self-employed people with an annual turnover of up to EUR 25k. It cannot be used in sectors that require a license (finance, lawyers, etc.).
VAT
The VAT rate for hotel (including Airbnb, Booking) services has been increased from 9% to 13%. The reduced 5% rate for the media is abolished and 9% rate is applied instead. Thus, in Estonia, reduced VAT rates apply to a very limited range:
9% - for books, media, medicines;
13% - for hotels.
A definition of unused real estate has been introduced. Until now, it became used on the first day of use of the property. The VAT Directive provides that countries may define real estate unused, if it has been used for up to 2 years. In Estonia, this period will now be 1 year.
Car tax introduced
It is payable in 2 parts: both upon car registration and as an annual payment for all cars registered in Estonia. It is determined annually, depending on the weight of the car and the amount of CO2 emissions.
Investments by individuals
The amendments were adopted with the aim of creating equal conditions for all types of investments - investments through an investment account, in the regular mode or through a company. The amendments provide for a broader deduction of costs and losses from investments for the purposes of calculating PIT, both in the investment account and in the regular regime. Some of the amendments are applied retroactively - from 1.1.2024. As of 1.1.2025, the investment account system will also include listed bonds, crowd financing and investments in crypto assets, including eligible costs. You can find out more detailed information about this here. By the way, Lithuania only now has introduced the investment account regime - as of 1.1.25.
2% security tax - from 2026
On December 16, the Parliament adopted the much-discussed draft law, which provides for the introduction of such a tax for both individuals and legal entities, so that Estonia can make increased investments in the national defense. The tax is planned to be in effect until 2028. The tax consists of 3 sections:
from 1.7.2025. VAT rate will increase from 22% to 24%;
from 1.1.2026. PIT rate will increase by another 2% - from 22% to 24%;
from 1.1.2026. CIT rate will increase by another 2%, but from annual profit. For legal entities, this means a return to the 2% 'regular' CIT system, which Latvia had until 2018 - 2% CIT is payable from annual profit, regardless of whether the profit was paid to shareholders. In addition, losses from previous years cannot be carried over to the next years.
Podcast about Estonia
The head of the Estonian tax authorities Raigo Uukkivi also talks about these changes in the Tax Stories podcast. By the way, a large part of the TS podcasts have also migrated to the new Tax Stories YouTube account, so that they are also available in video version.