As Estonia heads into 2025, significant tax changes are on the horizon that will impact both individuals and businesses. The tax rates for 2025 reflect ongoing efforts to address fiscal challenges. Here’s a clear overview of the key changes based on adopted laws and legislative drafts available to the public. You can also compare the tax rates in table format in our tax rates overview.
Business Tax Rates 2025
Corporate Income Tax
Estonia’s corporate income tax system mirrors the Personal Income Tax rate increase in 2025.
- The lower rate of 14% on regular dividends for corporate shareholders of Estonian companies will be abolished.
- Starting January 1, 2025, all distributed dividends will be subject to the new standard rate of 22%.
While reinvested profits will remain tax-exempt under Estonia’s unique corporate tax model until the potential 2% security tax kicks in, businesses distributing dividends should review their undistributed profits before 31 December 2024 to save 2% on payments to shareholders before the end of the year.
VAT Rates
Value-Added Tax (VAT) will also increase in 2025. You may need to adjust your prices to accommodate the new VAT rates and update accounting systems to reflect these changes.
- The standard VAT rate will increase from 22% to 24% on 1 July 2025.
- On 1 January 2025, a 13% VAT reduced rate will be applied to accommodation services such as hotels, Airbnb, and Booking.com, replacing the current 9% rate.
- The 5% VAT reduced rate for certain media publications will be abolished on 1 January 2025.
Daily Allowances Increase
Daily allowances for business trips abroad and within Estonia will increase to align with rising costs. The maximum compensation for using personal cars for work will be increased significantly.
- The maximum rate for foreign trips will be 75 euros instead of 50 euros. It can be paid for up to 15 days per month. For additional days, the maximum rate will be 40 euros instead of 32 euros.
- The maximum compensation for personal car use will be increased to 50 cents per kilometre but not more than 550 euros per month.
Personal Tax Rates 2025
Personal Income Tax
Starting January 1, 2025, the personal income tax rate will rise from 20% to 22%. This is the first significant increase in Estonia’s flat tax rate in years and aims to strengthen state revenues.
- Impact on Employees and Directors: Salaries, pensions, and other taxable incomes will see a larger tax deduction.
- Implications for Employers: Companies need to adjust payroll systems and inform employees about the changes to net take-home pay.
Minimum Monthly Wage Increase
The minimum monthly wage will rise to EUR 886. This is still less than half of Estonia’s average wage, reaching 1959 euros in the third quarter of 2024.
Changes to Pension Contributions
As of January 1, 2025, the mandatory funded pension contributions (II pillar) rate withheld from wages and director’s fees for enrolled persons can be increased to 4% or 6% of gross salary, up from the current 2% rate. Employers and employees should account for this payroll change if applications to increase contributions were submitted before 30 November 2024. Funded pension contributions are available to residents of Estonia.
Excise Duties on Alcohol, Tobacco, and Fuel
Excise duties will continue their upward trajectory in 2025.
- Alcohol and Tobacco: Higher excise rates will apply, increasing the price of related products.
- Fuel: Excise taxes on diesel, gasoline, and other fuels will rise incrementally to align with environmental goals and reduce emissions.
Motor Vehicle Tax
Starting January 2025, a new motor vehicle tax will be introduced in Estonia. Certain larger vehicles, already subject to other taxes, will be exempt.
The tax consists of two parts:
- A one-time registration fee is payable upon initial registration of the vehicle.
- Annual motor vehicle tax – payable by the vehicle owner by 15 June and 15 December each year.
Calculation of the Annual Motor Vehicle Tax:
The annual tax is determined based on the characteristics of the vehicle and includes the following components:
- Base amount: always €50.
- CO2 emission component: depends on the vehicle’s carbon dioxide emissions.
- Weight-based component: calculated based on the vehicle’s total weight.
This tax applies primarily to internal combustion engine vehicles and encourages owners to choose more environmentally friendly options.
In a Nutshell
For employers, we advise reviewing payroll systems to incorporate the higher income tax rate and funded pension contribution increase. Anyone selling products in the EU may have to adjust pricing and contracts to reflect the 24% VAT on 1 July 2025. Shareholders of companies can consider dividend distribution before corporate tax increases take effect.
How Unicount Can Help
Navigating tax changes can be complex, but Unicount is here to simplify the process for your Estonian businesses. Whether you need support with tax planning, payroll adjustments, or understanding the nuances of Estonia’s 2025 tax updates, our accounting services ensure compliance while helping you stay ahead.
For more details or tailored advice, feel free to contact our team at Unicount—your one-stop shop for company formation and accounting services in Estonia.
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