An overview of the adopted tax changes:
Starting from 1 July 2025, the standard VAT rate is 24 per cent. This means that all the VAT-included services you buy in Estonia will be 2% more expensive unless you can deduct outgoing VAT. This is possible when your company has an Estonian or EU VAT number.
Starting from 1 January 2025, the Estonian income tax is 22 per cent. This means that all the income you earn from employment or dividends will be 2% more expensive.
Starting 1 January 2025, the basic income tax exemption in Estonia remains capped at €654 per month (or €7,848 annually) for those who are not of pensionable age, and it is gradually reduced to zero once annual income exceeds €25,200. Residents of pensionable age, or those reaching it during the year, receive a fixed exemption of €776 per month (€9,312 annually), regardless of income level.
14% reduced income tax rate on “regular” dividends paid to legal person shareholders was stoped on January 1, 2025.
Estonian VAT standard rate history
The Estonian standard VAT rate was last changed in the 2009 economic crisis turmoil. It used to be 18% until 2009. The current standard VAT rate of 24 per cent in Estonia is at the higher end of the average rates in the European Union.
Four other countries have the same VAT rate as Estonia – Bulgaria, Slovakia, Austria and France. Five EU countries have lower VAT rates than Estonia – Germany (19%), Cyprus (19%), Romania (19%), Malta (18%) and Luxembourg (17%).
Estonian income tax rate history
The Estonian income tax rate was last changed in 2015 when it was dropped by the Reform Party-led coalition government by 1%. It used to be 21% until 2015. Before that, it was even higher until 2008 when it was reduced to 21% from 22%. Historically, it was 26% in the nineties without the possibility to avoid paying tax on reinvested or retained profits, an innovation that got rolled out in 2000.
As a fun fact, the same Reform Party promised to reduce income tax to as low as 12% by 2015 in the 2007 economic boom era elections. This was stopped by the 2009 economic crisis at the then-standing 21% level. There was a half-hearted attempt to reduce the 33% social tax on employment income by half a per cent in 2017. This was unwinded before coming to force. To conclude, Reform Party-led governments traditionally have not aimed at increasing income tax and this was a surprise to the public. No word of it got mentioned before the elections.
Estonian income tax applies similarly to both personal incomes such as employment or capital gains when investing, and to dividends paid to shareholders by Estonian companies. Estonia still has no annual corporate income tax, a rare exception in the EU.
As of this year, 2025, Estonian income tax is 22 %,
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