The Estonian government recently approved a new security tax
The Estonian government has approved amendments to the new security tax: from 2025, corporate profits and citizens’ income will not be taxed from the first euro.
In the long term, to finance defense in line with the new security tax. The income tax and VAT rate will be set at 24% with no time limit. The changes are related to the new security tax.
Finance Minister Jurgen Ligi approved the changes aimed at reducing the tax burden on businesses and the population. He also aimed at restoring the logic of the tax system. He noted that the current geopolitical situation makes it impossible to maintain the temporary nature of the defense tax, as previously planned. Thus, a new security tax has become a necessity.
A transparent and convenient system of profit taxation is being returned. Under the new security tax system, companies pay tax only on distributed (paid) profits. This decision, according to the government, will stimulate business activity and support economic development. Importantly, this is in the context of the new security tax.
For individuals, it is especially important that income tax related to the new security tax will only be applied after deducting the non-taxable minimum. This is significantly more advantageous than the current system. Under the current system, 2% tax was charged on the first euro.
From 2026, the income tax rate will increase to 24%. The tax rate on the entrepreneurial account will rise to 22% next year. For those participating in the second level of the pension system, the tax rate will be 24%, 26% or 28%. The rate will depend on the chosen method of savings.
Also, from July 1 of this year, the VAT rate of 24% will come into effect. This decision is enshrined in legislation related to the security tax. The only change concerns the abolition of temporary restrictions on tax payments.
According to the authorities, the proposed measures will increase the predictability of tax policy. Predictability is especially important for investors and long-term budget planning in light of the security tax modifications. This creates a more stable environment for both entrepreneurs and ordinary citizens. It allows them to make financial decisions with greater confidence.
Source: Estonian Ministry of Finance
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