Estonia has long established itself as one of the best business locations in Europe. Thanks to its unique taxation system that does not tax retained earnings, the country attracts IT companies, retailers, and international investors. However, starting from January 1, 2025, Estonian tax legislation has undergone significant changes that will affect companies paying dividends and business processes in general.
Main tax changes in Estonia from 2025
1. Increase in the corporate tax rate on distributed profits
Estonia is gradually increasing the tax burden on companies that pay dividends:
- Till 2025: The tax rate was 20/80 (20% of the dividend amount). For example, when paying out €100,000, shareholders received €80,000, and €20,000 went to taxes.
- From January 1, 2025: The rate increases to 22/78. That is, from the same 100,000 euros, the tax will be 22,000, and the shareholders will receive 78,000.
- From July 1, 2025: A 2% security tax is added, which will increase the total burden to 24% (22/78 + 2%).
- From January 1, 2026: An additional 2% corporate income tax is introduced, which will further complicate calculations.
Tax changes in Estonia 2025 mean that businesses will have to reconsider their dividend policy as the tax burden increases.
2. Abolition of the preferential rate for regular dividends
Estonian companies that regularly paid dividends could previously benefit from the reduced rate of 14/86, which significantly reduced costs.
Starting in 2025, this benefit will disappear - all companies will be subject to a single 22/78 rate with an additional 2%. This may be a blow to companies that are accustomed to stable payments to shareholders.
3. Changes in VAT
Estonia is also updating its VAT rules, which will affect pricing and accounting:
- Increase in the basic VAT rate: Starting July 1, 2025, the standard rate will increase from 22% to 24% and will be effective until the end of 2028.
- Shortened transition period: Contracts concluded before May 1, 2023 with a flat rate of 20% will be able to apply it only until June 30, 2025.
Changes in rates for certain services:
- Hotel and bed and breakfast services - from 9% to 13% (from January 1, 2025).
- Press and printed publications - from 5% to 9% (from January 1, 2025).
For businesses operating in the hospitality or media sector the tax changes in Estonia 2025 mean that prices and contracts need to be reviewed.
4. Transitional rules for the cash method of VAT
Companies using the cash method of VAT accounting will have certain relief until December 31, 2026:
- Invoices for hotel services issued before January 1, 2025, but provided later, may retain the 9% rate.
- Printed publications or electronic publications delivered before January 1, 2025 will be taxed at a rate of 5%.
This allows you to plan your operations in advance and save on taxes during the transition period.
5. Special regime for small businesses
Tax changes in Estonia 2025 introduce new opportunities for small businesses:
- Companies will be able to register as VAT payers in any EU country on equal terms with local entities.
- The threshold for mandatory VAT registration has been updated to include zero-rated transactions, real estate transactions (except for one-offs) and income from financial and insurance services.
6. Real estate taxes
- Definition of "new building": A building will be considered new if it is sold for the first time within a year after commissioning or reuse.
- Adjustments to input VAT: The amendments provide for a full transfer of tax depending on the actual use of the object in taxable transactions.
7. New reporting starting from 2027
Starting from 2027, companies will submit VAT data in XBRL_GL format through the X-tee system. This will simplify cross-border accounting and control, but will require the adaptation of accounting systems.
Why does company registration in Estonia remain attractive for business?
Despite the Estonian 2025 tax changes and tax increases, Estonia retains its strengths:
- Companies can reinvest their income at no additional cost, which is ideal for startups and growing businesses.
- Automated tax administration system saves time and resources.
- Double taxation treaties make the country favorable for global companies.
How to adapt to changes: recommendations from Maira Consult
- Reinvest profits: Avoid paying dividends to avoid paying taxes and direct funds to the company's development.
- Optimize the ownership structure: International agreements can help reduce the tax burden on foreign income: Calculate payments before the rate hike to save money.
- Call on the experts: Professional legal and tax advice will help you adapt your business to the new realities.
- Register another company: Consider setting up a subsidiary in a lower tax jurisdiction to diversify your risk exposure: If the tax burden in Estonia becomes critical, consider relocating your business to a country with more favorable conditions, such as England or Romania, by contacting Maira Consult for support.
The 2025 tax changes in Estonia, including an increase in the corporate tax rate to 22% and the abolition of regular dividend exemptions, create new challenges for businesses. However, thanks to its flexible tax system and digital advantages, the country remains attractive to entrepreneurs. To successfully adapt, contact Maira Consult - we will help your company optimize costs and remain competitive in the new environment.
Maira Consult is your reliable partner in the world of international business and tax planning!
