An overview of upcoming changes
      to tax and other laws that may affect taxation

      •   2024 (retroactively)
      Effective
       1. Changes to the taxation of investment gains and the investment account system enter into force (more below).Adopted
       2025 
        2. Minimum wage – €886
            Monthly social tax – €820
      Adopted, enters into force on 1 January 2025

      3. Income Tax Act

      • The income tax rate will rise from 20% to 22% on 1 January 2025, dividends will be subject to corporate income tax at the rate of 22/78
         
        • A lower tax rate will no longer apply to taxation of so-called regular dividends and the obligation to withhold income tax will also disappear
           
        • The income tax rate on advance payments by credit institutions will increase to 18%
           
      • The tax-exempt income of old-age pensioners will be €776 per month, the tax-exempt minimum for other taxpayers will remain the same
         
      • The daily allowance for business travels abroad, personal car allowance, reception costs and other limits will increase (see below for details)
        Adopted, enters into force on 1 January 2025
      4. Motor vehicle tax and registration fee introduced by amendments to the Road Traffic ActAdopted, enters into force on 1 January 2025
       5. The rate of the second pillar funded pension contribution
       may be 2%, 4% or 6%, depending on the employee’s choice
      Adopted, enters into force on 1 January 2025

      6. Amendments to the Value Added Tax Act (more below):

      • the VAT on press publications will increase from 5% to 9%
         
      • the VAT on accommodation services will increase from 9% to 13%
         
      • a definition of a newbuilding and its input VAT adjustment when taken into use first time will change
         
      • a special scheme for small businesses is established
         
      • the place of supply of virtual events is clarified 
         
      • day and week care service and mental health service will be added to the list of tax-exempt social services
       Adopted, enters into force on 1 January 2025
        7. The Security Tax Act, which includes an increase in the
            standard rate of VAT from 22% to 24%, with a higher rate
            valid from 1 July 2025 to 31 December 2028
       Adopted, enters into force on 1 January 2025

      8. Changes to the Alcohol, Tobacco, Fuel and Electricity
            Excise Duty Act 
      (duty rates continue to increase in the
            following years):

      • excise rates on alcohol and tobacco products will increase by 5%
         
      • excise rates on diesel fuel and fuel oil will increase by ca 7% 
         
      • excise rate on natural gas will increase by ca 4%, but by 18% on natural gas as heating fuel
         
      • excise rate on electricity will increase by 45%
         
      • increase in excise rates on petrol +5%
       Adopted, enters into force on 1 January 2025,1 May 2025 and 1 July 2025

      9. Amendments to the Accounting Act:

      • buyers who are marked in the Commercial Register as e-invoice recipients have the right to demand e-invoices from sellers
         
      • it is presumed that the e-invoice corresponds to the European e-invoicing standard, unless otherwise agreed by the parties
      Adopted, enters into force on 1 July 2025

       10. Rounding of the final price of cash payments

        Mandatory rounding rules for merchants settling cash will be
        applied. The cost of the shopping cart, i.e. not each price
        separately, will be rounded up or down to the nearest five cents
        when payment is made in cash, as follows: 

      • up if the final price of the goods or service ends with three, four, eight or nine cents before the rounding
         
      • down if the final price of the goods or service ends with one, two, six or seven cents before the rounding​​​​​​

        The requirement is laid down in the Introduction of the Euro
        and Settlement of Cash Payments Made in Euros Act

      Adopted, enters into force on 1 January 2025

      11. The maximum fines for misdemeanours applicable under
              the Customs Act will increase:

      • a fine of up to €100,000 will be imposed on a company engaged in international trade in the case of an infringement
         
      • a fine of up to €50,000 will be imposed on a legal person for a misdemeanour
         
      • the penalty rate for a natural person will be raised to 200 fine units
        Adopted, enters into force on 1 January 2025

        12. Simplified Taxation of Business Income Act

      • The base rate of corporate income tax rate for all income (i.e. up to €40,000 per year) is 20%. The tax rate for people who have joined the second pillar funded pension is 22%, 24% or 26% depending on the funded pension contribution rate chosen
      Adopted, enters into force on 1 January 2025
       2026 

      13. The Security Tax includes:

      • a security tax of 2% of the income of natural persons from 1 January 2026. The amounts received in a business account will also be taxed
         
      • A 2% security tax on the profit of resident companies and non-resident companies with a permanent place of business in Estonia
      Adopted, enters into force on 1 January 2026
        14. Benefit for temporary incapacity for work 
      • The Health Insurance Act will set the maximum sickness benefit payable by the Health Insurance Fund. The maximum limit for temporary incapacity for work of one calendar day will be twice the amount of income for one calendar month of the year before the last, i.e. 2024, taxed with the average Estonian social tax, divided by 30.  The Health Insurance Fund will publish the exact amount of the maximum benefit on its website.
       Adopted, will enter into force on 1 January 2026
      • A clarification will be added to the Occupational Health and Safety Act that even if the maximum limit for benefits set by the Health Insurance Act is applied, the employer may compensate for the difference between the benefits paid by the Health Insurance Fund and the average wages.
      Adopted, will enter into force on 1 January 2026
      • According to the Social Tax Act, these payouts are exempt from social tax for the employer, but for normative reasons, a clarification will be added to the Act that, when applying the benefit ceiling established by the Health Insurance Act, self-employed persons may also compensate for the difference between the benefit paid by the Health Insurance Fund and their own average earnings without paying social tax.  However, such a payment will still be subject to income tax.
       Adopted, will enter into force on 1 January 2026
       2027 

      15. Amendment to the Value Added Tax Act

      • Form KMD will change, INF annexes and form VD will disappear
      Adopted

      Tax-free thresholds change

       Current

      Future

      Daily allowancethe maximum tax-exempt limit is €50 euros for the first 15 days of a business trip abroad and 32 euros for each following daythe maximum tax-exempt limit is €75 euros for the first 15 days of a business trip abroad and 40 euros for each following day
      Tax-exempt limit for compensation for the use of a personal carthe tax-exempt limit of the compensation paid to a person is €0.30 per kilometre, but no more than €335 per calendar monththe tax-exempt limit of the compensation paid to a person is €0.50 per kilometre, but no more than €550 per calendar month
      Expenses for meals for a ship crew member and a civil aircraft crew memberthe maximum tax-exempt limit is €10 per daythe maximum tax-exempt limit is €20 per day
      Occupational health expensesexpenses are related to business if they arise from the Occupational Health and Safety Actexpenses which are not explicitly provided for by the Occupational Health and Safety Act, but which are reasonable and necessary in the context, may also be exempt from tax
      Expenses incurred to promote employee health

      the maximum tax-exempt limit is €100 per employee per quarter

      the maximum tax-exempt limit is €400 per employee per year
      Employee accommodation expenses

      it is not deemed to be a fringe benefit if the accommodation expenses per employee are up to €200 per calendar month in Tallinn or Tartu and up to €100 in all other cases

      it is not deemed to be a fringe benefit if the accommodation expenses per employee are up to €500 per calendar month in Tallinn or Tartu and up to €250 in all other cases
      Promotional giftstulumaksuga ei goods or services provided for advertising purposes whose value without VAT is up to €10 are not subject to income tax.goods or services provided for advertising purposes whose value without VAT is up to €21 are not subject to income tax.
      Hospitality expensesthe minimum tax-exempt rate of hospitality expenses is €32 per monththe minimum tax-exempt rate of hospitality expenses is €50 per month
      Gifts made by a person entered in the list of associations with reduced income tax liabilitygifts given to persons participating in permanent youth camps or project camps and in sports events that cost up to €32 per participant are exempt from income taxgifts given to persons participating in permanent youth camps or project camps and in sports events that cost up to €85 per participant are exempt from income tax

      Amendments to the VAT Act

      Amendments to the Value Added Tax Act, some of which will enter into force in 2025 and some in 2027, have been adopted

      Adjustments entering into force in 2025

      • special scheme for small businesses: a voluntary special VAT scheme for small businesses will be introduced, under which registered businesses will be able to benefit from a VAT exempted threshold of other EU countries when operating in other EU countries. The special arrangements can be applied if the turnover of a business per calendar year does not exceed €100,000 in the EU and €40,000 in Estonia, or the respective limit in another Member State. The identifier of the business that applies the special scheme is EX after the VAT payer’s registration number;
         
      • calculation of value added tax on new buildings: the first sale of an immovable is mandatorily subject to VAT also if the thing is sold after it is taken in use and no more than a year has passed since it was first taken in use. The rules for adjustment of input VAT deducted upon the acquisition of fixed assets will also be changed. If the actual use of immovable for VAT taxable supplies when a fixed asset is first taken in use differs from the forecast at the time of construction/acquisition, the input VAT must be adjusted in full according to the first actual use;
         
      • place of supply of virtual events: if the service is provided by way of streaming or virtually in another manner, such a service will be taxed in the country where the recipient of the service lives or is located. Services provided virtually will be taxed according to the rules for taxation of electronic services. 

      Adjustment entering into force in 2027

      the VAT return (form KMD) with its annexes (KMD INF A and B) and the Community turnover report (forms VD/VDP) will be combined in a single return. It is also planned to create the possibility to transmit data directly from the accounts in order to calculate the person’s tax liability. This does not entail the obligation to change the way the VAT return is submitted, but provides more convenient technical solutions. 

      Amendments to taxation of investment gains

      Several rules for the taxation of investment gains will be amended retroactively (from the beginning of 2024). Whilst previously, only losses on the transfer of securities could be deducted from taxable gains, now losses on investments made through crowdfunding platforms (including loans granted) can also be deducted. Losses on the transfer of securities can also be deducted from the gains earned through crowdfunding platforms. When declaring income for 2024, the acquisition cost of securities can be increased by the fee related to the use of a securities account, and the acquisition cost of a loan receivable, a security or a holding acquired through a crowdfunding service provider can be increased by the fee related to the use of a crowdfunding platform. The same principles will also extend to crypto assets in 2025. 

      The regulation of an investment account will also be changed. It will be possible to open an investment account with a payment institution, an e-money institution and an investment firm. It will also be possible to invest in covered bonds through the investment account and to make investments through crowdfunding platforms. From the beginning of 2025, it will be possible to trade in crypto assets using an investment account (except a pension investment account). 

      The details of the amendments can be found here.

      For more information, contact us! 

      Joel Zernask

      Partner, Head of Tax Services

      KPMG Baltics OÜ

      Merike Oja

      Tax Adviser

      KPMG Baltics OÜ

      Einar Rosin

      Tax Adviser

      KPMG Baltics OÜ