The standard value added tax rate increases

      The standard value added tax rate increases

      The Estonian standard value added tax rate increases to 24% on 1 July 2025. The fall of value added tax rate back to 22% in January 2029 was repealed by Act Amending the Simplified Business Income Taxation Act and the Income Tax and Repealing the Security Tax Act.

      As of 1 July 2025, the right to apply the 20% tax rate established by subsections 46 (24) and (25) of the Value-Added Tax Act will be repealed.

      Examples of taxation related to changes in the VAT rate can be found on the website of the Tax and Customs Board here (available in Estonian).

      More information on adopted Act Amending the Simplified Business Income Taxation Act and the Income Tax and Repealing the Security Tax Act is available here  (available in Estonian).

      Changes in the payment of the unemployment allowance and amendments to the Unemployment Insurance Act 

      On 14 May, the Riigikogu adopted a draft act amending the Unemployment Insurance Act, under which the payment of the unemployment allowance will be discontinued from 2026 and replaced by two sub-categories of the unemployment insurance benefit. The current term unemployment insurance benefit will be renamed income-based unemployment insurance benefit, and a new sub-category called unemployment insurance benefit at the basic rate will be introduced.

      According to the amendments, the unemployment insurance benefit at the basic rate will be paid to persons registered as unemployed who have worked for at least eight months during the 36 months preceding their registration as unemployed. Instead of the current unemployment allowance, which is paid for up to 270 days, the unemployment insurance benefit at the basic rate will be paid for up to 180 days. In the event of a high unemployment rate, this period will be extended by 60 days, i.e. up to 240 days. The basic rate is calculated as 50% of the minimum wage rate for the previous calendar year (the minimum wage rate for 2025 is 886 euros) and applies uniformly to all. 

      The unemployment insurance benefit, which depends on previous income, will continue to be paid to persons who have not left their job on their own initiative, i.e. by agreement with their employer or as a result of their own wrongful conduct. Both the amount of the benefit and the unemployment insurance period requirement will remain the same as in 2024. In the case of voluntary unemployment (where the employment contract has been terminated by agreement between the parties), the unemployment insurance benefit will be paid at the basic rate in the future.

      Persons who do not meet the insurance period requirements (e.g. those on long-term parental leave) will no longer receive the unemployment allowance but will be eligible to apply for a subsistence allowance from the local authority. In exceptional cases, a subsistence allowance may also be granted to pupils and students up to the age of 24 if their relationship with their family has been severed or if parents are unable to support their children.

      The amendments to the Unemployment Insurance Act will enter into force on 1 January 2026.


      Court decision on the partial annulment of an Estonian Tax and Customs Board tax assessment

      The Tallinn Administrative Court and the Tallinn Circuit Court recently partially annulled tax assessments issued by the Estonian Tax and Customs Board (MTA), which had increased the tax liability of two natural persons by the amount of income tax on the capital gains they received from the transfer of a registered immovable. 

      In 2010, these two individuals acquired an immovable property with buildings as joint owners for a purchase price of 3,400,000 kroons (217,299.60 euros). In 2015, they transferred a 50% notional share in the property for 108,650 euros to a company in which they were shareholders and board members. The company failed to pay the purchase price to the sellers by the due date. In 2018, the entire property was transferred to another company for 480,000 euros. Of this amount, that company transferred 54,325 euros to the bank accounts of each of the natural persons, and 371,350 euros to the bank account of the company in their ownership. In 2018 and 2019, the company transferred most of the latter amount to one of the original sellers of the registered immovable.

      The MTA found that the purpose of transferring the notional share of the immovable property to the company was to avoid personal income tax liability. The MTA considered this to be confirmed by several factors, including the company’s lack of funds to purchase the share and the fact that the property was sold to the company five years after its acquisition for the price that was equivalent to its acquisition price.

      The Tallinn Administrative Court found that the MTA had not sufficiently substantiated its conclusion that the sale of the share in the immovable property was a sham transaction aimed at obtaining an impermissible tax advantage. In the Court’s view, where a natural person transfers his/her immovable property to a legal person at the acquisition price and the legal person subsequently transfers the same immovable at a higher price, no tax liability arises for the natural person. However, the difference between the acquisition price and the sale price constitutes a profit for the legal person, which becomes subject to income tax upon distribution of the company’s profits. Moreover, the income tax rate applicable to distributed profits at the level of a legal person is higher than the rate applied to capital gains from the transfer of assets by a natural person. Therefore, it cannot be unequivocally concluded that the transfer of an immovable property by a natural person to a legal person at its acquisition price, followed by the resale of the same property by the legal person at a higher price, would result in a tax advantage from the perspective of the state budget. The Administrative Court also noted that the act of a natural person selling his/her immovable property below its market value cannot, in itself, be prohibited or give rise to a tax liability. 

      The Tallinn Circuit Court concurred with the Administrative Court’s conclusions that the prerequisites for applying section 84 of the Taxation Act had not been met and that the MTA had unjustifiably attributed income to the complainants which they had not, in economic terms, actually received.

      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

      Mikk Tereping

      Tax Advisor, Mergers and Acquisitions, Tax Structuring

      KPMG Baltics OÜ