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Overview: Taxes will rise and family benefits fall from next year

Shopping carts.
Shopping carts. Source: Ken Mürk/ERR

VAT, excise duties and land tax will all go up next year, while family benefits will head down. But the minimum salary will grow as will pensions in the wake of a bigger basic exemption.

VAT to climb to 22 percent

Estonia's VAT rate will grow from 20 percent to 22 percent from January 1. This will lead to an average mechanical price hike of 1.67 percent for most goods and services in Estonia and could add 1.4 percent to inflation, according to the Ministry of Finance.

Excise duty hikes

The duties on alcohol and tobacco will grow by 5 percent, while various gambling tax rates will also change. A liter of strong alcohol will cost traders an extra 38 cents, while the excise duty on a €5 pack of cigarettes will grow by 8 cents.

From May 1, the duty on motor fuels will grow by 7 percent, that on natural gas by 20 percent and that on electricity by 45 percent. Motor fuels are forecast to become 3 cents per liter more expensive from May. The duties will continue to go up in the coming years.

Family benefits will fall

Child benefits for larger families will also shrink from 2024. Families with at least three children will receive €450 a month instead of the current sum of €650, while those with seven or more kids will receive €650 instead of the current €850.

While the large family benefit fell gradually to 2/3 and then 1/3 of the sum upon children reaching adulthood until recently, starting from next year, the benefit will now disappear as soon as the first child turns 19.

The benefits reduction does not concern the single parent's benefit or the first and second child benefit, which will remain at €80 per month. The individual child benefit starting from the third child will remain at €100.

Deductions

Starting from 2024, natural persons cannot deduct from taxable income additional exemptions for their children or spouse. Home loan interest will also become non-deductible.

The deductions can still be made in the 2023 income tax return, which needs to be filed in February-May 2024 but no longer for 2024 in February-May 2025.

Training expenses and donations can still be deducted for up to €1,200 or half of all taxable income. Payments into the third pension pillar can be deducted for up to 15 percent of all taxable income or a maximum of €6,000 per year.

Land tax to rise

The land tax rate will also rise. The Tax and Customs Board will send tax notices to land owners or users by February 15.

A recent round of land evaluation hiked the value of taxable land by 8.3 times compared to the previous evaluation, while transitional provisions mean the tax rate can be hiked by no more than 10 percent of €5 in one go. But the hike will be recurring in the coming years.

People living in buildings that also house a business on the first floor will get a tax exemption.

2025 hikes

The Riigikogu has also passed legislation that will see the income tax rate hiked to 22 percent (from the current 20 percent) for natural persons and companies, while the rate of banks' advance payments will grow from 14 percent to 18 percent.

The basic exemption will grow to €700 per month or €8,400 annually and apply to everyone, canceling Estonia's current gradual basic exemption reduction scheme or the so-called tax hump.

The special VAT rate of accommodation providers will grow from 9 percent to 13 percent.

The parliament has not yet passed legislation to introduce a car tax in Estonia, while the plan still stands. Minister of Finance Mart Võrklaev has said that no further tax hikes will be sought in the coming years.

Pensions to rise

Pensions will grow by an estimated 11 percent on average from 2024, which the Finance Ministry's calculations suggest could put average old age pension at €776 per month or €9,312 per year. With the growth of indexed pensions, the basic exemption of retirement-age people will grow to €776 per month.

Minimum wage to grow

The minimum wage will be €820 a month, with the hourly rate growing to €4.86 from next year.

An agreement between the Economy Ministry, unions and employers from May of this year should see the minimum wage climb to half of average wage by 2027. The precise minimum salary is agreed in the fall of each year.

Top-ranking public servants' wage growth to slow

The salaries of top-ranking officials will grow at a slower pace over the next four years. Wages, set to go up 11 percent because of indexation next year will grow by 5.5 percent instead. But public servants missing out over the next four years are set to be compensated for lost income in 2028. The slowdown concerns the wages of ministers, judges, prosecutors etc.

End of free county public transport

Free taxpayer-funded county public transport will end next year, meaning passengers will need to purchase tickets or monthly passes.

Free travel will continue for those under 20 and over 63 years of age.

The abolition of free county public transport does not concern Tallinn where public transit will continue to be free of charge in the new year.

Platforms to report workers' income

Online platforms, such as Bolt or Wolt, will have to report to the Tax and Customs Board persons that offer services through them as well as their income. The information needs to be forwarded once a year and will take place for the first time in January 2024 concerning 2023 income.

The tax authority will also be receiving information on Airbnb renters, people offering massage services through Stebby, sellers on Yaga or those who rent out their vehicles using Autolevi.

Platform operators are obligated to collect and present to the authority information on both Estonian and EU taxpayers. The information concerning the latter will be forwarded to other countries' tax authorities.

Platforms will have to report users who have made at least 30 transactions and/or made over €2,000 in income. But income needs to be declared in the person's income tax return starting from the first transaction.

The tax obligation is not created when selling personal, second-hand effects. Transactions on which income has not been created will also not be taxed. For example, when one person pools others' wishes when ordering from a foreign online shop to save on postal expenses.

The Tax and Customs Board plans to use the data to verify income tax returns.

Payments solutions providers, such as credit and payments agencies and postal services providers that also offer financial services, must also present the tax and customs board with information on payment recipients who receive at least 25 quarterly cross-border payments. The data needs to be reported quarterly, starting from January 1, 2024.

Virtual currency service providers' reporting obligation

Starting from 2024, providers of virtual currency services in Estonia must regularly forward to the Bank of Estonia and the Money Laundering Data Bureau information on their activities, precautions taken, services offered, assets and obligations. Regular reporting will allow painting a more accurate risk picture of the sector and help the bureau react quicker to potential threats and take preventive measures.

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Editor: Huko Aaspõllu, Marcus Turovski

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