Starting in 2026, the new coalition plans on levying a new, 2 percent tax on corporate profits.

"Since the government decided that this revenue should be budgeted starting in 2026, we'll likely have to establish an advance payment obligation on the security tax," explained Evelyn Liivamägi, deputy secretary general for financial and tax policy at the Ministry of Finance. "Otherwise we won't be able tollect it in 2026, as profit reports won't come until 2027."

It is unclear whether advance payment will only be requested in 2026, or whether it will have to be paid annually or, for example, once every three months, as banks currently pay income tax.

"Advance likewise means that this will also start involving additional financial planning," pointed out Mait Palts, director general of the Estonian Chamber of Commerce and Industry (EKTK). "For smaller and medium-sized companies, this is a huge headache."

Currently, companies only pay income tax when profits are moved out of the company – such as when paying out dividends. Not so with the new tax.

"Under the coalition agreement, it will still be calculated based on accrual-based profits, but what that profit is exactly, whether the profit calculated in the annual financial report will be adjusted one way or another or not, I don't currently know," Liivamägi said. "We'd like to have the framework and most important rules in place by the end of August."

Experts say the impact of the new tax is still difficult to assess because too much yet remains unclear.

"I personally don't think that this income tax change will drastically reduce investments in Estonia," said Joel Zernask, head of tax services at the consulting firm KPMG Estonia. "What does worry me a bit is that all of these changes are such that we're adding something somewhere, we're taking a bit more from somewhere, but the transparency or clarity of what's going to happen with that money is unknown."

In Estonia, social tax is earmarked, Liivamägi highlighted, meaning that what exactly the money is spent on is precisely stipulated.

"The Social Tax Act also very clearly stipulates where this money is spent," the ministry official said. "Now, whether the Security Tax Act will do the same is up to the government to decide, but the possibility exists."

--

Follow ERR News on Facebook and Twitter and never miss an update!