Investment account options expand

From 2025, investment account funds can be allocated to cryptocurrencies purchased via service providers supervised by the Estonian Financial Supervisory Authority or equivalent institutions in other EU member states.

This year, several new tax rules for investment accounts were retroactively implemented. The investment account regime was extended to include broker accounts opened with investment firms and investments made via regulated crowdfunding platforms were added to the list of financial assets.

Outside the investment account regime, new options for expense deductions were introduced. Losses incurred due to the invalidation of property rights, such as devalued cryptocurrency or uncollectible crowdfunding loans, can now be deducted from taxable income. Similarly, management fees for securities accounts can be deducted from income earned on securities.

Entrepreneur account becomes more favorable

From 2025, the 20 percent tax rate for entrepreneur accounts will apply to annual income of up to €40,000, eliminating the higher 40 percent rate. For income exceeding €40,000 annually, the user will reach the VAT registration threshold and must transition to another business form (e.g., self-employed or private limited company).

Those participating in the second pension pillar will contribute 2 percent, 4 percent or 6 percent of their income, depending on which option is picked.

Increases in tax-free thresholds

Personal vehicle reimbursements: The tax-free reimbursement limit for work-related use of personal vehicles rises to €0.50 per kilometer, capped at €550 per month.

Travel allowances: Daily allowances for foreign business trips can be paid tax-free up to €75 for the first 15 days and €40 for subsequent days.

Health and wellness benefits: Tax-free spending on employee health improvements becomes more flexible, with the quarterly limit of €100 removed, allowing annual utilization at any time. Services eligible for reimbursement now include massage and dental care.

Rounding of 1- and 2-cent coins

From next year, cash payments in stores will round the total to the nearest €0.05 and stores will no longer provide 1- and 2-cent coins as change. Card payments remain unaffected.

Rounding affects only the final total, with changes of up to €0.02. Buyers can opt-out by paying with a card. Shops will continue to accept 1- and 2-cent coins for payment, but change will only include coins as small as €0.05.

Simplified rules for small businesses in the EU

Currently, businesses must register for VAT in other EU countries as soon as they generate revenue there. Without registration, they can only operate in their home country within local thresholds (€40,000 in Estonia).

Going forward, businesses can operate in other member states without VAT registration until their cumulative EU-wide turnover reaches €100,000. A declaration to the Estonian Tax and Customs Board is required.

Sustainability reporting obligation

From 2025, sustainability reporting will be mandatory for large companies meeting at least two of the following criteria: 250+ employees, €50 million in revenue or €25 million in assets. This will apply to approximately 350 Estonian companies.

Additionally, from 2024, audit and review thresholds will rise by 25 percent, potentially exempting several thousand companies from audit requirements.

E-invoicing to become more flexible

From July 1, 2024, requirements for e-invoicing will simplify, reducing administrative burdens. Buyers will have the right to request e-invoices, with a notation in the Commercial Register.

Motor vehicle tax

From January 2025, a two-part vehicle tax will be introduced in Estonia:

• A registration fee, payable when a vehicle is first registered or changes ownership in the national traffic registry.
• An annual motor vehicle tax, based on parameters like weight and CO2 emissions.

Excise taxes rise

From January 2025:

• Alcohol and tobacco excise taxes increase by 5 percent.
• Tobacco excise rises an additional 5 percent from July.
• Fuel excise taxes: Gasoline by 5 percent, diesel by approximately 7 percent and electricity by approximately 40 percent.

Electricity tax increases will have minimal impact on consumer prices.

Income tax rates adjust

From 2025, income tax for individuals and corporations will increase to 22 percent. Banks' advance income tax will rise to 18 percent.

The universal tax-free income amount of €700 monthly will apply to all taxpayers starting in 2026. For pensioners, the tax-free threshold in 2025 will be €776 per month.

VAT rates increase

From 2025 :

• VAT on accommodation services rises to 13 percent (from 9 percent).
• VAT on journalism increases to 9 percent (from 5 percent).

Land tax adjustments

The basis for land tax calculations will change. Agricultural land will be taxed up to 1 percent of its value, while other land types may be taxed up to 2 percent. Rates will be set by local governments.

Defense or security tax

To fund increased defense spending, a temporary defense tax will be introduced:

From July 1, 2025: VAT rises by 2 percentage points to 24 percent

From 2026: A 2 percent defense tax applies to individual incomes, covering salaries, pensions, parental benefits, business income, real estate sales, securities profits etc.

Corporate profits: A 2 percent security tax will be levied on previous fiscal year profits before income taxation, payable in advance. In 2026 only, companies will pay this tax twice: by September 10 and December 10.

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