The government said stable revenue is needed to finance the country's defense expenditures and agreed to scrap the temporary defense tax, which was in place until 2028.

Additionally, the 2 percent levy on corporate income tax and income tax from the first euro has been scrapped.

The current 22 percent VAT rate will rise to 24 percent on July 1 of this year.

The income tax rate, which rose from 20 percent to 22 percent at the beginning of this year, will rise to 24 percent in 2026.

The entrepreneurship account tax rate will also increase by 2 percentage points to 22 percent starting next year.

"The changes will reduce the tax burden for both individuals and businesses and will restore logic to the tax system. Unfortunately, part of this is also the abandonment of the temporary nature of the tax, as geopolitical developments no longer make it likely that a temporary solution would work for defense expenditures," said Minister of Finance Jürgen Ligi.

With the corporate income tax change, the previous arrangement will be reinstated, under which companies pay income tax only on distributed profits, not on ongoing profits. The state had planned to start taxing company profits at 2 percent beginning in 2026.

According to the Ministry of Finance, implementing the security tax would have required developments in several services by the Tax and Customs Board, with estimated IT development costs of €950,000 in 2025, €735,000 in 2026, and €525,000 in 2027, which will now be avoided.

--

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