Estonia: Direct and indirect tax amendments

The Parliament (Riigikogu) in late June adopted significant direct and indirect tax amendments.

• The additional tax-free income of a natural person in the case of child maintenance will be repealed on 1 January 2024. The option to use the additional tax-exempt income of one’s spouse, and the right to deduct the interest paid on a home loan from one’s taxable income, will also be repealed.
• The regressive tax-exempt income will be repealed on 1 January 2025, and a uniform tax-exempt income of €700 per month will be established (with an exception for old-age pensioners, whose tax-exempt income equals the average old-age pension).
• The general income tax of a natural person and a commercial undertaking will be increased by two percentage points (i.e., from 20% to 22%) on 1 January 2025. In addition, the preferential tax rate of 14% on regularly distributed profits of commercial undertakings will be abolished, as will the 7% income tax withheld on dividends paid to natural persons. The rate for advance payments by credit institutions will rise from 14% to 18%.

• The general VAT rate will be increased by two percentage points (i.e., from 20% to 22%) on 1 January 2024.
• The VAT rate of accommodation establishments (including accommodation with breakfast) will be increased by four percentage points (i.e., from 9% to 13%) and the VAT rate of press publications will also be increased by four percentage points (i.e., from 5% to 9%), effective 1 January 2025.
• Under a transitional provision, those who entered into a contract for sales of goods or provision of a service before 1 May 2023 can apply the 20% VAT rate until 31 December 2025 if the contract stipulates that the transaction is subject to a 20% VAT rate and the contract does not stipulate a change in price as a result of a possible change in the VAT rate.

• Excise duties on both alcohol and tobacco will increase by five percentage points each year from 2024 to 2026. The excise duty on tobacco products consists of a fixed rate and a proportional rate. The amendment only concerns an increase in the fixed rate of excise duty.
• The excise duty on special-purpose diesel fuel will be €21 per 100 litres from 1 January 2025. This cancelled the previously planned increase in the excise duty on special-purpose diesel fuel. However, the previously adopted amendment, which will also increase the excise duty on electricity in the coming years until 2026, was not changed.

• The gambling tax will increase from €1,278.23 to €1,406 per gaming table and from €31.95 to €32 per slot machine on 1 January 2024.
• Gambling subject to 18% tax will be taxed at 22% and gambling subject to 5% tax will be taxed at 6% from 1 January 2024.
• The tax rate on gambling subject to 6% tax will increase to 7% on 1 January 2026.

Read a July 2023 report prepared by the KPMG member firm in Estonia