Introduction of Defense Tax in Estonia: What You Need to Know

The defense tax in Estonia will include the following components:

1. An additional 2% VAT, increasing the rate to 24% from July 1, 2025.
2. An additional 2% personal income tax starting from 2026.
3. A 2% corporate income tax (excluding non-profit organizations) and on the profits of permanent establishments of foreign companies starting from 2026.

Corporate Income Tax:

• The tax will be implemented for three years. Its future will be decided by the next government coalition.
• The tax will be collected in advance. The amount will be determined based on the profit report of either the last or penultimate reporting period, depending on which report is submitted earlier.
• Taxes paid in another country will be credited (credit method) to avoid double taxation.
• Profits consolidated using the equity method will be exempt from taxation.
• The taxation principles for dividends received from subsidiaries remain unchanged. In most cases, they will continue to be exempt from taxation (exemption method).

Estonia’s Competitiveness:

Despite the introduction of this new tax, Estonia remains one of the most competitive tax systems in the world.
E-governance capabilities, minimal bureaucracy, and simple tax administration make Estonia one of the most attractive jurisdictions for business placement.