Tax changes in Estonia in 2025–2026: what company owners and entrepreneurs need to know
Estonia has long been regarded as a jurisdiction with a transparent and logical tax system, making it particularly appealing to entrepreneurs. The fundamental principle is to avoid penalising businesses for development and growth, instead only taxing money withdrawn from the company. This philosophy has made Estonian companies popular among international founders and owners of small and medium-sized enterprises.
However, between 2025 and 2026, the state began to gradually increase the tax burden without destroying the model itself, but rather making noticeable adjustments to its details. For entrepreneurs, this means one thing: the system remains logical, but it requires more attention and accurate accounting support.
The principle of corporate income tax has not changed, but the conditions have become stricter.
It is the foundation of the Estonian tax system and of primary interest to company owners. The main principle remains unchanged: undistributed profits are not taxed. Provided the money remains within the company and is used for operations, investments, hiring employees or business development, income tax is not payable.
This means that Estonia will remain attractive to growth- and reinvestment-oriented companies in 2025–26. However, the conditions for taxing distributed profits have become stricter. From 2025 onwards, a flat rate of 22% will apply to dividends or other payments equivalent to profit distribution.
The preferential rate of 14% previously applied to regularly distributed profits has been completely abolished. In practice, this means that companies that have based their dividend policy on this preferential rate will now need to review their financial models and withdrawal strategies.
Corporate tax rates compared by year
| Indicator | 2023 | 2024 | 2025–2026 |
| Tax on retained earnings | 0 | 0 | 0 |
| Rate upon distribution of profits | 20 | 22 | 22 |
| Preferential rate 14 | Yes | Partially | No |
For entrepreneurs, the question of ‘when and how to withdraw profits’ becomes even more important. Errors in payment wording, incorrect expense classification or incorrect dividend registration directly lead to additional tax charges.
Hidden profit distribution is an area that is receiving increased attention
Between 2025 and 2026, the Estonian Tax and Customs Board will pay particular attention to transactions that could be classified as hidden profit distribution. This refers to situations where company funds are used for the personal benefit of owners or related parties without economic justification.
Such transactions include:
- unjustified payments to owners
- personal expenses paid for by the company
- overpriced services from related parties
- use of company assets without compensation
Given the increase in the corporate tax rate, the risk and cost of errors in this area have increased significantly. This is why accurate accounting and documentary evidence of transactions are not just a formality, but a tool for protecting the business.
VAT has an impact on companies’ turnover, prices and cash flows
From the perspective of companies’ operating activities, one of the most significant changes has been the increase in VAT. From 1 July 2025, the standard VAT rate will increase to 24%. This directly affects:
- the final cost of goods and services;
- contractual relationships with customers;
- advance payments;
- cash flow management.
For companies with a turnover close to the VAT registration threshold, this also means that they need to monitor the limits more closely and register in the system in a timely manner. Errors in applying the rate, especially during the transition period, will result in fines and adjustments to declarations.
Comparison of VAT rates
| Period | Standard VAT rate |
| 2023 | 20 |
| 2024 | 22 |
| 2025 (until 30 June) | 22 |
| 2025 (from 1 July) | 24 |
| 2026 | 24 |
This means that accounting must be synchronised with the dates of actual transactions, not just invoice dates.
Income tax and employees: impact on the wage fund
Although entrepreneurs’ main focus is on corporate taxes, changes in income tax directly affect the wage fund and payroll calculations. From 2025, the income tax rate will be 22%, remaining the same in 2026.
A significant change is anticipated on 1 January 2026, when a fixed tax-free minimum of €700 per month is set to be introduced. This will simplify payroll calculations, reduce errors, and make the system more transparent for both employers and employees.
Comparison of income tax
| Indicator | 2023 | 2024 | 2025 | 2026 |
| PIT rate | 20 | 20 | 22 | 22 |
| Tax-free minimum | With reduction | With reduction | With reduction | €700 fixed |
Additional taxes and fees: what businesses often forget
Additional taxes and fees will be introduced and adjusted in 2025–26. These rarely attract the attention of entrepreneurs, yet they directly affect company expenses. These include motor vehicle tax and an increase in land tax in a number of municipalities.
For companies with offices, warehouses, or vehicle fleets, these expenses will become permanent budget items and must be factored into financial planning.
This is why accounting will become critically important in 2025–2026
Taken together, all these changes show a clear trend: Estonia’s tax system remains logical, but it no longer tolerates negligence. Whereas mistakes might have gone unnoticed in the past, they are now being scrutinised by the tax authorities.
For company owners, this means that:
- The correct payment structure is more important than ever; accounting is not just a formality, but a risk management tool
- Tax planning should be part of business strategy, not a reaction to penalties
While Estonia will remain one of the most convenient jurisdictions for doing business in the EU in 2025–2026, the rules of the game have become more demanding. Those that maintain transparent accounting, correctly document transactions and plan their tax burden in advance will continue to feel confident. The rest face unnecessary costs and risks.
This is why professional accounting support is now a necessity for sustainable businesses, not an option.