The Estonian tax system has been moving towards a new era through struggles in recent years. In 2025–2026, the focus has been on redistributing the tax burden, introducing new tax types and adjusting existing rates. Tax policy is not just a numbers game – it reflects the values, priorities and vision of our society.
Income tax in the wind of change
The personal income tax rate increased to 22% this year, and the government has decided to postpone the tax increase in 2026, despite the fact that the proposed security tax will not be enforced and the resulting gap needs to be filled.
From 2026, a uniform tax-free income of €700 per month will be introduced for everyone, which will further reduce income tax receipts. At retirement age, €776 per month will be tax-free.
The corporate income tax rate will be 22/78 from 2025. The more favorable taxation of regularly distributed dividends (14/86) was abolished, but invested profits remain tax-free.
The security tax in its proposed form, on profits earned by paying 2%, would have harmed the business environment by destroying the recognized principles of the Estonian tax system: simplicity and clarity.
The elimination of the income tax increase in 2026 will lead to a decrease in the tax burden from 36.6% to 35.2%. At the same time, investments in security and infrastructure will continue.
VAT: change in price tags
The general VAT rate will be 24% from 01.07.2025, and this change is permanent, no longer temporary, to offset the consequences of what happened with income tax. What needed to be proven: there is nothing more permanent than temporary phenomena.
VAT rates for accommodation services and press publications also increased this year: from 9% to 13% and from 5% to 9%, respectively.
However, there are also good developments in the field of VAT: from this year, a special regime for small businesses will apply, which simplifies operations in the European Union by relaxing the rules for the emergence of VAT liability for small businesses in another member state, equating them with the rights and obligations of businesses with a registered office and permanent establishment in that member state.
Social security, health and work-life balance
Funded pension payments have been made flexible: 2%, 4% or 6%. This creates more options, but also requires informed decisions.
Unemployment insurance premium rates have remained at the same level and will also apply in 2026 at 1.6% for the employee and 0.8% for the employer.
Health promotion expenses are tax-free up to 400 euros per year, and massage, dental care, and nutritional counseling have been added as services. These changes support employee well-being and work capacity and allow for a more affordable annual package.
Business account and taxes
Entrepreneur account users can tax all income at the 20% rate. However, for users who have joined the 2nd pillar, the tax rate is higher by the funded pension rate. Therefore, the business income tax rate is 20% (not joined), 22%, 24% or 26%.
Car tax: reliefs and exemptions
The Riigikogu is considering tax relief measures aimed at several target groups:
For families with children, the tax amount for each parent of a child under the age of 18 is reduced by up to 100 euros per year.
Minibuses with more than 7 seats are taxed at category N rates, not as passenger cars - this supports families with many children and people with special needs.
Targeted benefits will be introduced for people with disabilities: monthly benefits and state participation in the purchase of assistive devices will increase.
Temporary exceptions: if a vehicle is deregistered or is wanted due to theft, the tax liability is suspended or the tax period is shortened.
We invite you to think and act together.
Tax changes are not just legislative amendments – they are part of a larger discussion about our future. How do we balance the needs of the state and the well-being of the people? How do we support entrepreneurship while ensuring social security?
If you are an entrepreneur, employee, accountant or just an informed citizen - now is the time to be informed, ask, calculate and plan. Taxes affect us all and awareness is the best tool to cope with the changes.
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