--- title: Security tax 2025-2028 date: 2024-10-28T12:10:28Z modified: 2024-10-29T17:25:15Z permalink: "https://grow.ee/kasumimaks-ehk-koik-uus-on-hasti-unustaud-vana/" type: post status: publish excerpt: The security tax increases VAT and adds 2% income tax to natural persons and corporate profits in order to increase the country's defense capability. wpid: 14434 featured_image: "https://grow.ee/wp-content/uploads/2024/10/Kuvatommis-2024-10-29-191434.png" timestamp: 2024-10-29T17:25:15Z tags: - Taxes --- ![](https://grow.ee/wp-content/uploads/2024/10/tax-visualization.svg) ## What does the "security tax" consist of? The security tax consists of: - VAT increase - from July 1, 2025, the general VAT rate will increase to 24%. - Income tax for natural persons - from 2026, an additional income tax of 2% will be imposed on the taxable income of natural persons. - Corporate income tax – also from 2026, a tax of 2% will be added to the taxable profit of companies. ## Corporate income tax, or everything new is well-forgotten old As part of a comprehensive tax reform, corporate income tax is one of the three components of the "security tax", which, as a recent initiative of the Estonian government, is planned to be enforced in 2026. The purpose of the tax is to increase the country's defense capability and security-related investments. The corporate income tax, which has been in force in Estonia since 2000, is still unique in the world – companies pay income tax only when they distribute profits (as dividends, etc.). This means that reinvested profits are not taxed, thus supporting the growth and development of companies. A similar corporate taxation system also exists in Latvia and Georgia. ## Classic income tax back? However, the profit tax, which is part of the security tax, is planned as a classic corporate income tax – the pre-tax profit earned during the company's financial year is taxed. Thus, we are somewhat moving away from the income tax system that brought Estonia fame and was intended to attract foreign investors here. At the same time, perhaps the low tax rate of 2% and the fact that the tax is planned as a temporary one, for the period 2026 – 2028, provide relief (here, a hint at the amazing permanence of some temporary phenomena is also relevant). The profit tax will be imposed on Estonian companies, Estonian and foreign natural persons, and non-resident legal entities that earn income in Estonia. Non-profit organizations (NPOs, SAs) will not pay the tax. Thus, entrepreneurs will face an increase in the income tax rate for two consecutive years: from 01.01.2025, the tax rate of 22% will apply, and from 01.01.2026, the tax rate of 24% will apply. ### Tax treaties also apply to profit tax In the case of cross-border business activities, it is useful to know that valid double taxation treaties can also be applied to profit tax. Moreover, for the purpose of equal treatment and simplicity, it is planned to avoid double taxation with all foreign countries, regardless of whether they are contracting states. Although there is no obligation to avoid double taxation in the case of dividends within Estonia, it is still allowed to deduct from pre-tax profit a dividend received from an Estonian company, the underlying profit of which is taxed with security tax (the 10% participation requirement remains in force). It is also allowed to deduct profit attributed to a permanent establishment located in a foreign country. The taxation procedure for a non-resident who receives income in Estonia depends on whether he receives income through a permanent establishment located in Estonia or not. In the case of operating through a permanent establishment, his profit is taxed with security tax similarly to the profit of a resident company. Otherwise, the income of a non-resident in Estonia is taxed in the same way as the income of a resident individual. ### Profit tax is paid in advance Similar to the classic corporate income tax, in the case of profit tax, entrepreneurs must also take into account advance payments, the deadline for which is the 10th of the last month of each quarter. The amount of the advance payment is calculated from the pre-tax profit of the previous or the year before last - depending on which is submitted last. The exception is companies that submit quarterly profit statements: credit institutions and listed joint-stock companies. Based on the draft law, the first advance payment deadline is 10.09.2026. The first security tax declaration must be submitted in 2027 for the profit of 2026. ### Natural persons also contribute In addition to profit tax, other components of the security tax are an increase in the personal income tax and VAT rate by 2%. Designed as a tax with the broadest possible base, individuals pay the security tax from the first euro of their income. There are no deductions that are allowed for income tax: mandatory and voluntary pension pillar payments, tax-free income, training costs, funded pensions or unemployment insurance contributions, etc. However, the investment account system, which allows for the deferral of income taxation, can also be used for the security tax. ### VAT rate increase already on 01.07.2025 2% will be added to the VAT rate, i.e. the change from 22% to 24% will come into effect on 01.07.2025. It is planned to collect VAT at the increased rate until 2028. The introduction of the new tax has generated both support and criticism. Proponents emphasize that the tax aims to improve national security and prepare for future challenges, while opponents worry that the increase in the tax burden could hinder economic growth and the competitiveness of companies. At the same time, the corporate income tax system remains largely flexible, allowing entrepreneurs to effectively manage their retained earnings. Entrepreneurs are expected to be sympathetic to the tax increase, perceiving the fragile balance in today's world. ## Grow tax advice [ READ MORE ](https://grow.ee/wp-content/uploads/wp-mfa-exports/page/maksunoustamine.md)