Estonia Considers Raising Tax Rates on Business Income, Security and Corporate Income

On May 9, the Estonian Parliament registered a draft law on amendments to the act on simplification of business income tax, security tax and corporate income tax.

According to the explanatory note to the document, the aim of the draft law is to make the Estonian tax system more business-friendly, understandable and simple. Thus, the corporate income tax, established as a tax on income security, and the taxation of individuals from the first euro will be replaced by an increase in the income tax rate by two percentage points to 24%.

As in the case of other income of individuals, the tax rate will be increased by two percentage points for income transferred to the entrepreneur’s account. The purpose of the changes in tax rates is to reorganize tax revenues to the state budget, mainly for the development of Estonia’s defense potential.

After the amendments, the tax rate on income from entrepreneurial activities will increase by 2% and will amount to 22% instead of the current 20%. The corporate income tax rate will increase from 22% to 24%.

In addition, additional benefits will be taxed at a higher income tax rate. As a result of the amendment, the tax liability for additional benefits will increase by two percentage points. Income tax on additional benefits is paid by individual employers, resident legal entities, non-residents with a permanent place of business in Estonia, non-residents carrying out activities as employers in Estonia, Estonian state institutions and Estonian local government institutions.

The authors of the draft law emphasize that since the need to strengthen the state’s defense capability is long-term, the simplified and clearer tax system provided for by the draft law will remain in force indefinitely.

Text of the draft law