Estonia Cancels Plans to Increase Income Tax Rate

On September 18, Estonian Government issued a press release detailing characteristics of the state budget for 2026. In order to stimulate the economy and prioritize defense costs, increase in corporate income tax will not occur, so 780 million euros will remain in the hands of people and businesses.

According to Minister of Finance Jürgen Ligi, the country has to deal with the issue of two high financial indicators: 4.5% GDP and defense spending at 5%. As Russia’s aggression continues to pose a threat to European security and Estonia allocates funds for military and humanitarian assistance to Ukraine, the budget for 2026 stipulates for the raise of GDP to 5% and increased financing of defense needs. This calls for reduction of the tax burden and restoration of the tax-free threshold to 700 euros per month. As such, the currently applying 22% corporate tax rate is to remain.

Earlier in June, Estonian Parliament abolished the planned temporary defense tax for the years 2026–2028 in order to bring more tax relief to citizens and businesses.

Press release