Estonia to Increase Standard VAT Rate to 24% Starting July 2025 | Tax Reform Update

On May 13, the Estonian Parliament agreed to review and discuss amendments to various tax laws, including a significant change to the VAT Law. These important proposed changes include abolishing the security tax, increasing the general and corporate income tax rates, and increasing the standard VAT rate.

Key Proposed Measures

In addition to permanent changes to the general income tax rate, which will be increased to 24%, and the corporate income tax rate that will be increased to 22% from 2026, the proposed amendments confirm the previously announced measure to raise the standard VAT rate.

Therefore, starting July 2025, Estonia's standard VAT rate will be 24%, an increase of 2% compared to the current 22%. This will be the second change in the standard VAT rate in Estonia in the past year. Last year, Estonia raised the standard VAT rate from 20% to 22%.

The deadline for deciding on all proposed amendments to various tax laws is June 3, 2025. However, since this measure was announced in the second half of 2024, there should be no significant changes regarding the decision to increase the standard VAT rate. The Estonian Parliament finished the first reading of the proposed amendments, which proves that the regulatory body is proactively working.

Additionally, the Estonian Tax and Customs Board (ETCB) announced that the standard VAT rate will be 24% starting from July 1, 2025. The ETCB also noted that as part of this change, the transition period for applying the older 20% VAT rate will be shortened for those who signed contracts before May 1, 2023, that did not include clauses allowing price adjustments due to VAT changes.

Therefore, those contracts can only continue using the 20% VAT rate until June 30, 2025. Furthermore, the ETCB published technical information on VAT return, valid from July 1, 2025.

Conclusion

Although the Estonian Parliament is still discussing the proposed amendments, the standard VAT rate will undoubtedly be increased. Therefore, taxable persons should familiarize themselves with the technical information on VAT return provided by the Estonian Tax and Customs Board and adjust their invoicing, accounting, and reporting systems accordingly.

Source: The Estonian Parliament, Estonian Tax and Customs Board, Bloomberg, VATabout