Value Added Tax (VAT) in 2025

Estonia implements a temporary increase in its standard VAT rate, rising from 22% to 24% starting July 1, 2025. This adjustment will remain in effect until December 31, 2028, after which the VAT rate is expected to revert to 22% on January 1, 2029.

Background and Context

The VAT rate increase is part of a broader fiscal strategy aimed at balancing the state budget, increasing tax revenues, and supporting national security and defense initiatives. This decision follows a previous increase from 20% to 22%, which took effect on January 1, 2024.

Sector-Specific VAT Changes

In addition to the standard VAT rate increase, certain sectors will experience adjusted VAT rates effective January 1, 2025:

• Accommodation services: VAT rate increased from 9% to 13%.

• Press publications: VAT rate rose from 5% to 9%.

Implementation and Business Adjustments

Businesses operating in Estonia should prepare to adjust their pricing and accounting systems to comply with the new standard VAT rate. For those utilizing the VAT cash accounting scheme, transitional provisions allow continued application of lower VAT rates until December 31, 2026, under specific conditions.

Special Scheme for Small Businesses

A new special scheme will be introduced, allowing taxable persons established in Estonia to operate in other EU Member States without requiring VAT registration if their EU-wide turnover does not exceed €100,000 per calendar year.

Purpose of the VAT Increase

The VAT increase serves as a temporary security tax aimed at enhancing Estonia's defense capabilities and funding national security investments.