This Tax Alert provides a non-exhaustive 2025 overview of recent tax rate changes in Estonia, reviews changes in Estonia's tax treaty network and describes value-added tax (VAT) amendments.

Income tax rate

Cancellation of planned income tax increase

As anticipated, Estonia will not proceed with the previously proposed increase in income tax rates scheduled for 2026, keeping both the personal and corporate income tax rates at 22% instead of raising them to 24%.

These amendments were adopted by the Estonian Parliament on 3 December 2025 and will become legally binding once announced by the president and published in the State Gazette.

These changes stem from amendments in the summer of 2025 to income tax legislation. On 19 June 2025, Parliament repealed the proposed temporary defense tax for 2026—2028, providing relief to both businesses and individuals. The legislation was subsequently announced by the president and published in the State Gazette on 8 July 2025.

Increase in basic exemption

Beginning in 2026, an annual basic exemption of €8,400 (i.e., €700 per month) will apply to all individual taxpayers, regardless of their annual income.

A separate basic exemption of €9,312 per year (i.e., €776 per month) will apply to individuals who have reached pensionable age.

The basic exemption for natural persons is the portion of income on which income tax is not paid. Previously, it depended on the taxpayer's annual income, but a universal basic exemption has been reintroduced. Although these amendments were adopted before 2025, they will be applicable beginning in 2026.

Tax treaties

Below is an overview of changes in Estonia's tax treaty network during 2025.

Termination of Estonia-Belarus tax treaty

On 21 June 2025, Estonia announced in the State Gazette the termination of the 1997 double taxation avoidance treaty with Belarus. In accordance with treaty provisions, notice of termination must be provided to the other contracting state at least six months prior to the end of the calendar year, making 1 January 2026 the earliest possible termination date. With the termination of this treaty, both Estonia and Belarus will revert to applying their domestic tax laws, potentially resulting in income being subject to taxation in both countries.

Ratification of tax treaty with Qatar

Estonia has published an act in the State Gazette to ratify the double taxation avoidance treaty with Qatar, which was signed on 7 March 2024. The treaty will come into effect when both countries have exchanged instruments of ratification.

Ratification of tax treaty with Botswana

Estonia has published an act in the State Gazette to ratify the double taxation avoidance treaty with Botswana. This tax treaty will be applicable as of 1 January 2026 in Estonia and from 1 July 2026 in Botswana. Signed on 25 September 2024, this treaty marks the first agreement of its kind between the two nations.

Tax treaty between Estonia and Liechtenstein

Estonia and Liechtenstein have signed a treaty to eliminate double taxation with respect to taxes on income and prevent tax evasion and avoidance.

Signed on 10 July 2025, this treaty represents the first agreement of its kind between the two nations. It will enter into force 15 days after the exchange of ratification instruments and will apply from 1 January of the year following its entry into force.

Overview of VAT amendments

VAT rate change

Effective 1 July 2025, the standard VAT rate has increased from 22% to 24%. This adjustment has now been established as a permanent increase, contrary to previous plans for a temporary adjustment lasting only three years.

Mandatory e-invoice upon request

According to the amendments to the Accounting Act, starting from 1 July 2025, sellers are obligated to issue an e-invoice upon request from a buyer. Buyers have the right to demand an e-invoice from sellers in the private sector if they are registered in the commercial register as e-invoice recipients. If a buyer requests an e-invoice and no alternative format has been agreed upon, the European e-invoicing standard (EU EN16931-1) will be used by default. This amendment applies to all accounting entities registered in the commercial register as e-invoice recipients, including public sector entities.