Estonia’s new security tax affects taxation in three phases
- From July 1, 2025, the general VAT rate will increase from 22 percent to 24 percent.
- From January 1, 2026, a 2 percent corporate income tax will be introduced.
- From January 1, 2026, personal income tax will increase from 22 percent to 24 percent.
The security tax is valid until December 31, 2028.
Corporate income tax changes due to the security tax
In Estonia, companies pay income tax on distributed dividends at a ratio of 22/78. If dividends are not distributed, no income tax is paid. However, the situation will change when the security tax takes effect in 2026.
From January 1, 2026, Estonian companies and permanent establishments of foreign companies will pay a 2 percent income tax on their pre-tax profits. The taxation period is the company’s financial year. Dividends received from other companies are deducted from taxable income if the profit on which they are based has been subject to security tax or foreign withholding tax, and the taxpayer owns at least 10 percent of the distributing company’s shares or voting rights.
Additionally, a company may deduct from taxable income the profit generated by a permanent establishment located abroad that is taxed abroad, provided it is included in the company’s pre-tax profit.
Security tax prepayments are made quarterly: on March 10, June 10, September 10, and December 10. The amount of payments is calculated based on the profit of the previous financial year.
The prepayment due on September 10 and December 10 is based on one-fourth of the profit before tax of the previous financial year. However, the prepayment due on March 10 and June 10 is based on one-fourth of the profit before tax of the financial year before the last one, as the profit of the previous financial year is not yet known. If it is known, taxation is based on the previous financial year’s profit.
The first security tax prepayments will be made on September 10, 2026, and December 10, 2026, as the 2025 pre-tax profit will be determined in the financial statements, which must be completed by June 30, 2026. The first prepayments will be based on half of the 2025 pre-tax profit, not one-fourth as in subsequent years.
If the company is a startup, it does not have to pay security tax prepayments during its first financial year or the first half of the second financial year, as the previous financial year’s profit, on which the prepayment amount would be calculated, is not yet known.
The first security tax declaration must be submitted by April 30, 2027 based on the profit of 2026.