Estonia has long been recognized for its unique and straightforward corporate tax system, which has been a significant draw for foreign investors and businesses. In 2024, the Estonian government introduced several updates to its corporate tax framework aimed at enhancing transparency, encouraging investment, and aligning with broader European Union (EU) tax policies.
Main Changes in Corporate Taxation
One of the most notable changes in 2024 is the adjustment to the corporate income tax rate. Estonia traditionally does not tax retained earnings, and this remains unchanged. However, distributed profits, which were previously taxed at a flat rate of 20%, will now be subject to a slight increase to 22%. This adjustment aligns Estonia more closely with the average corporate tax rates in the EU while still maintaining a competitive advantage for businesses.
Regarding VAT, from January 1, 2024, the standard rate of VAT in Estonia will be 22% instead of 20%.
Another significant update is the introduction of new tax incentives aimed at promoting innovation and supporting small and medium-sized enterprises (SMEs). Companies investing in research and development (R&D) activities will benefit from enhanced tax deductions, allowing them to reduce their taxable income further. This move is expected to stimulate growth in the tech and innovation sectors, which are already thriving in Estonia.
Alignment with EU Directives
Estonia has also taken steps to align its tax policies with recent EU directives, particularly in the area of digital services taxation. From 2024, Estonia will implement a digital services tax (DST) of 3% on revenues generated by large multinational companies operating in the digital economy. This measure ensures that companies benefiting from the Estonian market contribute their fair share of taxes.
Overall, the 2024 corporate tax updates in Estonia reflect a balanced approach, maintaining the country’s attractiveness to foreign investors while adapting to growing global and regional tax standards. These changes are likely to reinforce Estonia’s position as a leading hub for business and innovation in Europe.
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All information contained in this publication is up to date on 2024. This content has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this chart without obtaining specific professional advice.No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this content, and, to the extent permitted by law, AUXADI does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this chart or for any decision based on it.
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