Estonia Plans Further VAT Rate Increase Amid Rising Defence Spending 

Following the recent VAT increase from 20% to 22% that took effect on 1 January 2024, Estonia’s new government has announced plans for an additional VAT hike. If implemented, the standard VAT rate will rise by a further 2% to 24% on 1 July 2025. This measure is intended to increase funds in response to […]

Following the recent VAT increase from 20% to 22% that took effect on 1 January 2024, Estonia’s new government has announced plans for an additional VAT hike. If implemented, the standard VAT rate will rise by a further 2% to 24% on 1 July 2025. This measure is intended to increase funds in response to the country’s growing defence needs amidst a complex regional landscape. 

The Estonian government has justified the upcoming increase as essential for bolstering national security while managing economic challenges. This step highlights a trend among European countries where VAT rate adjustments are being utilised as a means to support essential public services, including healthcare and defence. 

Implications for Businesses and Consumers 

A further VAT rate increase may impact both local and foreign businesses operating in Estonia, as higher VAT rates could affect pricing and consumer demand. It is advisable for businesses in Estonia to prepare for the upcoming changes by evaluating pricing strategies, updating VAT compliance processes, and considering their cash flow to accommodate potential increases in VAT liabilities. 

In addition, foreign companies selling to Estonian consumers should monitor the situation closely, particularly in terms of pricing adjustments, to ensure VAT compliance and maintain competitiveness. 

How to Prepare 

1. Review VAT Compliance Systems: Ensure systems are in place to adapt quickly to the updated VAT rate to avoid any disruptions in transactions or compliance. 

2. Update Pricing Strategies: Evaluate the impact of the increased VAT rate on pricing structures, factoring in adjustments to avoid negative impacts on customer demand. 

3. Cash Flow Considerations: Factor in the additional VAT rate into your financial forecasting and cash flow management to ensure smooth operations. 

Stay Informed 

As the legislative process unfolds, it will be critical for businesses and individuals to keep informed on further developments. For tailored VAT advice or questions on how to adjust to these changes, reach out to our team of VAT experts. 

For ongoing updates and support, contact Deeks VAT Consultancy. 

jane@deeksvat.co.uk

07710553831

Share this page