Impact of Estonia Tax Hike on E-Residents

Estonia’s new government is raising VAT and income tax rates to 24%, effective in 2025. While these increases target local residents and businesses, they could also affect e-residents who run Estonian-registered companies. E-residents aren’t personally taxed in Estonia unless they have local income, but companies operating under Estonia’s jurisdiction may see higher operational costs due to the VAT hike. The changes may lead e-residents to reconsider the costs associated with doing business in Estonia, though the e-residency program’s overall benefits remain intact.

How Estonia Tax Hikes Impact E-Residents

E-residents, who have long benefited from Estonia’s competitive tax environment, will face higher costs when running their Estonian-registered companies. This is especially true for businesses distributing dividends, as the 14% reduced tax rate on dividends will be discontinued​(Unicount). With a potential 2% “security tax” proposed for 2026, further increases could follow, especially affecting companies with retained profits​(Unicount).

The government is also considering additional tax reforms, such as a potential “security tax” in 2026 and payroll taxes, which could further affect e-resident companies depending on the nature of their business and employment structure​(Unicount). Despite these changes, Estonia continues to promote its e-Residency program, which has been a significant revenue generator and a key part of its international business strategy.

Introducing further uncertainty to this unprecedented move is a proposal from Reform Party Finance Minister Jürgen Ligi on August 15. He suggested replacing the 2% corporate income tax on annual profits with an additional payroll tax. This marks a significant departure from the coalition agreement released on July 19, 2024.

While the Estonia’s tax landscape is evolving, Estonia still offers a unique and innovative digital environment for foreign entrepreneurs. However, as costs rise, it will be important for e-residents to stay informed and adapt their strategies accordingly.