For the tenth year in a row, Estonia is first in International Tax Competitiveness. And despite changes to its tax rules and rates next year, it’s likely it will stay that way.
Editor's Note (April 2025): Estonia increased tax rates for companies and individuals on 1 January 2025. A security tax package has also been introduced, which will raise the VAT rate from 1 July 2025 and raise the personal tax rate from 2026. Read more about the changes.
For the tenth year in a row, Estonia's tax system has topped the 2023 International Tax Competitiveness Index (ICTI). This means that once again, Estonia has the best tax code of all OECD countries.
A well-structured tax code is a good determining factor of a country’s economic performance. Taxpayers can more easily comply with a properly structured tax code and thus promote economic development, which in turn improves the country’s public revenues. On the contrary, poorly structured tax systems “can be costly, distort economic decision-making, and harm domestic economies”. So says the Tax Foundation, the US-based tax policy non-profit and publisher of the ICTI.
OECD countries approach taxation in a variety of ways, resulting in a need for comparison to critically evaluate performance. For that purpose, the Tax Foundation developed the ITCI. The ITCI looks at more than 40 tax policy variables to measure the competitiveness and neutrality of country tax codes. These include tax rates and structures of a country's corporate taxes, individual income taxes, consumption taxes, property taxes, as well as the treatment of profits earned overseas.
Estonia's top score in 2023 is again driven by four features of its tax system:
And just as Estonian citizens and tax residents benefit, so too can e-residents. While Estonia is not a tax haven and e-Residency doesn’t exempt you or your companies from dual tax residency or foreign tax liabilities, Estonia's clear tax system and network of 62 tax treaties can be a huge advantage for foreign entrepreneurs looking for a place to base their borderless business. This includes opportunities to take advantage of the country's clear tax system, transparent business environment, and efficient digital services. Together, these features keep compliance efforts and costs low and the time to file taxes at a minimum.
E-residents can take further steps to make their companies tax residents of Estonia. This will involve structuring your corporate operations to ensure more business presence in Estonia. For example, renting an office or site location, hiring employees, registering assets or intellectual property, and holding board meetings in Estonia.
We recommend speaking to a tax expert to get advice on international conventions, the tax codes of Estonia. They can also help you optimise your corporate tax structure taking into account your own geographical location and business operations.
To browse expert international and country-specific tax advisers, visit the e-Residency Marketplace.
This year, the Estonian Government announced amendments to Estonian tax law. The changes will come into force between 2024 and 2025. The adopted amendments concern increased tax rates and elimination of some exemptions. Generally speaking, the overall tax system in Estonia will remain simple and transparent.
The main changes affecting e-resident businesses are listed below. To help prepare e-residents for these changes and their implications for your businesses, we will be providing more information on their specifics in the coming months.
You can find all proposed changes and read more specifics on the Estonian Tax and Customs Board website.
Importantly, there will be no introduction of capital gains tax or property transfer taxes. And property tax will continue to only apply to the value of land (not buildings). Due to this and the continued simplicity and efficiency of Estonia’s tax code, most likely, we will remain number one in international tax competitiveness and neutrality in the OECD.
The Estonian Government has also introduced a ‘security tax’ package. The original package contained three elements, which were planned to last until 31 December 2028. However, since making the law, the Estonian Government has decided to remove the corporate profit tax and to make the increased VAT rate a permanent change. The legislative process to implement these changes to the package will start in May. We'll update our community once the legislative process is underway. The three original elements of the package were as follows:
