The Estonian e-Residents’ International Chamber Association (EERICA) is urging the government to reconsider the proposed corporate income tax and temporary profit taxes; EERICA argues that these changes could undermine Estonia’s unique business environment, which has attracted entrepreneurs worldwide.
The group warns that the new tax measures may harm the appeal of the e-residency programme and hinder future business growth in the country.
“Temporary taxes are never temporary,” Christoph Huebner, the president of EERICA, said in a statement.
“We’ve seen it in other countries, where taxes introduced decades or even centuries ago are still in place today. The ‘temporary’ ‘solidarity surcharge’ on personal income tax imposed in 1991 to cover the cost of the reunification of Germany is still in place in 2024. The sparkling wine tax introduced in 1902 to fund the imperial navy fleet is also still in place – while the imperial navy fleet is long gone. The same risks apply here in Estonia. The only thing temporary would be the rate of the tax.”
EERICA emphasises that moving from Estonia’s current deferred profit taxation model to annual profit taxation would not only increase bureaucracy but also create a conflict of interest between the government and businesses.
Dismantling the simple tax environment
“Introducing an annual profit tax changes the dynamic between the state and businesses, pushing them into opposing sides. The government will want profits on the books as high as possible, while companies will aim to minimise these to avoid extra taxes,” Huebner noted.
“Estonia’s current tax system, which has earned international praise, is simple, transparent and attractive to global entrepreneurs. Imposing new profit taxes would dismantle this environment, driving up accounting costs for businesses and administrative costs for the state.”
“Companies from countries with complex tax systems – like Spain, France, Italy and Germany – are drawn to Estonia precisely because of its simplicity. If you bring in these tax changes, Estonia risks losing its competitive edge,” Huebner warned.
While EERICA and its members stand ready to support Estonia’s defence needs, the organisation stresses that this must not come at the cost of Estonia’s business environment.
Consult before making decisions
“We are willing to contribute, but not through measures that will backfire economically. The proposed tax changes will scare investors away and stifle the entrepreneurial spirit that Estonia has so carefully nurtured,” Huebner added.
EERICA urges Estonia’s decision-makers to consult widely, particularly with those who understand the complex tax landscapes abroad, before making decisions that could have long-term negative impacts.
“This is not about opposing contributions to national defense; it’s about ensuring that Estonia remains a top destination for global entrepreneurs.”
EERICA, the Estonian e-Residents’ International Chamber Association, is an independent political representation of the more than Estonian 100,000 e-residents from all continents, founded in May 2019.
Estonia launched the world’s first e-residency programme in 2014 to offer foreign nationals secure access to its public e-services, promote cross-border entrepreneurship, and generate additional revenue for the national budget.
The government to go ahead with tax hikes
On 17 September, the Estonian government announced a temporary tax on corporate profits, “to help cover defence costs”. Evelyn Liivamägi, deputy chancellor of the finance ministry, explained that profit taxation is the “least negative way for companies to contribute to state security.” The tax will only apply to companies with profits, and both resident companies and permanent establishments of non-resident companies will be subject to the “security tax.”
Statistics Estonia reports there are around 145,000 active companies in the country, with about 60% being profitable. The tax is expected to generate €157 million in 2026, €164 million in 2027, and €173 million in 2028.
The Estonian government’s recent tax policies have sparked a significant debate. The current coalition, composed of the Reform Party, Social Democrats, and Estonia 200, has already implemented several tax hikes, with more planned. In 2024, the standard VAT rate increased from 20% to 22%. Starting in 2025, the personal income tax rate will also rise from 20% to 22%, though a tax-free allowance of €700 per month will be maintained. Excise duties on tobacco, alcohol, and gambling will see gradual increases as well.
The government justifies these changes as necessary to boost tax revenues, combat inflation, and fund defence spending, particularly in response to the heightened security concerns following Russia’s invasion of Ukraine.
Until 2024, Estonia was known for its unique tax system, where companies were not taxed annually on profits. Instead, taxes were only applied to distributed profits, like dividends, while reinvested profits remained untaxed, fostering business growth.
