The Estonian Parliament (Riigikogu) has approved a new Security Tax Act (512 SE), designed to enhance the country’s defense capabilities through increased tax measures.

The legislation introduces three key changes: A 2% increase in the value-added tax (VAT) starting mid-2025, a 2% rise in personal income tax, and the introduction of a 2% corporate profit tax, both effective from 2026.

With the VAT rate set to 24% in July 2025 and the personal income tax to match that rate the following year, the Estonian Ministry of Finance projects the measures will generate an additional EUR 113 million in 2025 and EUR 751 million in 2026.

The collected funds will be allocated to defense investments, with specifics outlined in the upcoming state budget and 2025-2028 fiscal strategy.

Earlier, the  Estonian government cabinet had approved the introduction of a broad-based security tax for the years 2025-2028 to generate additional funds for necessary defense investments.

Starting in the summer of 2025, the value-added tax (VAT) will increase by two percentage points, and from 2026, a 2% security tax will be applied to personal income and corporate profits.

“Tax increases are certainly not the current government’s choice; the need arises from the direct and indirect impact of Russia’s military actions. The war is ongoing, and in the coming years, we must make additional contributions to Estonia’s defense and security. This is a responsibility we all share,” said Finance Minister Jürgen Ligi.

“Taxing corporate profits is the least negatively impactful way for companies to contribute to national security over the next few years. The tax is temporary and set at a low rate. If a company has no profit, there will be no tax obligation,” explained Deputy Secretary General Evelyn Liivamägi.

The tax base will be the accounting profit before tax from the previous fiscal year, and the tax will be paid in advance. Companies will pay the security tax for the first time in 2026, with two payments scheduled for 10 September and 10 December as an exception.

In 2027, advance payments will be made quarterly. Companies whose fiscal year aligns with the calendar year will pay on 10 March, 10 June, 10 September, and 10 December. After submitting the annual report, the tax will be recalculated based on actual profits. Generally, the tax base will be the pre-tax accounting profit, adjusted only in very few cases.

Tax liability will only apply to profitable companies. If a company makes a profit, it is generally also financially capable of contributing to national security. The security tax will be paid by both resident companies and permanent establishments (PEs) of non-resident companies operating in Estonia.

Compared to the European Union, Estonia collects relatively few profit- and asset-based taxes. In 2022, Estonia’s capital taxes accounted for 2.7% of GDP, ranking second to last in the EU, where the average was 8.9% of GDP.

According to the statistics office, there are approximately 145,000 active companies in Estonia, about 60% of which are profitable.

The expected revenue from the corporate profit tax is EUR 157 million in 2026, EUR 164 million in 2027, and EUR 173 million in 2028.

The overall security tax revenue expected for the state budget in 2026 is EUR 751 million.