NordenBladet – In a late-night session, the Riigikogu, Estonia’s parliament, passed a law tied to a vote of confidence in the government, leading to significant tax reforms. The legislation received support from 58 members, while 33 opposed it.
Effective from 2024, the new law eliminates certain tax breaks for individuals, including additional tax-free income for child and spousal support, as well as the deduction of mortgage interest. In addition, starting in 2025, both individual and corporate income tax rates will rise by two percentage points, reaching 22 percent. This change will eliminate the preferential 14 percent tax rate on distributed corporate profits and the 7 percent withholding tax on dividends paid to individuals.
Originally, the draft legislation proposed increasing the advance payment rate for credit institutions from 14 percent to 22 percent. However, the government modified the document before the second reading, reducing the increase to 18 percent.
Furthermore, beginning in 2025, the law replaces the regressive tax-free income system with a flat annual tax-free income of 8,400 euros or 700 euros per month. Retirees will be exempt from this change, as their tax-free income will align with their average pension.
The initial reading of the measure took place on May 17, with 377 amendments submitted by the deadline. On June 8, the government decided to link a vote of confidence to the adoption of the measure before the second reading, thereby taking on the responsibilities of the lead committee. The proposed amendments to the government’s measure of confidence will not be subjected to a vote.
The Riigikogu’s extraordinary session will continue on Tuesday morning, involving the second and third readings of the bills, as well as several votes of confidence. The session will continue until all agenda items have been addressed.
Featured image: NordenBladet