Estonian Parliament plans to shorten the validity period of the transitional provisions of the previously adopted Value-Added Tax (VAT) Act with the draft law of the defense tax

On October 16, the Estonian Parliament finished the first reading of the draft law of the defense tax, which among other includes amendments of the VAT Act. According to the draft law, the standard VAT rate will rise to 24% as of July 1, 2025, to the end of 2028 instead of the current 22%.

According to the current explanatory letter of the draft law, no transitional provisions are foreseen in connection with the increase in the VAT rate, indicating that the entrepreneur must consider all possible risks and minimize them when entering into agreements.

In addition, the Parliament plans to shorten the validity period of the transitional provisions that accompanied the previous VAT rate increase. For example, if according to the VAT Act (§ 46(25)) which entered into force in 2023, the taxable person had the right under certain conditions to apply 20% VAT to the turnover generated on the basis of contracts concluded before May 2023, up to the end of 2025, then according to the current draft law this distinction would be cancelled  already in the middle of the next year and upon adoption of the draft law, as of July 1, 2025, 24% VAT rate will apply to all goods and services subject to standard VAT rate.

Authors: Kätlin Klaos, Tatjana Kriisa