The upcoming summer season will bring with it a higher VAT rate and from 1 July 2025 the standard VAT rate will be 24%.
The basis for the increase of VAT rate is the Defense Tax Act adopted in November 2024, which established a temporary increase of the VAT rate from 22% to 24% until 2029. It now appears that the soon-to-be-enforced 24% VAT rate will remain in effect indefinitely, as the latest amendment to the Defense Tax Act submitted to the Riigikogu cancels the planned reduction of the VAT rate back to 22%.
Please note that with the upcoming tax rate increase in July, the transitional measure for long-term contracts introduced in the context of the 2024 VAT increase will also end. Originally set to remain in effect until 31 December 2025, the measure will now be terminated already on 30 June 2025. This means that from 1 July 2025, taxable persons will no longer be entitled to apply the 20% VAT rate to long-term contracts concluded before 1 May 2023, which stipulate that the applicable VAT rate is 20% and do not contain a price adjustment clause in the event of a VAT rate change.
As part of the current tax rate increase to 24%, the legislator has not provided any transitional measures, and from 1 July, the new 24% rate must be applied to all transactions subject to the standard VAT rate!
In addition to the VAT rate increase, an amendment to the Accounting Act will also enter into force on 1 July 2025. From this date, businesses that have registered themselves as recipients of e-invoices have the right to request an e-invoice from the suppliers for the goods or services received.
