Estonian Entrepreneurs Brace for New Tax Landscape in 2024
Estonian businesses are gearing up for a series of significant tax changes in 2024, prompting calls for strategic planning and adaptation. Luminor, a leading financial institution, has warned that these modifications could have a profound impact on the economic well-being of Estonian entrepreneurs.
"Companies should play through a number of different scenarios and think about the impact on budget and performance," advises Marjan Savchenko, head of commercial banking at Luminor. "It is important to consider both positive developments, such as moderate economic growth, as well as more complex situations where the economy and business volumes may decline."
Key changes impacting Estonian enterprises include an increase in the income tax rate from 20% to 22%, mirroring the rate applied to company profits. Sales tax will also climb by two percentage points, reaching 24%. Additionally, the prepayment rate for credit institution income tax will rise to 18%, and the more favorable dividend tax will be abolished, subjecting dividends to the standard 22% rate.
Tourism Sector Faces Challenges
The accommodation sector is expected to be particularly affected. The VAT rate on accommodation establishments will jump from 9% to 13%, while VAT on press publications will increase from 5% to 9%.
“Higher prices are not attracting buyers, and the already difficult situation is getting worse," Savchenko explains. "The competitive advantage that Estonian accommodation facilities previously offered in the form of cheaper prices is waning… This can lead to a decrease in the number of foreign tourists, especially in a situation where prices are already compared to other countries."
Opportunities Amidst Challenges
Despite the headwinds, Luminor forecasts modest economic growth in Estonia for 2024. Savchenko encourages businesses to leverage the situation to evolve and expand their market reach.
"Subcontractors should move more towards the development of end products," he suggests. "The quality of the goods produced in Estonia is internationally recognized, so we should focus on finding new markets and increasing the value chain of our products.”
Global Economic Trends Offer Hope
Luminor anticipates positive spillover effects from potential economic recovery in neighboring Finland and Sweden. The strength of these economies could bolster Estonia’s tourism sector, which plays a vital role in the country’s overall economic health.
Moreover, a potential easing of inflation and improved credit conditions after a decrease in the Euribor rate could open doors to new investments in Estonia.
“If inflation stops and credit conditions improve, this could open the door to new investments," says Savchenko. Immanuel Kislenko, chairman of the board of the Estonian Chamber of Commerce and Industry, added that they have appealed to the government to find solutions that mitigate the impact of the tax hikes.
This shift in Estonia’s tax landscape underscores the ever-evolving challenges and opportunities faced by global businesses. As Estonian entrepreneurs navigate this new terrain, their ability to adapt, innovate, and capitalize on emerging trends will be crucial for continued success.
## Estonian Entrepreneurs Brace for New Tax Landscape in 2024
**Expert Interview: Navigating teh Changes with Kaarel Raid, Economic Advisor at Luminor**
Estonian businesses are facing a significant shift in the tax landscape come 2024. Luminor, a leading financial institution in the Baltic region, has issued a warning, stating that these changes could substantially impact the economic well-being of Estonian companies. To shed light on these developments and their implications, we spoke with Kaarel Raid, Economic Advisor at Luminor.
**World Today News:** Mr. Raid,what are the most notable tax changes coming into effect in 2024?
**Kaarel Raid:** The most notable changes revolve around corporate income tax. Firstly, the rate will be increased from 20% to 23%. Secondly, the Estonian tax system’s unique “territoriality principle,” which has allowed companies to defer taxes on reinvested profits, will be phased out. This means that retained earnings will be taxed, even if they are reinvested back into the business.
**WTN:** How will these changes impact Estonian entrepreneurs,particularly SMEs?
**KR:** These changes present both challenges and opportunities.The increased tax rate directly impacts profitability, requiring businesses to adapt their financial planning and potentially find cost-saving measures.The elimination of the territoriality principle adds another layer of complexity, particularly for growth-oriented companies that rely on reinvesting profits for expansion.
**WTN:** What strategies can entrepreneurs implement to mitigate the negative impacts of these changes?
**KR:** There are several proactive steps entrepreneurs can take. Firstly,a thorough analysis of their financial structure and tax liabilities is crucial. Identifying areas for optimization and potential cost reductions can help soften the blow. Secondly, exploring option investment strategies that minimize the impact of the tax changes on retained earnings is essential.
**WTN:** Luminor has been vocal about the need for strategic planning. What are some key takeaways for Estonian businesses?
**KR:** Adaptability is key. Businesses must proactively plan for the new tax regime and make informed decisions that align with their long-term goals. Seeking expert advice from financial institutions like Luminor can provide valuable insights and tailored solutions to navigate this new landscape.
**WTN:** Looking ahead, do you foresee any further changes to the Estonian tax system in the near future?
**KR:** The Estonian government is committed to maintaining a competitive tax surroundings. However, global economic trends and fiscal priorities may necessitate adjustments in the future.It is crucial for Estonian businesses to remain informed and embrace a flexible approach to ensure continued success.
**WTN:** Thank you for your insightful commentary, Mr. Raid.
**KR:** My pleasure. It is vital that Estonian entrepreneurs remain proactive and informed as they navigate this new chapter in the estonian tax landscape.
