2018 Doing business and investing in Estonia - www.pwc.ee
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www.pwc.ee Doing business and investing in Estonia 2018
2 PwC
Contents
5 Office location in Estonia
1 Country profile and investment climate
6 1.1 Introduction
1.2 Government structure
1.3 Legal system
1.4 People
1.5 Economy
1.6 Foreign trade
1.7 Further reading
2 Business environment
12 2.1 Business climate
2.2 Free trade zones
2.3 International agreements
2.4 Legal environment
2.5 Regulations for business
2.6 Property market
3 Banking, finance and insurance
18 3.1 Banking system
3.2 Specialised financial institutions
3.3 Investment institutions
3.4 Capital markets
4 Importing and exporting
20 4.1 Trends in customs policy
4.2 Import restrictions
4.3 Customs duties
4.4 Temporary import relief
4.5 Documentation and procedures
4.6 Warehousing and storage
4.7 Re-exports
5 Business entities
22 5.1 Legal framework
5.2 Choice of entity and business forms
5.3 Private limited company (OÜ) and public limited company (AS)
5.4 Partnerships
5.5 Branches
5.6 Representative offices
5.7 Sole proprietorship
6 Labour relations and social security
26 6.1 Labour market
6.2 Labour relations
6.3 Working conditions
6.4 Social security system
6.5 Foreign personnel
7 Accounting and audit requirements
32 7.1 Accounting
7.2 Chart of accounts
7.3 Audit requirements
Guide to doing business and investing in Estonia 3
35 8 Tax system and administration
8.1 Tax system
8.2 Direct and indirect tax burden
8.3 Principal taxes
8.4 Legislative framework
8.5 Tax treaties
8.6 Tax returns and payments
8.7 Assessments
8.8 Appeals
8.9 Withholding taxes
8.10 Tax audits
8.11 Penalties
8.12 Advance clarifications
9 Taxation of corporations
41 9.1 Corporate tax system
9.2 Incentives
9.3 Taxable income
9.4 Deductibility of expenses
9.5 Related party transactions
9.6 Foreign exchange
9.7 Tax computations
9.8 Other taxes
9.9 Branch versus subsidiary
9.10 Holding companies
45 10 Taxation of individuals
10.1 Territoriality and residence
10.2 Taxable income
10.3 Non-taxable income
10.4 Deductions
10.5 Taxation of non-residents
10.6 Tax compliance
48 11 Value added tax (VAT)
11.1 Introduction
11.2 Scope of VAT
11.3 Zero-rating
11.4 Exempt supplies
11.5 Taxable amount
11.6 Non-deductible input VAT
11.7 VAT incentives
11.8 Simplification measures
11.9 Specific reverse charge
11.10 VAT compliance
52 12 PwC in Estonia
12.1 Assurance services
12.2 Tax services
12.3 PwC Legal
12.4 Advisory services
55 Appendices
4 PwC
Foreword
We welcome the opportunity through this Guide to provide relevant
information for doing business and investing in Estonia.
Estonia is a small country located at the heart of the Baltic Sea Region
- Europe’s fast growing market of nearly 100 million people. Attractive
location between East and West, an excellent business environment, stable
government and liberal economic policy, moderate costs and the ease of
doing business have already attracted numerous international companies to
Estonia.
Estonia’s economic freedom is among the highest in the world. In 2018
Index of Economic Freedom (prepared by the Heritage Foundation) Estonia
is ranked 7th out of 180 countries. The Ease of Doing Business index by
the World Bank (2017) sets Estonia at the 12th position. According to
Transparency International (Corruption Perception Index 2017), Estonia is
ranked 21st out of 180 countries.
This Guide has been prepared for the assistance of those interested in doing
business in Estonia. It does not cover exhaustively the subjects it treats, but
is intended to answer some of the important, broad questions that may arise.
When specific problems occur in practice, it will often be necessary to refer to
the laws, regulations and decisions of the country and to obtain appropriate
accounting and legal advice.
If you need additional information on doing business in Estonia, please do
not hesitate to contact us in our office in Tallinn or through your nearest PwC
office.
Tiit Raimla
Country Managing Partner
Guide to doing business and investing in Estonia 5
Office location in Estonia
Tallinn
Rakvere Kohtla-Järve
Narva
Paldiski Jõhvi
Kärdla
Haapsalu Rapla Paide
Jõgeva
Viljandi
Pärnu Tartu
Kuressaare
Põlva
Valga
Võru
The PricewaterhouseCoopers office in
Estonia is located at the following address:
Pärnu mnt 15
10141 Tallinn
Tel. +372 614 1800
Fax. +372 614 1900
www.pwc.ee
tallinn@ee.pwc.com
6 PwC
1 Country profile
and investment climate
Investor considerations: 1.1 Introduction be permanent snow cover from
December to March and the sea may
A small Nordic country, having close The Republic of Estonia is situated be iced over during these months.
economic ties with Scandinavia and in Northern Europe along the Baltic
Western Europe Sea. Finland lies to the north of History
Estonia, across the Gulf of Finland. Estonians have been living in this
A favourable geographic location on
Sweden is the western neighbour territory since approximately 2500
the Baltic Sea, a region of intense
across the Baltic Sea. Estonia B.C., making them among the
economic activities and growth borders Russia in the east, with longest settled of the European
potential with good access to Russia, St. Petersburg approximately 350 peoples. Due to Estonia’s strategic
the CEE countries and the EU region kilometres across the north-eastern location as a link between East
Member of both the EU and NATO border. In the south Estonia borders and West, it has been conquered
starting from spring 2004 Latvia. Estonia has approximately numerous times, and under foreign
1.3 million inhabitants. rule for several centuries.
Member of WTO
Part of the Euro zone since 1 Tallinn, the capital of Estonia, lies At the beginning of the 13th century,
January 2011 on the Baltic Sea coast, only about Estonia was conquered by the
80 kilometres (50 miles) south Teutonic knights whose castles still
of Helsinki, across the Gulf of dot the countryside. By 1285, Tallinn
Finland. The population of Tallinn is was a member of the Hanseatic
approximately 450 thousand. Other League. During the Middle Ages, the
bigger cities are Tartu, Narva and Hanseatic League, which combined
Pärnu. 70 Baltic Sea cities, formed one of
the most powerful trading blocs in
The territory of Estonia covers 45 the world. The German merchant
thousand square kilometres (17 families, which settled here,
thousand square miles). Estonia dominated trading activities and
is a lowland country with average successive generations of Germans
elevation of about 50 meters (160 built their manor houses across the
feet) and a considerable part of the country.
territory covered with wetlands.
Germans were only the first among
The highest point, Suur Munamägi, successive waves of conquerors.
is only 318m (1,043 feet) above Danes, Swedes, Poles and Russians
sea level. More than 1,500 offshore all swept across Estonia, setting up
islands make up 9 percent of the successive regimes, fortifying their
country’s total territory. The largest towns and castles, and shipping their
of the islands are Saaremaa and goods through Estonian ports.
Hiiumaa. Estonia is a country of
numerous lakes, the largest of which In the late 19th century a powerful
are Lake Peipsi and Lake Võrtsjärv. Estonian nationalist movement arose
and on 24 February 1918, Estonia
Estonia has a temperate maritime declared its independence from
climate. Russia. The period of independence
Helsinki St. Petersburg was brief and Estonia was forcibly
80 km The Baltic Sea has a strong influence annexed by the Soviet Union in
350 km on local weather, especially in 1940. In 1991, Estonia regained its
the coastal regions. Temperature independence, having managed to
Tallinn ranges from -7ºC (19ºF) average break free from the Soviet Union
daily in January to 17ºC (63ºF) without any acts of violence.
average daily in July. Total rainfall Estonia became a member of NATO
is between 500 and 700 millimetres on 29 March 2004 and joined the
(20 to 28 inches) a year. There may European Union on 1 May 2004.
Guide to doing business and investing in Estonia 7
Since 1 January 2011, Estonia is part All citizens over 18 years of age have Pursuant to the Constitution the
of the Euro zone. the right to vote. Republic of Estonia is not to enter
into international treaties which are
1.2 Government The Parliament is Estonia’s highest in conflict with the Constitution.
structure legislative authority and it is vested
with the right to adopt laws. If laws or other legislation in Estonia
The highest authority of national are in conflict with international
legislation in Estonia is the A distinction is made between treaties ratified by the Parliament,
Constitution of the Republic of ordinary laws which are passed by the provisions of the international
Estonia (Eesti Vabariigi põhiseadus). a simple majority of votes in the treaty shall apply.
The constitution was adopted by a Parliament, and constitutional laws,
referendum and came into effect the adoption and amendment of The President
on 29 June 1992, after Estonia had which requires a vote by the majority The President of Estonia is elected
regained its independence. of all members of the Parliament. for five years by the Parliament
or, under specific circumstances,
Any other legislative acts must be in In addition, the Parliament has the by an electoral body consisting of
conformity with the Constitution as right to ratify and withdraw from the members of the Parliament
well as with the generally recognised international treaties and decide on and representatives of local
principles and rules of international government loans. governments. The President is
law which are an inseparable part of
the Estonian legal system.
The Parliament
According to the Constitution,
Estonia is an independent and
sovereign democratic republic
wherein the supreme power of state
is vested in the people. The people
exercise their supreme power of
state through the election of the
Estonian parliament (Riigikogu).
Ordinary elections of the 101
members of the unicameral
Parliament are held every four years.
8 PwC
the formal head of state and the emergency, the President of the is founded upon the principle of the
commander-in-chief of the Estonian Republic may, in matters of urgent priority of legislative acts as a source
Defence Forces. state need, issue decrees which of law and their precedence over
have the force of law. any other sources, such as judicial
The laws passed by the Parliament practice, doctrine or custom.
are presented to the President for As a member of EU since 1 May
proclamation. The President has 2004, Estonia is bound by EU Courts
a right to veto the laws passed by law. The Ministry of Justice is Estonia has a three-level court
the Parliament pursuant to which responsible for the coordination of system, where:
he/she may return the act to the the harmonisation of Estonian law
Parliament. and EU law, making suggestions (i) county courts and administrative
about harmonising Estonian legal courts adjudicate matters in the first
If the Parliament does not thereafter acts with EU legal acts and giving instance;
amend the law, the President can the ministries and other institutions
proclaim the law or has the right advice about the EU legal system (ii) appeals against decisions of
to propose that the Supreme Court and the principles of legislation. courts of first instance are heard by
declare the law unconstitutional. courts of second instance and;
If the Supreme Court finds that Local government councils
the law is in conformity with the Local Government Councils (iii) the Supreme Court is the court
Constitution, then the President are regional representative and of the highest instance.
proclaims the law. legislative bodies, elected by the
residents of a rural municipality or County courts as courts of first
The Government city for the period of three years. instance hear all civil, criminal and
Under certain conditions other All permanent residents (including misdemeanor matters. The decisions
state institutions may also exercise citizens and non-citizens) of at least of county courts can be appealed
legislative power. The Government 18 years of age are eligible to vote. to the courts of appeal (also called
of the Republic (Vabariigi Valitsus) Local executive power is vested in circuit courts), being the courts of
and the ministers carry out the local governments that resolve local second instance. Administrative
legislative function by using the right issues and have local budgets to fulfil courts hear administrative matters
to pass regulations on the basis of their duties. as courts of first instance.
and for the implementation of laws
(so called intra legem regulations). 1.3 Legal system The decisions of county and
administrative courts are reviewed
If the Parliament is unable Like all continental European legal by courts of appeal in the second
to convene in a situation of systems, the Estonian legal system instance by way of appeal
Guide to doing business and investing in Estonia 9
proceedings on the basis of an third rural. 69% of the population Estonians are predominantly
appeal, an appeal against a ruling, is of Estonian ethnicity. The second Lutherans, but religion does not
or a protest. largest ethnic group is Russian, have any considerable impact on
forming approximately 25% of the daily life. There are small Russian
The Supreme Court is the court of population. 1.7% of the population Orthodox, Baptist and other
the highest instance, which reviews has Ukrainian roots, and Belarusians communities across the country.
decisions by way of cassation and Finns make up approximately
proceedings, i.e. the parties to 0.9% and 0.6% of the population Estonia has been reforming its
the proceedings have the right respectively. education system since regaining
to appeal to the Supreme Court independence in the beginning of
against the decisions of the courts The official language is Estonian. 1990s. The current system consists
of appeal. A matter is accepted for More than one million people speak of compulsory basic education,
proceedings in the Supreme Court Estonian, which belongs to the followed by upper-secondary
if the statements presented in the Finno-Baltic group of the Finno- education, at either a general high
appeal show an opinion that the Ugric language family. Estonian school or a vocational school. The
appeals court applied incorrectly, is closely related to Finnish (the general education process then
or materially violated a procedural similarity is comparable to that offers higher education at university
rule that may involve an incorrect between Italian and Spanish), while or at an applied higher education
judicial decision. The Supreme Hungarian is a more distant relative. institution, and the vocational
Court is also the constitutional Estonia uses the Latin alphabet. As process offers post-secondary
review court. a majority of the Estonian business education at a technical school. The
community is internationally reformed educational system does,
1.4 People oriented, English is understood and however, provide for movement
spoken fluently by a large number between the general and vocational
The total population of Estonia is of businesspeople. Furthermore, processes. Education is mostly
around 1.3 million people. As in many Estonians speak Russian and, provided in Estonian. State and
other countries in the region, the especially in Northern Estonia, municipal education establishments
population growth rate has been Finnish, among other foreign are mostly free of charge. There are
very modest recently. Average life languages. 20 institutions of higher education
expectancy was 78 years in 2015; in Estonia, including the renowned
73 years for men and 82 years for Overall, most Estonians are not University of Tartu, Tallinn
women. The population density is religious. There is a tolerance toward University of Technology, and other
approximately 30 inhabitants per all religions and in general religious universities. The study programs
square km. Around two-thirds of beliefs do not affect business of the bigger universities tend to be
the population is urban, and one- activities in Estonia. Formally, internationally accredited. Some
10 PwC
universities have programs in the over the last twenty years. Estonia fishing, timber and wood products,
English language. has a liberal market-based economy. shipbuilding, electronics,
The government has pursued nearly transportation and various services
After regaining independence balanced budgets and low public debt. remain key sectors of the Estonian
from the Soviet Union, Estonia has economy. Estonia produces nearly
been among the most advanced Oil shale-based energy production, all of the energy needed for the
emerging markets in Central and telecommunications and IT country, supplying large part of its
Eastern Europe, mostly owing to the products, textiles, chemical electricity needs with locally mined
success of its socio-economic reforms products, banking, food and oil shale. Alternative energy sources
such as wood, peat, and biomass
Key economic indicators 2007–2017
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
GDP
In current prices (EUR billion) 16.2 16.5 14.2 14.7 16.7 18.0 19.0 20.0 20.4 21.0 23.0
Real growth (%) 7.2 (5.0) (14.2) 1.8 7.6 4.3 2.0 2.8 1.8 2.2 4.8
Prices
Consumer price index (%) 6.6 10.4 (0.1) 3.0 5.0 3.9 2.8 (0.1) (0.5) 0.1 3.4
Labour market and wages
Unemployment rate (%) 4.6 5.5 13.5 16.7 12.3 10.0 8.6 7.4 6.2 6.8 5.8
Average monthly gross wages 726 825 784 792 839 887 949 1005 1065 1146 1221
and salaries (EUR)
General government budget
Revenue (EUR billion) 6.0 6.1 6.2 6.0 6.4 7.0 7.2 7.7 8.2 8.5 -
Expenditure (EUR billion) 5.5 6.6 6.5 6.0 6.2 7.0 7.3 7.6 8.2 8.5 -
Balance (+/-) (EUR billion) 0.4 (0.4) (0.3) 0.0 0.2 (0.0) (0.0) 0.1 0.0 0.0 -
Foreign trade
(special trade system)
Exports (EUR billion) 8.0 8.5 6.5 8.7 12.0 12.5 12.3 12.0 11.6 11.9 12.9
Imports (EUR billion) 11.4 10.9 7.3 9.3 12.7 14.1 13.9 13.8 13.1 13.6 14.8
Balance of payments
Current account balance (EUR (2.4) (1.4) 0.4 0.3 0.2 (0.3) (0.1) 0.2 0.4 3.9 4.0
billion)
Current account balance/GDP (%) (17.1) (9.8) 2.9 1.8 1.3 (1.9) (0.5) 0.3 2.0 1.9 -
Direct investments assets’ 1.7 0.9 1.0 0.9 (1.0) 1.0 0.6 0.8 (0.5) 1.6 -
transaction (EUR billion)
Direct investment liabilities’ 2.2 1.3 1.3 1.9 0.8 1.4 0.8 1.3 (0.6) 0.7 -
transaction (EUR billion)
International investment position
(at end of year)
International investment position (11.6) (12.5) (11.3) (10.5) (9.1) (9.2) (9.5) (9.2) (8.1) (7.8) -
(EUR billion)
Direct investment assets’ 5.6 6.3 6.0 6.5 6.1 7.1 7.7 8.8 8.5 8.9 -
positions at the end of period
(EUR billion)
Gross external debt (EUR billion) 17.4 19.0 17.3 16.5 16.7 18.0 17.6 19.1 19.2 19.0 -
Source: Bank of EstoniaGuide to doing business and investing in Estonia 11
contribute approximately 20% of flight network via its international General information about Estonia:
primary energy production. airport in Tallinn, serving direct http://www.visitestonia.com/
flights to numerous European cities.
Key economic indicators over the Statistical information about
period 2007–2017 are summarised 1.6 Foreign trade Estonia: http://www.stat.ee/en
in the table below.
In 2017, the export of goods totalled Background on the investment
1.5 Economy EUR 12.7 billion and total imports climate in Estonia:
amounted to EUR 14.7 billion. http://www.investinestonia.com/
Transport and telecommunications Estonian foreign trade is mostly
are well developed in Estonia. An based on strong economic ties with Information about foreign trade:
efficient road network covers the Finland, Sweden, Russia, Latvia, http://www.estoniantrade.ee
whole of Estonia, though the quality Lithuania and Germany, as well as
of some secondary roads remains with other countries. Information about the Estonian
below western standards. There is language:
a well-developed rail connection 1.7 Further reading http://www.einst.ee/publications/
between Estonia and Russia. In language/
combination with the well-located Some general tips for business
ice-free ports in the northern part of visitors on visas, currency and public Information about the capital city
the country (the Port of Muuga near holidays can be found in Appendix Tallinn:
Tallinn being the largest), Estonia B. For further background reading http://www.tourism.tallinn.ee/eng
has served as a major transit corridor on Estonia, the web pages referred
between the West and East. Estonia to below contain some very reliable
is connected to the international material.
Estonian exports and imports by commodity groups, 2017
EUR in billions Exports % of total Imports % of total
Food and live animals 1.0 8% 1.2 8%
Beverages and tobacco 0.1 1% 0.3 2%
Crude materials, inedible, except fuels 1.2 9% 0.6 4%
Mineral fuels, lubricants and related
1.2 14% 1.4 10%
materials
Animal and vegetable oils, fats and
0.0 0% 0 0%
waxes
Chemicals and related products 0.9 6% 1.7 12%
Manufactured goods classified chiefly
2.0 14% 2.3 16%
by material
Machinery and transport equipment 4.1 34% 5.6 38%
Miscellaneous manufactured articles 2.1 13% 1.5 10%
Commodities and transactions not
0.1 1% 0.1 1%
classified elsewhere in the SITC
Source: Statistical Office of Estonia12 PwC
2 Business environment
Investor considerations:
2.1 Business climate and implementing e-government
solutions and cyber security. 99% of
Estonia is one of the most politically Estonia is the leading country in people use Internet banking services
stable countries in CEE region a Central and Eastern Europe in and more than 95% complete their
membership in Eurozone, WTO, terms of attracting foreign direct income tax return over the Internet.
NATO and OECD. investments. Estonia is within a Estonia hosts both the cyber security
3-hour flight from most major centre of NATO and the IT-agency of
Estonia does not have corporate European, Scandinavian and the European Union.
income tax on reinvested profits and Russian cities. Overall, the business
it has the lowest public debt in the climate in Estonia is characterised as 2.2 Free trade zones
EU. free business and trade in alignment
Estonia has a highly educated and with EU practices. Many companies There are three free trade zones
motivated workforce. are subsidiaries of European, established under separate orders
particularly Scandinavian, firms. of the Estonian Government: at the
Estonia is a frontrunner in applying
Estonia has some of the highest ports of Muuga; Paldiski and Sillamäe
modern IT solutions having a wide credit ratings in the region in the northern coast of Estonia as
range of state e-services, e-banking, (Standard & Poor: AA-; Moody's: A1; well as in Valga in the south-east
nation-wide ID-card and a digital Fitch IBCA: A+). Estonia (see also chapter 4.6).
signature legally equal to handwritten
signature. In 2014, Estonia launched Estonia is a member of euro area 2.3 International
its e-residency program, which allows since 2011, but the country’s cost agreements
non-Estonians to access Estonia’s level is still significantly lower than
e-services and run an Estonian that of neighbouring Scandinavian Estonia is a member of the WTO
company remotely. countries. from 1999 and the European
Estonia is the most transparent Throughout the
and the least corrupt country in period of regained
CEE (Transparency International independence,
Corruption Perception Index 2017, the economic and
21st out of 180 countries) fiscal policy of the
Economic freedom is regarded as Government has
one of the highest in the World and mostly been aimed
at achieving long-
one of the best in EU (Economic
term economic
Freedom World Ranking 2018, 7th
growth. The overall
out of 180 countries) Government attitude
Regulatory environment is conducive is very welcoming
for starting and operating a company towards foreign
(World Bank Ease of Doing Business capital, especially
2017, 12th out of 190 countries) into sectors that are
export-oriented,
innovative and
support regional
development. 0%
corporate income
tax is imposed on all
reinvested earnings
in Estonia.
Estonia is one of the
leading countries in
the world in creatingGuide to doing business and investing in Estonia 13
Union and NATO from 2004. 2.5 Regulations for basic fees, premiums, additional fees,
In 2010, Estonia became the business interest rates, rent or lease payments
34th member of OECD, the applicable to third parties are
organisation that includes most of Competition policy prohibited. This principle is applied
the world's wealthiest and most Estonian competition policy in conformity with the European
developed countries. Currently is generally in line with EU Commission Notice on Vertical
Estonia has 58 double taxation competition principles. Restraints (2000/C 291/01), which
treaties in force. prohibits the establishment of a fixed
The Estonian Competition Authority resale price. However, the provision
2.4 Legal environment is the responsible body for of a list of recommended prices or
supervisory and regulatory activities maximum prices by the supplier to
Estonia has systematically reformed in this area. The Authority consists the buyer is not considered in itself a
its legal system since the 1990s of the Competition Division, Energy violation of price controls regulation.
with the top policy priority being and Water Regulatory Division
facilitation of entrepreneurship. and Communications Regulatory Consumer protection
Legislators and governments have Division. Estonia is one of the The principal legal acts regulating
always displayed the clear will to few countries in the European consumer protection are the
make the business environment Union, where the anti-competitive Consumer Protection Act, the
attractive in order to benefit from agreements, so-called cartels, are Trading Act, the Advertising Act
tax revenues and the jobs created by processed in criminal proceedings. and the Law of Obligations Act. The
attracting foreign investors. protection of the legitimate rights of
Price controls consumers and development and the
The Estonian legal environment The Estonian Competition Act implementation of consumer policy
favours entrepreneurship and the provides a general rule under in accordance with the provisions
entrepreneurial mind-set. Foreign which agreements between of UN Guidelines, the Consumer
investors have equal rights and concerted practices and decisions Protection Act and of EU consumer
obligations with local entrepreneurs. by associations of undertakings policy is vested mainly in the Estonian
All foreign investors may establish which directly or indirectly fix prices Consumer Protection Board (CPB).
a company and conduct business or any other trading conditions,
in Estonia in the same way as local including prices of goods, tariffs, The three most important functions
investors; no restrictions apply. fees, mark-ups, discounts, rebates, of the CPB are to supervise the14 PwC
consumer market, settle consumer Patents, trademarks, Berne Conventions, the Geneva Act
complaints and inform and advise copyrights of the Hague Agreement and the
consumers. The CPB constitutes an The principal Estonian laws Madrid Protocol.
inexpensive alternative to the civil governing intellectual property
courts, and the decisions of the are the Copyright Act, the Patents Patents
Board serve as guidelines for trade Act, the Trademark Act, the Utility Inventions in any field of technology
enterprises. The Board is entitled Models Act, the Industrial Design are entitled to patent protection
to impose fines and prescriptive Protection Act and the Geographical provided they meet the criteria
orders in case of a violation of Indication Protection Act. Business set forth in the Patent Act. An
the Consumer Protection Act and names and trade secrets are invention may be in the form of
other regulations. Together with protected under the Commercial a device, process or material,
other state and local government Code and the Competition Act. including biological material, or
institutions, the Board also monitors Estonia has been a member of the their combination. An invention
the following fields: product safety, WIPO (World Intellectual Property is patentable if it is new, involves
misleading advertising, consumer Organization) since 1994, and also an inventive step and is capable of
contracts, public services, product a signatory to several international industrial application. The creator
labelling, etc. treaties, including the Paris and of a patented invention has a moralGuide to doing business and investing in Estonia 15
right of authorship. This right is of the invention and the author’s measures. The EU import regime
inalienable and extends for an legal successors. Patent applications applies to Estonia.
indefinite term. Creators also have are filed with the Patent Office and
the economic right to receive fair an applicable state fee is paid. The As stated in the law, dumping is the
proceeds from profits made on the Patent Office will then conduct an export of goods by a foreign exporter
invention. Economic rights are investigation to determine whether to Estonian customs territory for free
transferable and inheritable. the invention meets the criteria and circulation of those goods, below
either issues a patent or rejects the their normal value according to the
An invention is granted patent application. Customs Code. The anti-dumping
protection upon its registration in measures are customs taxes
the State Registry of Patents. The Trademarks applicable with the rate ascertained
owner of the patent has exclusive The Trademark Act defined by investigative procedure for
rights to the patented inventions trademarks and service marks reducing damage to Estonian
throughout the validity of the as signs used to distinguish the industry resulting from the import of
patent term (20 years). The right goods and services of a particular goods at dumping prices.
to apply for and hold a patent is, as person from similar types of goods
a general rule, vested in the author and services offered by other While the EU has a rather liberal
persons. Trademarks are entitled to foreign trade policy, some products
protection if they are registered in need import licenses. There are
the Estonian Registry of Trade and some restrictions, especially
Service Marks, with the WIPO or the on farm products, following
EU Office for Harmonisation in the the implementation of the CAP
Internal Market. (Common Agricultural Policy): the
application of compensations on
To register a trademark with the import and export of farm products,
Estonian Registry of Trade and aimed at favouring the development
Service Marks, an application has of agriculture within the EU,
to be filed with the Estonian Patent implies a certain number of control
Office and the applicant has to pay and regulation systems for goods
a state fee. The Patent Office will entering the EU territory.
review the application and issue a
decision granting or denying the Acquisitions
application. The term of protection The two main types of acquisitions
for registered trademarks lasts are acquisition by way of business
for ten years and is renewable for (asset) purchase, and acquisition
further ten-year periods. by way of share purchase. The
actual type of acquisition depends
Copyrights on the intentions of the parties,
Copyright protection extends to e.g. whether the investor is
any original works in the realms interested in whole or part of the
of literature, art or science that are business of the target company,
expressed in an objective form and are and what are the outstanding
perceived and reproduced in this form liabilities of the target company,
either directly or by means of technical etc. It is always recommended to
devices. A copyright to a work arises conduct the due diligence before
automatically upon the creation of the acquisition, regardless of the
the work; neither publication of the type of acquisition.
work nor registration of a copyright is
necessary. Transfer of business
The Estonian Commercial Code defines
Estonian copyright law provides business as an economic entity through
for both moral and economic which the company is operating. One
rights. Protection of moral rights is company can have several enterprises,
perpetual while economic rights are e.g. structural entities like production
subject to protection for 70 years plants, retail stores, etc.
from the author’s death.
A transfer of business enterprise is
Anti-dumping usually undertaken when the buyer
Estonia applies EU trade policy such is not interested in some parts or
as anti-dumping or anti-subsidy liabilities of the company.16 PwC
In practice, the investor is mostly particular assets (such as real estate) shares may be made on the basis
interested in certain assets, are transferred separately from the of a simple written contract. In the
rights and goodwill of the target rest of assets. case of a public limited company
company and negotiates the price (aktsiaselts or AS), a written share
accordingly. Alternatively, the acquisition may be transfer agreement is sufficient.
performed by different transactions
Nevertheless, under the Law of in different forms. The parties are free to determine the
Obligations Act, upon transfer of date when the title to the shares is
assets that form a business enterprise, It should also be noted that public transferred, but for the purposes of
obligations related to the assets sold permits and licenses cannot the target company (i.e. with regard
are also transferred to the buyer. be transferred upon sale of the to the right to vote, right to dividends,
business enterprise and must be etc.), the shares are deemed to be
As a result, the buyer of the obtained by the acquiring company transferred as of the entry of the
assets will be jointly and severally separately. transfer into the list of shareholders.
liable for the enterprise-related
obligations of the seller, which Transfer of shares If the buyer is not an existing
are created before the transfer of If the shares in a company are shareholder of the target company
the enterprise and the due date of acquired, the buyer acquires and does not acquire a 100%
which falls within five years after all rights and obligations as a shareholding in the target company,
the transfer of assets. shareholder of the company. the other shareholders of the private
limited company (OÜ or osaühing)
A similar regulation is included The assets and liabilities of the have a pre-emptive right to purchase
in Estonian labour law for the company will not be modified, i.e. no the shares, unless the articles of
protection of employees in case of a “pick and choose” like in the transfer association of the target company
business transfer. of business. say otherwise.
There is no statutory requirement In the case of a private limited In the case of a public limited
regarding the form of the asset company (osaühing or OÜ), the company (AS or aktsiaselts), the
purchase. However, if particular acquisition of shares generally shareholders have the pre-emptive
assets involved require a particular requires a notarised share transfer right only if it is prescribed in the
form of contract (e.g. transfer of agreement, unless the shares of an articles of association.
real estate must be notarised), the OÜ are registered with the Estonian
entire purchase agreement needs Central Registry of Securities. It should also be noted that
to be in the same form, unless the In the latter case the transfer of transfer of majority shareholding,Guide to doing business and investing in Estonia 17
or acquisition of control over the their way of doing business. In the segments has increased the prices
company by some other means, second half of 2011 and in 2012, considerably. The average price
might be (if the sales in Estonia of the real estate market recovered and per square meter of an apartment
the target company and the sales both the transaction volumes and in 2017 in Tallinn was 1751 €/m2.
in Estonia of the buyer exceed a values started to increase again. Apartments in a new residential
certain threshold) considered as a building cost between 2500-3500 €/
merger for the purposes of Estonian In 2013, the Estonian real estate m2 (excluding unique apartments).
Competition Act. market continued to rise. The
rise has mainly been based on The number of transactions has
Thus, acquisition by way of share the positive developments of the increased considerably due to the
purchase may be subject to merger Estonian economy, the growing low interest rates, which has kept the
control but the acquisition by way of confidence of people, low interest real estate market accessible to many
business (asset) purchase is not. rates and the gradual addition of buyers. In recent years the monthly
new real estate developments. average interest rate of housing loan
The legal aspects of acquisitions in has steadily been around 2-3%.
Estonia are not very different from In 2017, 51,780 purchase-sale
countries in the EU and there are no transactions of real estate with the
special restrictions on foreign capital. total value of about 3.24 billion
euros were notarized. Over half Apartments'
2.6 Property market of the purchase-sale transactions
concerned apartments. The real
average
price per m2 1751
The Estonian real estate market estate market was the most active
€/m2
Tallinn
was the most active in the period of in Harju and Tartu Counties, which 2017
2004-2006, but in 2007 the number accounted for 44% and 10% of all
and value of real-estate transactions transactions, respectively.
began to fall gradually. From 2007
to 2011, the real estate market went The most active part of the real
through a severe recession. To cope estate market in Estonia is the
with the new situation, market market of apartments. However,
participants had to face a number the high number of transactions
of difficult decisions and reorganize and limited offering in some market18 PwC
3 Banking, finance
and insurance
Investor considerations: 3.1 Banking system
Estonia is part of the Euro zone since
The Bank of Estonia (Eesti Pank) is
1 January 2011 the independent central bank. As
The largest banks are subsidiaries Estonia is part of the Euro zone, the
and affiliates of Scandinavian core tasks of the Bank are to help
banking groups to define the monetary policy of
the European Community and to
A wide range of financial services
implement the monetary policy of
is available to both local and foreign
the European Central Bank. Eesti
customers Pank is also responsible for holding
and managing Estonian official
foreign exchange reserves as well as transaction systems. The number
supervising overall financial stability of internet clients is growing
and maintaining reliable and continuously. Active co-operation
well-functioning payment systems. between major banks and mobile
Eesti Pank is responsible for the operators has also led to innovative
circulation of cash in Estonia. solutions for customers. Debit and
credit cards are widely used in
The developments in the banking everyday transactions.
sector since Estonia regained
39.5%
independence have been 3.2 Specialised financial
rapid, along with the trend of institutions
welcoming foreign capital. The
Swedbank banking sector has gone through Estonian commercial banks are the
major restructuring as a result largest providers of leasing and
of privatisation, consolidation factoring services. The services
and bankruptcy in late 1990s, provided are becoming more
23.4% 14.2%
Luminor
following a relatively stable period sophisticated and diverse while
SEB in the 2000s. The banking sector is the clients are also becoming more
dominated by two major commercial aware of the services on offer. The
banks, Swedbank and SEB, owned sector has been growing extensively
by Swedish banking groups. These as a result of the decline in interest
Market share in Estonia
two banks control approximately rates and the increase in customers’
31 Dec 2017
63% of the financial services market. welfare. The range of potential
The third largest bank is an affiliate leasing objects has grown to include
of the Finnish Nordea group and the anything from bikes, home furniture
fourth largest bank is an affiliate of and travelling arrangements up to
the Danish Danske Bank. There are real estate, personal vehicles, trucks
no state-owned commercial banks or and farming equipment.
other credit institutions.
The factoring services include
Estonian banks offer a full range of domestic factoring, export factoring,
services. There is no differentiation invoice factoring as well as tax
between local and foreign factoring. There are also options to
businessmen and entities, which can finance VAT returns. For international
generally access the same range of companies, the available factoring
banking services in Estonia as they services include the handling of the
do in Western European countries. entire accounts receivable portfolio of
local companies.
Estonian banking has achieved
significant success in the The Estonian insurance market
development of electronic has similarly gone through a majorGuide to doing business and investing in Estonia 19
Market share of banks by total asset s as of 31 December 2017
Total assets EUR in billion Market share %
Swedbank AS 9,96 39,5%
AS SEB Pank 5.92 23.4%
Luminor Bank AS 3.58 14.2%
AS LHV Pank 1.73 6.8%
Danske Bank A/S Eesti filiaal 1.56 6.2%
OP Corporate Bank plc Eesti filiaal 0.65 2.6%
Bigbank AS 0.46 1.8%
AS Eesti Krediidipank 0.37 1.5%
Versobank AS (in liquidation) 0.29 1.2%
Tallinna Äripanga AS 0.23 0.9%
AS Citadele banka Eesti filiaal 0.18 0.7%
Svenska Handelsbanken AB Eesti filiaal 0.15 0.6%
AS Inbank 0.13 0.5%
Scania Finans AB Eesti filiaal 0.05 0.2%
Nordea Bank AB Eesti filiaal 0.00 0.0%
Folkefinans AS Eesti filiaal 0.00 0.0%
Total 25.25 100%
Source: Financial Supervision Authority
consolidation over the years since cancel the contract afterwards. investment banking units are also
independence and has reached The contribution to the mandatory involved in direct investment activity
stability. A wide choice of insurance pension fund is calculated as 2% of by providing companies with private
services is available from Estonian the salary to which the state add 4% equity finance.
insurance companies as well as from of the individuals’ salary. Overall,
international service providers. mandatory pension funds have 3.4 Capital markets
become popular among individuals.
3.3 Investment Voluntary pension funds offer All Estonian public limited company
institutions aside pension, and also traditional (AS-type) securities are registered
insurance services as for example life in the Estonian Central Security
Investment funds provide a wide insurance. There is a tax incentive Depository. Transactions with
range of different investment options. according to which individuals can securities can be made using
There are four types of investment make contributions up to 15% of over-the-counter systems or on the
funds allowed in Estonia. Contractual their income that are considered to regulated market.
investment and investment funds be exempt from income tax.
founded as a joint-stock company The regulated stock market operates
are the main types of funds used for Venture capital facilities have become in the context of a cross- Baltic stock
investment purposes. The majority more and more accessible. In addition exchange maintained by the NASDAQ
of Estonian investment funds are to expanding small and medium OMX Group that coordinates
managed by Estonian commercial enterprises, it has become easier the trading process and imposes
banks. Operations of mandatory and to gain access to financing through regulations. Investors can enjoy
voluntary pension funds build on the EBRD and other development simplified access and minimised
pension reform that was gradually programs. Nevertheless, the amount investment barriers when operating
implemented by 2003. of venture capital committed to on Estonian, Latvian and Lithuanian
Estonia is still relatively small when markets. Overall, the Baltic stock
Contributions into the pension compared to developed countries markets have similar market
fund are compulsory for young and some CEE countries. The practices and rules for all three Baltic
people. Others may voluntarily capital is usually of foreign origin countries, with common market
join the system but they cannot although many local brokerage and information and trading systems.20 PwC
4 Importing and exporting
Investor considerations:
All customs clearance procedures
are carried out electronically.
Common customs tariff duties are
applicable to all goods imported
into the EU. Importers may
apply for deferred taxation. VAT
is not imposed on the import of
goods subject to immediate tax
warehousing on the condition that
the recipient of the imported goods
is the keeper of the tax warehouse.
Exporters and importers must have
EORI registration.
4.1 Trends in customs imported into the EU. However, in
policy certain circumstances, such duties
are not applied.
As the member of the EU, Estonia
has implemented the EU customs The customs duty rates are based
legislation. As of May 1 2016, a new on value and dependent on the
Union Customs Code and related type of goods and the country of
acts became applicable, which origin. Imports from EFTA countries,
replaced Community Customs Code Switzerland, and EU candidate or
and its implementing provisions associated countries are generally
effective before that. free of duty. The duty rate usually
stays between zero and 10%.
The priority of Estonian customs Additional rates are usually levied as
authorities has been and will be in the a result of anti-dumping cases.
future the contraband trade, especially
tobacco products and alcohol. Estonia’s membership in the EU
implies that all aspects of customs
4.2 Import restrictions duties are decided by the common
customs tariff - TARIC. Customs duties
There is no banned list in Estonia, on imports and exports and charges
but some goods (e.g. drugs, military having an equivalent effect are prohib-
equipment, cultural objects, ited between member states.
hazardous waste, CITES goods) need
specific permission for importation In TARIC all measures relating to
which is given by the authorities tariffs, commercial and agricultural
concerned. legislation are integrated. This
database gives economic operators
Some quotas for certain types of a clear view of measures to be
goods are imposed by the EU and undertaken when importing or
are applied to all member states. The exporting goods. The TARIC does
quotas enable the importation of not contain information relating to
duty-free goods or goods at a lower national levies as rates of VAT and
rate, until the quotas are filled. excises.
4.3 Customs duties Valuation rules are based on the
WTO Customs Valuation Agreement
Common customs tariff duties are transposed onto the applicable
generally applicable to all goods European Community legislation.Guide to doing business and investing in Estonia 21
The customs value usually • persons who are established or free-zone procedure in
includes the charges for goods, in the customs territory of the accordance with the customs
transportation, insurance and other Community; legislation or Community
services provided for importing the • persons who provide the necessary legislation governing specific
goods into the EU. assurance of the proper conduct of fields, or in order to benefit from
operations and, in cases where a a decision granting repayment
Usually the import taxes should be customs debt or other charges may or remission of import duties.
paid at the point of entry. Importers be incurred for goods placed under Generally there is no limit to the
may apply for deferred taxation. a special procedure, provide a length of time goods may remain
guarantee required; in case of the under a storage procedure.
4.4 Temporary import temporary admission or inward
relief processing procedure, the person 4.7 Re-exports
who uses the goods or arranges
Under the temporary admission for their use or who carries out Non-Community goods destined
procedure, non-Community goods processing operations on the to leave the customs territory of
intended for re-export may be goods or arranges for them to be the Community are subject to a
used in the customs territory of the carried out, respectively. re-export notification to be lodged at
Community, with total or partial the relevant customs office and with
relief from import duties. 4.6 Warehousing and the exit formalities. The re-export
storage notification should meet the
4.5 Documentation and requirements for customs clearance
procedures Under a storage procedure, non- documentation.
Community goods may be stored
All customs clearance is carried in the customs territory of the The re-export procedure is not
through electronically. Community without being subject to applied for:
any of the following: • goods placed under the external
Any economic operator established • import duties; transit procedure which only pass
in the EU needs to have an EORI • other charges as provided for under through the customs territory of
number. Economic operators other relevant provisions in force; the Community;
established outside the EU have to • commercial policy measures, insofar • goods trans-shipped within, or
be assigned an EORI number if they as they do not prohibit the entry or directly re-exported from, a free
lodge a customs declaration, an Entry exit of goods into or from the cus- zone;
or an Exit Summary Declaration. toms territory of the Community. • goods under the temporary storage
procedure which are directly
A special authorisation from the Community goods may be placed re-exported from an authorised
customs authorities is required for: under the customs warehousing temporary storage facility.
• the use of the inward- or outward-
processing procedure, the
temporary admission procedure or
the end-use procedure.
• the operation of storage facilities for
the temporary storage or customs
warehousing of goods, except where
the storage facility operator is the
customs authority itself.
The conditions under which the use
of one or more of the procedures
referred to above or of the operation
of storage facilities is permitted is set
out in the authorisation.
The authorisation will be effective
from the date of issue and is usually
at a fixed date.
Except where otherwise provided
for in the customs legislation, the
authorisation mentioned above is
granted only to the following persons:22 PwC
5 Business entities
Investor considerations:
A foreign investor may operate
through the following corporate forms
that should be registered within
the commercial register: a public
limited company, a private limited
company, a general partnership, a
limited partnership, a commercial
association or a branch.
The private limited company and
public limited company are the most
commonly used forms of entities for
doing business in Estonia due to their
most essential characteristic – the
limitation of the shareholders’ liability.
Business units like permanent
establishments or representative
offices are not registered with the
Commercial Register. A permanent
establishment should be registered
in the registry of Estonian Tax and
Customs Authorities. As a general
rule, Estonian legislation does
not recognise the concept of a
representative office. However, the
branch must be registered in the
Commercial Register.
The estimated minimum cost of
setting up a branch or subsidiary in
Estonia may range between EUR
1,000 to EUR 3,000 (excluding a 5.1 Legal framework may not be misleading with regard
minimum compulsory share capital). to the legal form, area or scope
The legal environment for business of activity of the undertaking nor
Establishing a company in Estonia entities in Estonia is mostly contrary to good morals.
may take from few days up to a regulated by the Commercial Code
couple of weeks. Foreign investors (Äriseadustik). When starting operations in Estonia,
may also buy ready-made companies it should be kept in mind that there
(in this way, these procedures The passive legal capacity of an are certain areas of activity for which
might take only a few days upon entity commences as of its entry a license is required or in which
receiving all the relevant information/ in the commercial register and only a particular type of entity may
documents). terminates as of its deletion from the operate, as well as areas of activity in
Commercial Register. which operation is prohibited by law.
Every entity must have a business There may also be special
name which is entered in the requirements deriving from the law
Commercial Register and under with respect to the obligations of
which the undertaking operates. companies which are dependent
on the area of business of the
The business name always contains company (e.g. banking, investment,
the appendage referring to the legal insurance, lending, sale of fuel or
form of the entity. A business name alcohol, etc.).Guide to doing business and investing in Estonia 23
As a general rule, entities are subject most essential characteristic – the to the Commercial Register
to accounting obligations and need limitation of the shareholders’ electronically and authenticated
to submit financial statements to the liability. with digital signatures.
Commercial Register. An audit of the
financial statements may be required Consequently the main emphasis of Even though the number of
depending on the legal form and the this chapter is on these two forms of shareholders is unlimited by law
amount of share capital of the entity. business, and the central aspects of in both cases, the private limited
their operation are presented in the company is suited for a more closed
Entities may merge, divide or be form of a comparison. circle of contributors.
transformed only in the cases and
pursuant to the procedure provided 5.3 Private limited Accordingly, safeguards enabling
by law. In the cases provided by company (OÜ) and public respective control are provided by
law, the permission of a competent limited company (AS) law, including rights of pre-emption
agency is required for merger, in case of the sale of shares to non-
division or transformation. Private limited companies and shareholders, and even the possibility
public limited companies have a of prescribing (in the articles of
5.2 Choice of entity and share capital divided into private association) that a resolution of the
business forms limited company shares and public partners is required to transfer a share
limited company shares, and the or a part thereof to a third party.
The Commercial Code provides shareholders are not personally
for five types of business entities: liable for the obligations of the The shares of a public limited
general partnership (täisühing), companies – the companies are company are freely transferable,
limited partnership (usaldusühing), liable for the performance of their but shareholders may establish
private limited company (osaühing), obligations with all of their assets. pre-emptive rights in the articles of
public limited company (aktsiaselts) association.
and commercial association Limited companies are established
(tulundusühistu). by concluding notarised certified As for the minimum share capital,
foundation agreements and it is EUR 25,000 in the case of a
Of the five types of entities regulated adopting articles of association. public limited company and EUR
under the Commercial Code, the 2,500 in the case of a private limited
private limited company and public Private limited companies may also company. In certain fields of activity
limited company are the most be established with an expedited (e.g. banking, insurance companies,
commonly used forms of entity for procedure. In such cases all the etc.) the laws may provide for higher
doing business. This is due to their necessary documents are presented share capital requirements.24 PwC
each EUR 1 of the share generally public limited company shares are
gives one vote at the meeting of registered in the CRS.
shareholders unless articles of
association states otherwise. Corporate governance
The The management structure of
€ 2,500 The shares of a public limited
company must be registered with
the public limited company consists
of three levels, the shareholders’
Private limited company the Estonian Central Registry of general meeting, the supervisory
minimum share capital Securities (CRS). The shares of a board and the management board,
private limited company can be whereas the management structure
registered with the CRS if desired. of the private limited company
The private limited companies If the shares of the private limited usually lacks the levelof the
may also be established without company are not registered in the supervisory board.
contribution of share capital, CRS, the share registry is kept by the
provided that the founders are company’s management board. However, a private limited company
private individuals only and the must have a supervisory board if
planned minimum share capital Transactions for transferring and it is prescribed by the articles of
does not exceed EUR 25,000. The pledging the shares of private association.
share capital of such a company limited companies must be
will consist of claims against the notarised, unless the shares are The management board, the
shareholders, who are liable with all registered in the CRS. members of which are elected
of their assets up to the amount they by the supervisory board, is a
have promised to pay to the share Thus registration of the shares of a directing body of the limited
capital of the company. private limited company in the CRS company, which represents and
is advisable if numerous transactions directs the company, whereas
In a public limited company with the shares are anticipated. the supervisory board plans
each share grants one vote at the There are no similar requirements the activities and organises the
shareholders’ general meeting. In as to the form of transactions with management of the company as
a private limited company each shares of public limited companies. well as supervising the activities of
shareholder holds one share and Transfers as well as pledges of the management board.You can also read
