2018 Doing business and investing in Estonia - www.pwc.ee

 
2018 Doing business and investing in Estonia - www.pwc.ee
www.pwc.ee

Doing business
and investing
in Estonia
2018
2018 Doing business and investing in Estonia - www.pwc.ee
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
2018 Doing business and investing in Estonia - www.pwc.ee
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
2018 Doing business and investing in Estonia - www.pwc.ee
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
2018 Doing business and investing in Estonia - www.pwc.ee
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
2018 Doing business and investing in Estonia - www.pwc.ee
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.
2018 Doing business and investing in Estonia - www.pwc.ee
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.
2018 Doing business and investing in Estonia - www.pwc.ee
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
2018 Doing business and investing in Estonia - www.pwc.ee
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
2018 Doing business and investing in Estonia - www.pwc.ee
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 Estonia
Guide 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 Estonia
12      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 creating
Guide 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 the
14     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 moral
Guide 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 market
18      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 major
Guide 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.
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