1. General information
As of 2003, Estonia’s tax regime has been one of the most liberal and simple in the world. The Law on Taxation of 1994 has been amended several times, and a new Income Tax Law was passed on 15 December 1999 (effective 1 January 2000). The corporate income tax rate is 21% on distributed profits, and 0% on reinvested profits. The tax rate of 21% is for the gross payments and the 21/79 is for the net payments. Corporations can choose when they will pay their taxes.
Personal income taxes are assessed at the same flat rate of 21% as corporate profits. Some school fees, living allowances, and interest on loans for the purchase of residential housing are deductible from taxable income. A withholding tax of 26% is imposed on dividends paid to nonresidents that hold less than 25% of the share capital in the paying company. However, Estonia has double tax treaties with at least 57 countries in which withholding taxes are eliminated or substantially reduced. The Law on Social Tax came into effect in January 1999. The rate of social tax is 33% (20% for social security and 13% for health insurance), payable by employers and self-employed individuals. There are relatively few allowable deductions from taxable income in the Estonian tax code. The annual land tax varies from 0.1% to 2.5% of assessed value and in the case of agricultural land, 0.1-2%.
The main indirect tax is a value-added tax (VAT) set at a standard rate of 20% by a new Law on VAT passed in July 2001 and effective in January 2002. Reduced rates of 0% and 9% apply to some goods and services, including a 0% rate on exported goods and a specific list of exported services. There is a gambling tax, and a customs processing fee on each customs declaration submitted. Local governments have the authority to impose taxes and municipal taxes, for example for advertisement.
2. Overview of the Estonian taxation system and types of taxes
If you are doing business in Estonia, you will be responsible for paying taxes in accordance with the tax legislation in force in Estonia. Property, income and benefits are taxable. The general rule is that all companies are taxed equally and on the same substantive basis.
State and local taxes
Local taxes may be established by a local government – for instance, on the use of infrastructure or other resources in a certain region. State taxes include income tax, social tax, land tax, gambling tax, value-added tax, customs duty, excise duties and heavy goods vehicle tax.
Direct and indirect taxes
In the case of a direct tax, your company will have to bear the tax obligation. This applies to income tax, land tax and heavy goods vehicle tax. In the case of indirect tax, the final consumer is responsible for paying the tax and the tax is reflected in the form of an increased price on goods or services. Such taxes include value-added tax, excise duties and customs duty.
List of corporate taxes
As to which taxes have to be paid at which rate, this depends on the specific characteristics of your company.
Tax collection and review
Taxes are assessed and collected, reviewed and enforced by the Tax and Customs Board, and by local governments in the case of local taxes. If taxes are not paid, not paid on time or paid incorrectly, it is possible that you will incur penalties, interest or fines for the delay.
Companies are required to keep accurate accounting and tax records and file statements and tax declarations as required. The Tax and Customs Board and local government must receive, within a reasonable amount of time, an overview of the business transactions conducted by a company as well as of key related aspects (income, expenses, assets and liabilities).
If you begin cooperation with new partners, it would be wise first to verify whether they have paid all taxes to the government as required. Estonia’s credit reporting agency Krediidiinfo issues credit reports on companies' credit ratings, credit limits and payment problems and offers access to companies’ annual reports. There is a fee for Krediidiinfo services.
All of the important tax-related dates for companies are listed in a tax calendar compiled by the Tax and Customs Board. Keeping track of the calendar helps company executives and financial officers file declarations in a timely manner and pay taxes as required.
The Estonian tax system consists of state taxes which are imposed by Acts concerning taxation of relevant areas, and taxes imposed by rural municipality or city council. The following state taxes are applied in Estonia:
- Social tax (social security contributions);
- Value added tax (VAT);
- Land tax;
- Gambling tax;
- Customs duty;
- Excise duties (including alcohol, tobacco products and fuel);
- Heavy goods vehicle tax.
Separate local tax system contains the following tax duties:
- Boat tax;
- Sales tax;
- Advertisement tax;
- Road and street closure tax;
- Motor vehicle tax;
- Animal tax;
- Entertainment tax;
- Packaging excise duty
- Parking charge.
In accordance with the principle of legality taxpayers are required to pay only such state and local taxes that are prescribed by law providing the rates and formal framework. The tax authorities for state taxes are the Customs Board and the Tax Board with its local offices. The following persons are considered to be taxable persons:
- Withholding agent;
- Other persons that might be responsible for the tax liability of a taxpayer or withholding agent pursuant to legislation or to a contract.
In order to ensure the performance of functions imposed on tax authorities, taxable persons are required to register in the state register that is established by the Estonian Government. The following persons are required to register themselves in the local Tax Board office of their residence, seat or place of business prior to the commencement of activities:
- Legal persons who are not to be entered into the Estonian commercial register
- State, rural municipality or city agencies which are not to be entered into the Estonian state register of state and local government agencies
- Sole proprietors who are not to be entered into the Estonian commercial register
- Foreign legal persons, associations of persons or pools of assets without the status of a legal person, which are commencing economic activity in Estonia through a permanent establishment not entered into the Estonian commercial register as a branch
Application for registration of legal person, sole proprietor and permanent establishment submitted to Tax Board shall include a number of aspects such as code enabling identification, residency, area of activity and principle place of business, documents of authorization and agreements having direct connection to registered entities. It must be noted that non-resident employers, including foreign agencies and international organizations, which are not subject to registration requirement, have the right to register themselves in the Estonian register of taxable persons.
Estonian legislation aims to protect data, providing a requirement for secrecy regarding data relating to taxation. The tax authorities, officials and any other staff thereof are required to maintain the confidentiality of information concerning taxable persons, including business secrets and information subject to banking secrecy. The obligation to maintain secrecy remains also after the termination of service relationship. Yet it is important to notice that information regarding taxation debts of a legal or natural person can be accessed by public and databases, providing that information, are therefore often used by loan and credit entities.
The language of tax authorities and their proceedings shall be Estonian pursuant to law unless they agree otherwise. Yet the foreign languages may be used in the communications and proceedings in accordance with provisions of the Language Act.
The Estonian tax authorities may impose a tax audit in order to ascertain all the facts relating to the tax liability. The tax audit may cover several types of taxes during one or several taxation periods, but the objective may also be an investigation of a specific issue. In the course of the tax audit, facts relating to the tax liabilities of other persons may be ascertained, if the person subject to the audit is required to withhold tax on payments made to such persons. Finally it must be noted that a natural person can only be audited if he operates as a sole proprietor or is a withholding agent.
3. Income tax
Personal income tax
Personal income tax is imposed on the income of a taxpayer from which deductions pursuant to Estonian tax legislation have been made. The income tax shall be paid by natural persons and by employers who are natural persons and by those who in any way derive a taxable income. The period of taxation of personal income from which the deductions are allowed to be made in pursuance with the law is one calendar year. The period of taxation of fringe benefits is one calendar month.
The following tax rates are applied during periods of taxation:
- 21% (2014)
A natural person is considered to be an Estonian resident if he or she has an actual residence in Estonia or has spent consecutively during the period of twelve calendar months at least 183 days. A person in question is considered a resident, with regard to the abovementioned conditions, from the day of arrival in Estonia. A non-resident natural person shall pay an income tax only on earnings derived from Estonian sources.
Income tax is charged on incomes derived by a natural person from sources both within and outwith Estonia. The following income is a subject to personal income tax:
- Income from employment;
- Business income;
- Gains from transfer of property;
- Rent and royalties;
- Maintenance support, pensions, scholarships, grants, benefits, awards, lottery prizes;
- Insurance indemnities and pension funds;
- Income of a legal person located in a low tax territory.
If a person derives income in a foreign state, the income tax is not charged in the case that the person has stayed in the foreign state for the purpose of employment for at least 183 days over the period of 12 consecutive months and the specified income has been taxable in that foreign state.
Regarding taxation of employment income, income tax is charged on all monetary remunerations of an employee or a public servant including all wages, salaries, holiday payments and benefits, compensations and extra payments of any kind. Furthermore the income tax is charged on remuneration or service fees paid on the basis of a contract for services, authorization agreement or any other contract under the law of obligations, including amounts paid to sportsmen. Income tax also concerns remunerations paid by legal bodies to members of management or controlling body.
Some gains which are free of income tax charge are listed below:
- Compensation for travel, accommodation and daily expenses of official travels;
- Use of an automobile;
- In-service training and re-training of employees paid for by the employer upon termination of the employment or service relationship due to redundancy;
- Health treatment of employees injured at work.
Business is considered person’s independent economic or professional activity and income tax is charged on gains regardless time of receipt. Yet it must be noted that transfer of securities owned by a natural person does not automatically constitute business.
Gains from transfer of property include sale or exchange of any transferable and monetarily appraisable objects like real or movable property, securities, registered shares, contributions made to a general or limited partnership or an association, units of investment funds, rights of claim, rights of pre-emption, rights of superficies, personal rights of use, and mortgages. In the case of reduction in capital share of limited liability companies and redemption or return of shares or contributions, income tax is charged on the amount in which the payments made to a person exceed the acquisition cost of the holding or the contribution.
All dividends received in monetary or non-monetary form from the foreign legal person by the resident natural person are subject to income tax. Income tax is not charged in cases where the taxation of the share of profit has taken place or if income tax on the dividends has been withheld in a foreign state.
Deductions from income of a resident natural person:
- Basic deductible exemption: 1728 EUR in 2014
- Exemption in the case of having three or more children amounting to one additional deductible exemption per child every year;
- Exemption to pensions;
- Exemption to compensation for accident at work or occupational disease;
- Housing loan interest;
- Additional training expenses;
- Gifts, donations and trade union joining and membership fees;
- Insurance premiums;
- Mandatory Social Security Contributions.
A non-resident natural person who derives an income from work under an employment contract or in public service or from activities engaged in on the basis of a contract for services, an authorization agreement or a contract entered into for the provision of any other services shall be charged with personal income tax. An important aspect to consider is that the duties or services are performed in Estonia as well as payments are made by an Estonian state or local government authority or resident or a non-resident operating in Estonia as an employer. Payments are also considered if made through the permanent establishment of a non-resident or if the natural person in question has stayed in Estonia for the purpose of employment for at least 183 days over the period 12 consecutive calendar months.
Situations, where income tax is not charged with regard to a non-resident natural person include foreign diplomatic or consular representative, diplomatic delegation, members of international or intergovernmental organizations, who are not citizens or permanent residents of Estonia.
Corporate income tax
It is important to bear in mind that in Estonia, in contrast to a number of European countries, there is no systematic monthly corporate tax. Instead a resident company shall pay income tax on profits distributed as dividends or any other profit distributions in monetary or non-monetary form upon their payment. With regard to the distribution the income tax is not charged on profit distributed by way of a bonus issue.
Furthermore there are several exceptional situations where taxation on the corporate level is applied. In accordance with Estonian legislation such corporate income tax can be imposed on the resident legal person or a non-resident legal person that has a registered permanent establishment in Estonia. A legal person is considered resident if it is established in accordance with Estonian law.
The period of taxation of a non-resident legal person’s income from which the deductions allowed pursuant to law have been made is one calendar year. The period of taxation of fringe benefits for resident and non-resident legal persons as well as for distributed profit, gifts, donations, costs of entertaining guests and expenses and payments not related to business regarding resident and non-resident legal persons is one calendar month.
The following tax rates are applied during provided periods of taxation:
- 26.58% = 27% during 2014 (net payments)
Payments made upon reduction of share capital or contribution, redemption of shares or liquidation of a legal person shall be taxed pursuant to the procedure of taxation of gains from transfer of property. The payments may be considered dividends if the value of transaction conducted between a resident legal person and a non-resident or natural person associated with the resident legal person differs from the value of similar transactions conducted between non-associated persons. In such a case a tax administrator may, determining the income tax, apply the value of transactions applied by non-associated independent persons under similar conditions.
An employer that is a resident legal person or a non-resident legal person having a permanent establishment has to pay income tax on fringe benefits granted to its employees. Fringe benefits may include goods, services, different forms of remuneration and monetary benefits that are given in connection to employment service or contractual relationship, membership in the management. In order to draw a line it is important note that fringe benefits do not include cash payments regarded as salary, wages, supplementary remuneration and payments, remuneration of management, or payments for goods or services. Fringe benefits can be for example:
- Full or partial covering of housing expenses;
- The use of vehicle or other property of the employer free of charge or at a preferential price
- Payment of insurance premiums, unless such an obligation is prescribed by law
- Compensation for official travel expenses and payment of daily allowances
Resident legal person shall also pay income tax on all gifts and donations that have not been taxed under fringed benefits or have not been subject to withholding tax. Regarding those incomes there is a list of non-profit associations and foundations approved by the Government as well as a number of religious associations, hospitals, cultural, scientific, and educational, sports, law enforcement and social welfare institutions which have been granted a tax relief.
Resident legal persons may be subjected to taxation of expenses not related to business. In accordance with Estonian legislation the following expenses are classified as not being related to business:
- Fines and penalty payments imposed on the basis of law;
- The cost of property seized from the taxpayer;
- Payments related to environmental issues;
- Gratuities and bribes;
- Entrance and membership fees, payments for services and obligations not related to business;
- The cost of gifts and donations.
Furthermore, a number of payments including acquisitions of property, securities, payment of a fine for delay, a contractual penalty or the granting of a loan may be considered as payments not related to business and subjected to income taxation, especially if connected to law tax rate territories.
A permanent establishment of a non-resident legal person that is registered in Estonia shall be charged with income tax. All fringe benefits, gifts, donations and costs of entertaining guests granted by a non-resident to its employees or members of the management shall be taxed regardless of whether the recipient is a resident or non-resident. The income tax is also imposed on the cost of property taken out of a permanent establishment, exceeding the total amount of the cost of property of the permanent establishment located in Estonia, payments made through or on account of a permanent establishment to the head office or any third party, and remittance of goods for which no return compensation of any value is received. Yet the distribution in question may be tax-free if the receiver owns at least 10% of the shares, stocks or votes of the distributing permanent establishment situated in contract state unless it is considered a low tax rate territory.
According to Estonian legislation income taxes should be paid by employee and employer.
- Social tax: 33%
- Unemployment insurance payment 2 %
- Personal income tax: 21 %
- Unemployment insurance payment 2%
- Funded pension: 2% (3% if the person submits application for that)
Example of calculating taxes on wages:
We assume that the gross salary per employee is EUR 1200.
Withheld taxes from gross salary: 2% unemployment security, 2% pension fund, personal income tax is 21%.
An Employer’s social security tax obligation per employee is 35% of the employee’s gross salary.
Changes in the corporate tax system
Certain changes in the Estonian corporate income taxation were implemented from the 1st of January 2009 in accordance with the Law on Changing the Income Tax Act. Some of the more important aspects are as follows:
- The tax base for companies generally remains the same meaning that corporate profits shall still be taxed upon their distribution;
- The taxation period was extended to a financial year;
- Income from liquidation, payments made upon redemption of shares and capital reductions that exceed contributions to equity (exceeding remittance of profit which, as discussed above, was taxable only at shareholder level) became subject to corporate income taxation;
- With regard to the previous point shareholders’ double tax relief was provided;
- No threshold for tax exemption on the distribution of dividends between parent companies and subsidiaries of different Member States, Switzerland, Iceland and Norway (was 15% of votes and shares). Any withholding tax on dividends (and royalties) was abolished.
Changes were created mostly in order to comply with the “Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States” after the European Court of Justice (ECJ) judgment in Athinaiki Zythopiia v Greece (C-294/99).
Low tax rate territories
Estonian legislation defines a low tax rate territory as a foreign state or a territory with an independent tax jurisdiction in a foreign state, which does not impose a tax on the profits earned or distributed by a legal person or where such tax is less than two-thirds of the income tax which a natural person who is an Estonian resident would have to pay on a similar amount of business income. In the case of the taxes imposed on the income earned or distributed by different types of legal persons being considerably different, a territory is deemed to be a low tax rate territory only with regard to legal persons in relation to whom the tax meets the conditions for low tax rate territory. It shall be observed that a legal person cannot be considered as having its location in low tax rate territory if more than 50% of its annual income is derived from manufacturing of goods, trading and provision of transport, communications, accommodation and tourism services in the home country of the legal person in question as well as the chartering of freight vessels.
The following is the list of countries not considered to be a low tax rate territory:
United States of America (except Virgin and Marshall Islands), Austria, Belgium, China (except Hong Kong and Aomen), Spain, Holland (except Aruba and Antilles), Ireland, Iceland, Italy, Japan, Canada, Greece, Latvia, Lithuania, Moldova, Norway, Poland, Portugal, France, Sweden, Germany, Finland, United Kingdom and Northern Ireland (except Anguilla, Bermudas, British Virgin Islands, Cayman Islands, Gibraltar, Jersey, Guernsey, Isle of Man, Montserrat, Turks and Caicos Islands), Denmark, Czech Republic, Ukraine, Kazakhstan, Belarus, Armenia, Malta, Cyprus, Luxembourg, Slovakia, Slovenia, Hungary, Croatia, Switzerland, Turkey, Romania, Bulgaria, Georgia, Singapore.
4. Value added tax
An important aspect to consider is that the VAT registration at the Tax Board is voluntary until the company reaches an annual turnover of 16000 EUR (for foreign traders 35 000 EUR). Upon reaching the critical amount the registration becomes compulsory.
Value added tax is imposed on the following objects:
- Supply created in Estonia with exception of VAT tax relief;
- Imported goods except for those exempt from taxation;
- Services provided with supply place outside of Estonia;
- Immoveables and parts thereof, their leasing and letting, some financial services and securities if the taxable person has added value added tax to the taxable value of such goods or services;
- Intra-Community acquisitions of goods, except for where an exemption from tax is applied.
A person is charged with the value added tax if it can be considered to be engaging in business and is registered or required to register as a taxable person. A person is a natural person or a legal person, including a legal person in public law or a state, rural municipality or city authority.
A general current rate of value added tax in Estonia is 20%. There is a 9% value added tax on the following goods and services:
- Books and learning materials;
- Medical products and equipment, sanitary and toiletry products;
- Accommodation services;
- Periodic publications.
0% value added tax is imposed on the following goods:
- Exported goods;
- Goods the transfer and transport of which can be considered intra-Community supply of goods;
- Sea-going vessels navigating in international waters;
- Aircraft used by an air carrier including fuel, equipment, and spare parts
- Goods transferred and transported to another Member State to diplomat, consular agent or similar representative;
- Goods transferred and transported to another Member State, having a relation to NATO;
- Non-Community goods in a free zone or free warehouse;
- Community goods transported to a free zone or free warehouse for export purposes (a 15days export requirement);
- Gold transferred to Eesti Pank.
0% value added tax is imposed on following services:
- Services for which the place of supply is not Estonia;
- Services necessary for the journey of passengers on board vessels or aircraft during the international transport of passengers;
- The provision of port services to meet the direct needs of vessels navigating in international waters;
- The provision of navigation services and airport services to meet the direct needs of aircraft used mostly on international routes;
- The repair, maintenance, chartering and hiring or establishment of a usufruct on sea-going vessels navigating in international waters;
- Intermediation, if the place of supply of the transaction being mediated is a third country;
- Transport service for goods placed under an external transit procedure;
- Transport services for the export of goods, and ancillary services related to such transport of goods;
- Transport services for the import of goods if the cost of such services is included in the taxable value of the goods to be imported;
- Carriage of goods to the Azores or Madeira, or from the Azores or Madeira to Estonia or another Member State;
- Work with movables which are brought to Estonia for the purpose of provision of VAT free services;
- Carriage of passengers including their personal luggage and personal means of transport;
- Services provided to persons (diplomats, consular agents), representations, agencies, special missions, Community institutions or armed forces (NATO);
- Service that is provided by a canteen, cafeteria or mess of an international military headquarters under the condition prescribed in an international agreement ratified by Riigikogu.
A person with a limited value added tax liability has to be officially registered as such and shall pay value added tax on imported goods, intra-Community acquisitions of goods as well as services received from a foreign person engaged in business that is not registered as a taxable person in Estonia. Regarding the latter, an Estonian person or a foreign person operating in Estonia through a permanent establishment who receives such services is required to register as a taxable person with limited liability from the date on which such service was received. Yet it shall be noticed that this does not apply to taxable persons and natural persons who are not engaged in business. VAT is also imposed on persons with limited value added tax liability in the following situations:
- The acquisition of goods to be installed or assembled in Estonia from a person of another Member State engaged in business who is not registered as a taxable person in Estonia;
- The acquisition of goods where the person is an acquirer in a triangular transaction;
- Provision of certain services where the place of supply of services is Estonia.
5. Social tax
Estonian legislation defines Social (Security) Tax as financial obligation imposed on taxpayers in order to secure revenue for pension insurance and state health insurance. Social tax shall be paid on following:
- Wages and other remuneration paid to employees in money;
- Wages and other remuneration paid to public servants;
- Remuneration paid to members of the management or controlling bodies of legal persons;
- Business income of sole proprietors;
- Remuneration paid to natural persons on the basis of contracts for services, authorization agreements as well as contracts under the law of obligations entered into with the purpose of provision of other services;
- Fringe benefits;
- Benefits paid pursuant to the Estonian unemployment remuneration system;
- Any other remuneration for work paid in accordance with Estonian legislation.
Social tax is paid on wages and remuneration received by the employees for every particular month. Yet it is important to notice that there is a minimum monthly wage rate established by the state budget for the budgetary year, and it cannot be less than minimum wage established for the year. Certain exceptions also consider the period of taxation for persons receiving a state pensions, employees and public servants with suspended employment contracts or working part-time. A sole proprietor is required to pay social tax annually on a minimum amount of monthly rates established by the state budget.
Following persons are subject to social tax:
- Resident legal person;
- Natural persons;
- Non-residents having a permanent establishment in Estonia;
- State, rural municipality and city authorities.
The current rate of the social tax in Estonia is 33% of the taxable amount. There are exceptions for persons receiving unemployment or social benefits, leaving tax rate at 13%.
6. Excise duties
Current rates of excise duty on alcohol in Estonia:
- On beer 6 EUR per 1% of ethanol by volume per hectoliter. For small producers (less than 3000 hectoliters) the rate is 50% of the above mentioned rate;
- On fermented beverages or wine with an ethanol content of up to 6% (inclusive) by volume is 34.97 EUR per hectoliter;
- On fermented beverages with an ethanol content exceeding 6% by volume is 80,64 EUR per hectoliter;
- On wine with an ethanol content exceeding 6% by volume is 80.64 EUR per hectoliter;
- On intermediate products is 172.20 EUR per hectoliter;
- On other alcohol is 15.65 EUR per 1% of ethanol by volume per hectoliter.
Current rates of excise duty on tobacco in Estonia:
- The rate consists of a fixed rate per one thousand cigarettes and a proportional rate calculated on the basis of the maximum retail price of the cigarettes. The fixated rate is 45 EUR and the current proportional rate is 33% of the maximum retail price;
- On cigars and cigarillos the current rate is 211 EUR per one thousand cigars or cigarillos;
- On smoking tobacco and chewing tobacco the rate is 61 EUR per kilogram.
Current rates of excise duty on some of fuel forms are following:
- On unleaded petrol is 422.77 EUR per one thousand liters;
- On leaded petrol is 422.77 EUR per one thousand liters;
- On aviation spirit is 422.77 EUR per one thousand liters;
- On kerosene is 330.10 EUR per one thousand liters;
- On liquid petroleum gas 125.26 EUR per one thousand kilograms;
- On diesel fuel is 392.92 EUR per one thousand liters;
- On heavy fuel oil is 15.01 EUR per one thousand kilograms;
- On natural gas is 367m EUR per 1000m3;
- On electricity is 4.47 EUR MW/h.
7. Land tax
Estonian land tax is based on the assessed value of a specific land territory, calculated pursuant to the procedure for contestation by local government authority set out in the Land Valuation Act. Land tax shall be paid by the owner of land or, if the use of land has not been re-registered in accordance with the land reform, the user of the land is responsible for paying the land tax. Furthermore a person obtaining the right of superficies, a usufruct or mining of natural resources (appointed by the national or municipality government) is subject to Estonian land tax.
The current rate of land tax in Estonia is 0.1%-2.5% of the assessed value of land. The precise rates are established by the local government council not later than by 31st January of the taxation year and shall be paid annually. It is of importance to mention that the land tax for areas used for agriculture and natural grassland is 0.1%-2.5% of the assessed value.
Following is the list of land exempt from land tax:
- Land where economic activities are prohibited by law or pursuant to the procedure provided by law;
- Land assigned to buildings of diplomatic missions and consular representations of foreign states;
- Land assigned to foreign state or international organization having a relevant agreement with the Government of the Republic of Estonia;
- Land assigned to churches and congregations;
- Municipal land under the jurisdiction of a local government;
- Land assigned for public use;
- Land in the use of the headquarters of allied forces;
- Land in state ownership with intended purpose of public construction works land
8. Gambling tax
In accordance with Estonian legislation gambling tax is imposed on organisers of gambling activities. Following objects are subject to gambling taxation:
- Gambling tables and gambling machines used for organising games of chance and on gambling machines used for organising games of skill;
- In the event of organising a lottery, the total amount received from the sale of lottery tickets;
- In the event of a commercial lottery, for which the value of the winning pot exceeds 10 000 EUR;
- In the event of organising a totaliser, the total amount of bets from which the winnings have been deducted;
- In the event of organising an online game of chance or online game of skill, the total amount of bets from which the winnings have been deducted;
The general taxable period for gambling taxation is one calendar month.
The following are the current rates of gambling taxation:
- 447.38 EUR per one gambling machine
- 1278.23 EUR per one gambling table
- 18% of lottery
- 18% of lottery where the prize exceeds 10 000 EUR
- 5 % of event organising a totaliser, total amount of bets where winnings have been deducted
- 5 % when organising an online game of chance or an online game of skill, from the total amount deducted the winnings
- 5% of participation fees in tournament of game of chance
1. General information
All the general principles of accounting are set out in the Estonian Accounting Act that provides legal bases and establishes requirements for organizing accounting and financial reporting pursuant to internationally recognized principles. Besides the Accounting Act, there are several guiding principles issued by the Accounting Standards Board in order to simplify the process of accounting and to ensure its compliance with requirements of current legislation. In accordance with the latter all legal persons and branches of foreign companies registered in Estonia as well as sole proprietors are entities which are subject to accounting.
An accounting entity is required to organise its accounts in such a way as to ensure the provision of up-to-date, relevant, objective and comparable information concerning its financial position, economic performance and cash flows. All transactions shall be documented and documents thereof preserved for seven years as of the end of the financial year during which the source document was recorded. Business transaction is an important term in the Estonian accounting legislation and is interpreted as a transaction concluded by an accounting entity, a transaction between third parties or an event relevant to an accounting entity, as a result of which changes occur in the assets, liabilities or owner’s equity of the accounting entity.
Accounting entities are furthermore required to establish accounting policies and procedures with detailed specification and recording of transactions, flow and preservation of source documents, maintenance of accounting journals and ledgers, physical inventory of assets and liabilities, preparation of financial statements, usage of accounting software as well as other aspects relevant to the organisation of accounting and the implementation of related internal audit measures.
2. Annual reports
The length of a financial year is generally deemed to be twelve months (one calendar year, unless provided otherwise). There are several cases where the financial year may be shorter or longer than the previously mentioned term, yet it shall not exceed eighteen month.
At the end of each financial year an accounting entity is required to prepare an annual report that consists of the annual accounts and the management report. To the annual report shall also be annexed the auditor’s report and, in the case of a company, the profit distribution proposal for the financial year at hand. Still if there is no auditing requirement, adding the auditor’s report is not compulsory.
Preparation and submission of annual reports includes the following aspects:
- Preparation of annual accounts;
- Preparation of management report;
- Approval of the annual report
- Auditing (where provided by law);
- Preparation of the profit distribution proposal for the financial year (in the case of a company);
- Submission of the annual report for approval.
Following is the list of important criteria for an accounting entity to be audited:
- Audit of the annual accounts is compulsory for accounting entities within the meaning of the Accounting Act if the following indicators are fulfilled at least by two thirds.
- Sales revenue or income 2 000 000 EUR;
- Total assets as of the balance sheet date 1 000 000 EUR;
- Average number of employees 15 people.
- A review is compulsory where in the annual accounts at least one of the indicators of the financial year exceeds the following conditions:
- Sales revenue or income 1 000 000 EUR;
- Total assets as of the balance sheet date 500 000 EUR;
- Average number of employees 15 people.
- A private limited liability company shall have an auditor if auditing is prescribed by law or the articles of association;
- The law prescribes the obligation for a public limited liability company to be audited whereas the number of auditors and their appointment lies on the shoulders of general meeting;
In order to give a true and fair view of the financial situation, economic performance and cash flows of the accounting entity the annual accounts shall be prepared. The following statements shall be included:
- Balance sheet;
- Cash flow;
- Changes in the owners’ equity.
The annual accounts shall be prepared on the basis of the business transactions and adjusting entries recorded in the journals and ledgers during the financial year. For the purpose of preparation physical inventory shall be taken of the balances of the assets and liabilities of the accounting entity. The value of the assets and liabilities shall furthermore be assessed to verify conformity with previous recordings of entries.
The accounting policies and presentation formats used in the accounting of the entity at hand are required to conform to the international reporting standards and principles generally accepted in Estonia. It is also important to notice that the annual accounts shall be prepared in Estonian using the currency officially applicable in Estonia.
There is a written management’s declaration that shall be submitted together with the annual accounts and signed and dated by the entire management of the accounting entity declaring their liability for the preparation of the annual accounts. Management shall also prepare an overview of the following aspects of the entities’ annual activity:
- The main areas of activity, product and service groups;
- Significant investments;
- Significant projects in the field of research and development;
- Significant events during the preparation of annual accounts.
It is important to observe that there are some specific requirements considering content of the management report if an accounting entity is audited or if the shares of the company are registered for trading on a stock market. The annual report of an accounting entity shall be signed and dated by the members of the management and the members of the highest supervisory body (if that body exists) immediately after the relevant body has approved the report. The final signed annual report shall be submitted by the 30th of June of the following year.
Annual Reports of Consolidation Groups
Estonian legislation defines consolidating entity as a parent undertaking or any other accounting entity exercising dominant influence over another accounting entity (consolidated entity). The following are examples of frequently occurring dominant influence:
- A holding of more than 50% of the voting rights belonging to the consolidated entity;
- A direct or indirect right arising from law or a contract to appoint or remove a majority
Thus consolidation means joining of the financial statements of different accounting entities in order to provide a united annual report as if companies in question were one single entity. The accounting of consolidation groups generally follows the traditional accounting lead as the provisions of the legislation have only a few minor differences. Yet what should be mentioned are situations where consolidating entities are not required to prepare an annual report of the consolidation group:
- A company where at least 90% of the votes represented by shares belong to a consolidating entity which is registered in Estonia and has the obligation to prepare and disclose the audited annual report of the consolidation group;
- A company where at least 90% of the votes represented by shares belong to a consolidating entity which is registered in a Contracting State and has the obligation to prepare and disclose the audited annual report of the consolidation group under the law of its home state;
- A consolidating entity if at the balance sheet date of the accounting year, the entity does not exceed the limits of two of the three following consolidated criteria:
- Sales revenue or income 1 000 000 EUR;
- Total assets as of the balance sheet date 500 000 EUR;
- Average number of employees 15 people.
- A consolidating entity if the total amount of the balance sheet totals of each of the consolidated entities added together does not exceed 5% of the balance sheet total of the consolidating entity and if its sales revenue does not exceed 5 per cent of the sales revenue of the consolidating entity;
1. General information
Framework of commercial competition in Estonia is provided in the Competition Act adopted in November 2001. Estonian legislators working on that Act were following the EC competition legislation and competition guidelines issued by the European Competition Board were also partly implemented and are applied while handling specific competition violation cases. The essence of the competition regulation can be considered relatively new for Estonian legal climate but it has been acquiring more attention during the recent years and obtaining a significant role with regard to most of the current commercial activity branches.
2. Prohibition on agreements, concerted practices and decisions by associations of undertakings
Prohibition concerns agreements, concerted practices and decisions by associations of undertakings that have as their object, purpose or effect any restriction of competition. The following activities are objects of such prohibition, having a negative effect on competition:
- Directly or indirectly fixed prices or any other trading conditions, including prices of goods, tariffs, fees, mark-ups, discounts, rebates, basic fees, premiums, additional fees, interest rates, rent or lease payments applicable to third parties;
- A limitation of production, provision of services, goods markets, technical development or investments;
- Share of relevant goods markets or sources of supply. Also included here are restrictions on access for the third party to a goods market in question or any other attempt to exclude the person from such access;
- Exchange on crucial information that might be restrictive to competition;
- Agreeing on the application of dissimilar conditions to equivalent agreements, thus placing other trading parties at a competitive disadvantage;
- Enhance an agreement that is subject to acceptance by the other parties, with supplementary obligations having no genuine connection to the subject of such agreement.
It shall be noticed that Estonian legislation is in accordance with European Union legislation the abovementioned prohibitions, with exception of price fixing, do not apply to agreements and practices of agricultural producers unless competition is substantially restricted by such agreements, practices or decisions. Furthermore prohibition on the basis of exchange of information, application of dissimilar conditions and supplementary non-relevant provisions do not apply to agreements, practices and decisions that can be considered to be of minor importance. The term “minor importance” can be taken into consideration if the combined market share of the total turnover of the undertakings in question does not exceed:
- 15% for each party in the case of a vertical (undertakings operate at different levels of the production or distribution chain) agreement, practice or decision;
- 10% in total for all parties of a horizontal (undertakings operate as competitors at the same level of the production or distribution chain) agreement, practice or decision;
- 10% in the case of an agreement, practice or decision that includes concurrently the characteristics of vertical and horizontal agreements, practices or decisions.
Besides aspect of “minor importance” there are a number of exceptions regarding prohibitions of commercial activity with regard to distortion of completion. In the list below some of those exceptions including also a block exemption are stated:
- Agreement, decision or activity contributes to improvement of the production or distribution of goods or to promoting technical or economic progress or to protecting the environment, while allowing consumers a fair share of the resulting benefit;
- Agreement, decision or activity that does not impose on the undertakings which enter into the agreement, engage in the concerted practices or adopt the decision any restriction which are not indispensable to the attainment of the objectives specified in abovementioned clause
- Agreement, decision or activity that does not afford the undertakings which enter into the agreement, engage in concerted practices or adopt the decision the possibility of eliminating competition in respect of a substantial part of goods market
- Block exemption is a general permission granted by the regulation of the Government of the Republic on the proposal of the Minister of Economic Affairs and Communications to enter into certain types of agreements (most of them specified in the previous points) without a danger of restricting the competition.
An undertaking which enters into an agreement, providing a decision or an activity which might be restrictive to competition, can be subject to exemptions but shall also present proof concerning compliance with all the conditions set forth. In the case that an agreement or a decision or part thereof do not fulfill the conditions for exemptions and can be found as restrictive to competition shall be admitted as void.
3. Dominant position of the undertakings
In accordance with Estonian legislation an undertaking can be considered to have a dominant position if its position on the market enables it to operate to a considerable extent independently of competitors, suppliers and buyers. Thus a dominant position may be presumed if such an undertaking stands for at least 40% of the turnover in the relevant market. Furthermore, the situation of a dominant position may include several undertakings operating on the same market thus jointly creating an independent environment and accounting for at least 40% of the relevant market.
The state or a local government may grant special and exclusive rights to an undertaking which enable the undertaking to have a competitive advantage over other undertakings in a goods market or to be the only undertaking in the market. The procedure of granting an artificial dominant position such as this is granted by the Government of Estonia.
Furthermore, the dominant position of an undertaking might be determined by its ability to control an essential facility. This means that where an undertaking possesses or operates a network, infrastructure or any other essential facility without access to which or the existence of which it is impossible to operate in the relevant market and this essential facility cannot be or is substantially difficult or costly to duplicate, the undertaking can be considered to have a dominant position.
Any direct or indirect abuse of the dominant position is prohibited. Such an abuse may often include the following:
- Directly or indirectly establishing or applying unfair purchase or selling prices or other unfair trading conditions;
- Limiting production, service, goods markets, technical development or investment;
- Offering or applying dissimilar conditions to equivalent agreements with other trading parties thereby placing some of them at a competitive disadvantage;
- Making the entry into agreements subject to acceptance by the other parties of supplementary obligations which have no connection with the subject of such agreements
- Forcing an undertaking in a disadvantageous position to enter into agreement;
- Unjustified refusal to sell or buy goods or provide services.
4. Control of mergers
Pursuant to Estonian legislation mergers (Estonian legislation has a slight linguistic difference using the term concentrations) usually arise in the cases where one or several undertakings jointly acquire control over whole or a part of another undertaking. Furthermore, it is possible for a natural person already being a part of an undertaking to acquire control through an enhanced partnership. Legal aspects of mergers are governed by the provisions in the Estonian Commercial Act.
Competition legislation requires that a merger is subject to a Competition Board control. Yet the merger shall not be a subject of the Competition Board control in case it is controlled pursuant to Council Regulation 139/2004/EC on the control of mergers between undertakings unless appointed otherwise.
Estonian competition legislation sets out the requirement to notify the Competition Board of the relevant merger procedure before entry into force of the latter in case the conditions in the previous paragraph are fulfilled. Such a notification shall be submitted in writing and shall contain the following:
- Information on parties of the merger;
- A description of the merger;
- Data concerning turnovers;
- Information concerning exercised control or owned holdings;
- Information concerning relevant markets;
- Objective description of the effect of merger on the relevant market;
- Information concerning associations of undertakings (where parties are members);
- Restraint of trade clauses;
- List of other competition authorities notified;
- Any other necessary information concerning aspects of the merger in question.
Finally it is important to bear in mind that the Director General of the Competition Board or his or her deputy may decide to revoke a decision to give permission to merge if false or misleading information is found in the submitted documents, or if legal provisions are violated during the merging procedure. Yet it does not deprive the parties of the right to submit a new application or appeal the decision of the Director General.
5. Unfair competition
There is a clear and definite prohibition of unfair competition in Estonia. Legislation dictates that unfair competition arises in cases of dishonest trading practices and acts which are contrary to good morals and practices. This may also include the following:
- Publication and presentation of misleading information;
- Disparagement of a specific competitor or its goods or services;
- Misuse of confidential information obtained;
- Misuse of an employee or a representative of a competitor.
It might be useful to observe that in cases where misleading, offensive or derogatory information is applied as a method of advertising, prosecution shall follow in accordance with the Advertising Act. Otherwise the existence or absence of unfair competition shall be determined in a dispute between parties in accordance with civil procedure.
Intellectual property rights
1. General information
Since the declaration of independence, Estonia has taken a number of significant steps towards the European level of protection for intellectual property rights. The following acts have been passed:
- Trademark Act (1992);
- Copyright Act (1992);
- Patent Act (1994);
- Utility Models Act (1994);
- Protection of Geographical Indications Act (1999);
- Industrial Design Protection Act (1997);
- Layout-Designs of Integrated Circuits Protection Act (1998);
- Implementation of the Convention on the Grant of European Patents Act (2002).
Besides implementation of intellectual property rights into legislation, Estonia has ratified several international conventions on the protection of intellectual property:
- Paris Convention for the Protection of Industrial Property (Stockholm Act, 1967)— joined 24 August 1994;
- Convention Establishing the World Intellectual Property Organization (Stockholm, 1967)—joined 5 February 1994;
- Patent Cooperation Treaty (Washington, 1970)— joined 24 August 1994;
- Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks (1957)— joined 27 May 1996;
- Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure (1977)— joined 14 September 1996;
- Locarno Agreement Establishing an International Classification for Industrial Designs (1968)— joined 31 October 1996;
- Strasbourg Agreement concerning the International Patent Classification (1971)— joined 27 February 1997;
- Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (1989)— joined 18 November 1998;
- Agreement on Trade-Related Aspects of Intellectual Property Rights—joined 13 November 1999;
- The European Patent Convention— joined 1 July 2002;
- Trademark Law Treaty— joined 7 January 2003;
- Geneva Act of the Hague Agreement Concerning the International Registration of Industrial Designs— joined 23 December 2003;
- Patent Law Treaty— joined 28 April 2005;
- Nairobi Treaty on the protection of the Olympic Symbol— joined 11 May 2006.
Inventions in any field of technology may be protected by a patent if the invention complies with the criteria of patentability. In order to obtain such protection the invention shall be registered in the register of patents. In accordance with Estonian legislation the subject of an invention may be a device, process, material, including biological material or a combination thereof. The Patent Act provides also a number of objects that cannot be considered as inventions and thus are not available for patenting and defense. Such objects include for example schemes, rules and methods for performing mental acts or doing business, design and plans documentation (building), symbolic presentation of information aso. Furthermore, there is a list of inventions which in spite of their novelty cannot be patented on the grounds of immorality or the medical and biotechnological nature.
All patented inventions are classified according to the international patent classification adopted under the Strasbourg Agreement concerning the International Patent Classification. The above mentioned patentability criteria includes the following aspects:
- Invention involves an inventive step and is capable of industrial application;
- Invention is considered to be new if it does not form part of the state of the art (everything made available to the public by means of written or oral description);
- Invention shall be considered to involve an inventive step if, having regard to the state of the art, it is not obvious to a person skilled in the art;
- Invention can be manufactured or used in economy.
The scope and the content of the patent protection are determined by the wording and composition of the patent claim. Patent claims shall define the subject matter of the invention in words in a clear, concise and short manner, detailing the essential features. Descriptions, drawings and other illustrative material are often used for facilitation of interpretation.
A person willing to obtain a European patent for an invention may file a patent application with the Estonian Patent Bureau. A patent is normally valid for a period of 20 to 25 years, without possibility to extend it. The state payment for the European Patent Application is 223.69 EUR for an online or paper application.
If the patent application meets the necessary requirements it will be granted within 3-5 years. Additional validity state fees start for the first year and are 25.56 EUR for the 1st and 2nd year, 63,91 EUR for 3rd year, 76,69 EUR for 4th year etc.
Patents are available for any inventions in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application.
The opposition against a patent may be filed by third persons challenging the novelty of the patent within a 9 month period starting from patent publication, and is to be filed within European Patent Organization. The state fee for opposition is 775 EUR.
All the administrative decisions may be appealed to European Patent Organization within 2 months notification on particular decision date. The state fee for the appeal is 1860 EUR.
Estonian legislation defines trademark as a sign used to distinguish the goods or services of a person from other similar types of goods or services of other persons. Legal protection of trademarks thus includes the recognition and protection of the rights of the person who holds an exclusive right to a trademark. In order to be able to exercise the mentioned exclusive right the person has to be entered in the register of trade and service marks as the proprietor. There is also an option of an international registration valid pursuant to Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks that can be exercised in Estonia by the person entered into the International Register of the International Bureau of the World Intellectual Property Organization.
The following summarizes trademarks that may be protected:
- Well-known trademarks in Estonia within the meaning of the Paris Convention for the Protection of Industrial Property. It should be observed that the Estonian Trade Marks Act contains its own provisions on the aspect of recognition of well-known trademarks.
- Trademarks registered in the register.
- Trademarks having an Estonian registration entered into the International Register of the Bureau pursuant to the Madrid Protocol.
An important aspect of legal protection of trademarks is that they shall have a graphical representation. The scope of protection is based on such representation, whereas well-known trademarks rely on the form that they became well-known for. The scope is furthermore determined by the goods and services that the trademark used to designate when it became well known or by a list of goods and services entered into the International Register of the Bureau.
The exclusive right of trademark gives to its proprietor a right to prohibit third parties to use any similar or identical sign with regard to identical or similar goods and services. Prohibition of marketing of similar goods and services under an identical or similar trademark also includes an aspect of possible public confusion. In the case of dissimilar goods prohibition may take place under the condition of unfair advantage or possible detriment to distinctive features or the status of the trademark.
Trademark validity time registered with the Estonian Patent Bureau is 10 years, afterwards renewable each time for a new 10-year period. State fee for a renewal is 191.73 EUR. For every additional class of goods and/or services for which the mark is registered the additional payment is 44.73 EUR each.
Opposition against published marks may be submitted within 3 months of the publication date (state fee is 160 EUR).
The entire process of registering a trademark takes about 1 year. State fees payable are 140.60 EUR and 44.73 EUR for every additional class for which it is filed, and 45 EUR is payable upon the granting of the trademark. "Likelihood of confusion or perception of mutual relation" is a principle applied in Estonia in determining if two marks may co-exist.
Further, the Customs authorities may be notified about registered marks, border control against counterfeited goods to be enforced, down to destruction of seized goods. Owners of trademarks may enforce their rights of removal on infringing trademarks of unofficial distributors, traders, etc., from advertisement, documents, goods and services.
The term ‘’industrial design’’ can relate to the two-dimensional or three-dimensional design of a product. Furthermore, the Estonian Industrial Design Protection Act provides that a design means the set of features of a product that either separately or in combination form the shape, configuration, ornamentation, colors, texture and material of the product.
In order for a design to obtain a legal protection, it has to be a new, have an individual character and the potential to be applied for manufacturing of industrial or handicraft products. Where such conditions are fulfilled the legal protection is acquired by registration in the register of industrial designs.
The design is considered new if no identical or confusingly similar design has been disclosed in Estonia or any foreign state prior to the filing date of the registration application (in the case of priority being claimed, before the priority application date).
The aspects of individual character are considered fulfilled if the overall impression the design produced on specialists in a particular field is different from any other design disclosed within the territory of Estonia or in a foreign state prior to the filing date of the registration application. As disclosure is an important aspect of design, it is important to observe that the Industrial Design Protection Act regards a design as being disclosed if it is published in a public publication or made otherwise available to a large number of people.
Following is the list of designs that are not normally subject to protection:
- Designs which are derived solely from the technical function of the product;
- Designs contrary to generally accepted good practice;
- Designs of unstable nature;
- Layout design of integrated circuits;
- Design of a component or a spare part that is not clearly visible.
The owner of an industrial design has the exclusive right to manufacture products according to that design, to distribute (including import and export), sell, offer for sale or store for the aforementioned purposes products which are manufactured pursuant to the registered industrial design. Similarly to the cases of trademark and patent, the owner has, furthermore, the right to prohibit other persons from manufacturing without authorization products according to an identical or confusingly similar industrial design and from distributing, selling, offering for sale as well as stocking for the aforementioned purposes any such products.
The author or person who has acquired the right to apply for the registration of the industrial design from the author or by way of transfer of such right has the right to apply for the registration and to become the owner. Several persons may apply for the registration jointly. The registration application shall be filed with the Patent Office and may include one industrial design, the variants thereof or a set of industrial designs. During the application it is important to pay attention to the following requirements of design representation:
- A representation shall give a clear and complete depiction of the industrial design;
- A representation shall contain the perspective view of the design and other views which are necessary for a clear and complete impression;
- A representation shall be photographic or graphic;
- A representation of a variant of an industrial design shall contain the perspective view and other views which are necessary for a clear and complete impression;
- A representation of a set of industrial designs shall contain the perspective view and other views that are necessary for a clear and complete impression.
The rights and obligations arising from the Estonian Industrial Design Protection Act and other legal acts regulating the legal protection of industrial designs apply equally to natural and legal persons, regardless of their residence. In order to avoid possible confusion, the Industrial Design Protection Act also specifically provides that the legal protection of industrial designs shall be treated independently from the protection arising from the Copyright Act.
The copyright protection provides the set of rights with regard to:
- Author of literary, artistic and scientific works;
- Persons who may acquire rights to literary, artistic or scientific works created by an author and the rights of such persons;
- Performers, producers of phonograms and broadcasting organizations;
- Creators of databases and the right concerning their execution.
The Estonian Copyright Act governing the field applies to the following works:
- The author of which is a citizen or a permanent resident of Estonia;
- First published in the territory of Estonia, or not published but located in the territory of Estonia;
- That which must be protected in accordance with international agreements that are ratified by Estonia.
The term “works” includes literary, scientific and artistic works, meaning any original results in any of the latter domains that are expressed in an objective form and can be perceived and reproduced in this form. A work is considered original only if it can be observed as the author’s own intellectual creation. An interesting aspect to mention is that the purpose, value, specific form of expression or manner of fixation of a work shall not be taken into account as grounds for the non-recognition of copyright.
Copyright in a work arises upon its creation by the author whereas moral and economic rights shall be considered to constitute the content of copyright.
To be more specific, the moral rights grant author of the work the possibility to appear in public as the creator of the work and claim recognition of the fact of creation (right of authorship) as well as decide in which manner the his name shall be designated upon use of the work. Moral rights constitute furthermore the right to make changes, additions or contest any misinterpretations and authorize others to take such actions.
Economic rights on the other hand include authorization and prohibition of the use by others while receiving an income from such use. The main actions upon the copyrighted work with regard to economic rights are reproduction, distribution, adoption, compilation and systematization, any public display or performance as well as carrying out the architectural (or any other related) projects pursuant to the copyright in question.
Moral rights are inseparable and non-transferable while the economic rights of an author are transferable.
With regard to abovementioned rights the author has the right to obtain remuneration for the use of his or her work by other persons. Works may be used by other persons only in a case of transfer/assignment of the author’s economic rights by him or her or on the basis of an authorisation.
Copyright protection endures for the duration of the life time of the author and the seventy years following their death, irrespective of the date on which the work is lawfully made available to the public. In the case of anonymous or pseudonymous works, the term of protection of the copyright shall run for seventy years after the works are lawfully made available for the public.
The Copyright Act also sets the scope of related rights. Owners of related rights to a copyright may be performers, producers of phonograms, broadcasting organisations, producers of films or a person who, after the expiry of copyright protection, for the first time lawfully publishes or in any other way makes available to the public a previously unpublished work. The related rights shall not expire before the end of a period of fifty years since the first performance (production) or in case of producers of phonograms since the first fixation and in case of broadcasting organization since the first transmission.
Establishing a company
1. Estonian corporate legal entities
As it derives from Estonian Commercial Act the following legal entities may be established in Estonia:
1. Public limited company or stock company (aktsiaselts/AS)
The minimum capital requirement is 25000 EUR. The minimum nominal value of a share shall be 0.1 EUR. Shares shall be registered in the Estonian Central Register of Securities. Public limited company may be founded by one or more persons whereas founder might be a physical as well as a legal person. A memorandum of association and articles of association shall be concluded in accordance with principles of Estonian Commercial Act. The company shall be registered with the Estonian Commercial Register. The process of registration usually takes up to three weeks.
2. Private limited company (osaühing/OÜ)
Private limited company shall have share capital at least 2500 EUR may be contributed later, after the term shareholders decide in the Articles of Association and a minimum nominal value of share equaling 1 EUR. A private limited company may be founded by one or more persons and such persons may be natural or legal persons. The company shall be registered with Estonian Commercial Register. From the filing of a notarized petition the process of registration usually takes up to three weeks.
3. General partnership (täisühing/TÜ)
This is a form of a partnership where two or more partners operate under a common business name being equally liable for partnership’s obligations with all their assets. No minimum capital requirements are imposed. The relationship between partners, their contribution and dividend shares are regulated by the partnership agreement. The partnership in question shall be registered with Estonian Commercial Register. The partner must be a natural or legal person, but it cannot be a local government. A new partner can be added if all the existing partners agree.
4. Limited partnership (usaldusühing/UÜ)
Limited partnership is quite similar to general partnership. The minor differences include aspects of liability, where at least one of the persons, being a general partner, is liable for the obligations of the partnership with all its assets, while at least one person, being a limited partner, is liable only for obligations in regard to his contribution. The relationship between partners, their contribution and dividend shares are regulated by the partnership agreement. The partnership in question shall also be registered in the Estonian Commercial Register.
5. Commercial association (Tulundusühistu or Ühistu)
Commercial associations are much alike limited companies. The main differences concern voting procedures and payments of dividends. In accordance with the Association Act the votes of association members are equal, dividends are limited and profit is generally distributed with regard to members’ contribution to association’s activities. Commercial association shall also be registered into the Commercial Register. Participation in commercial association is voluntary.
6. Sole proprietor (füüsilisest isikust ettevõtja/FIE)
The sole proprietor is liable for all of their obligations with all their assets. They shall be registered into the Commercial Register if they are registered with the Tax Board as a taxpayer under the Value Added Tax. Petition to Commercial Register must be notarized.
7. Branch (filiaal)
Establishment of a branch is an opportunity for a foreign company to provide goods and services on the Estonian market without establishing a new company. A branch cannot be considered as a separate legal person. Consequently the foreign parent company is liable for all obligations connected to the branch’s commercial activity. The branch shall be registered with Commercial Register, where notarized petition is usually reviewed in three weeks. The branch is registered in the manner of limited company. The branch shall have its own separate accounting, following the provisions of Estonian Accounting Act.
8. Representative office (non- resident tax payer)
Foreign company has the right to start business in Estonia without opening any office in Estonia, one representative person located in Estonia is sufficient. Only registration is made in Estonian Tax and Customs Board, where the foreign company is registered as Non-Resident Tax Payer in Estonia. The Non-Residents are not registered in Estonian Commercial Register and all actions of a Non-Resident are managed from the foreign state. If a foreign company opens a representative office in Estonia, it is not necessary for to register again in the Commercial Register – the only registration required to be made is with the Estonian Tax and Customs Board, where the foreign company is registered as Permanent Establishment in Estonia. The Permanent Establishment is not registered in the Estonian Commercial Register and all actions of Permanent Establishment are managed from the foreign state.
2. Fees and formal aspects of registration
General costs for establishing a company in Estonia include the relevant notary fee. With regard to establishment of general and limited partnership as well as a sole proprietor the state fee 12.78 EUR , which has to be transferred to the account of Ministry of Finance upon registration. For a private and public limited liability company or a foreign entity branch registration the state fee is 140,60 EUR and electronically 185.34 EUR.
In order to register the company in the Commercial Register an entrepreneur is required to submit several documents forming the basis of an entry, which consists of documents required by law as well as a notarized specimen of board members’ signatures. It should be noted that the registry will sometimes demand supplementary documents if these are necessary to verify the facts which form the basis for the registration.
The following document shall be submitted to the commercial register where a private limited company is concerned:
- Memorandum of Association
- Articles of association
- Bank notice that the share capital has been paid
- Names, personal identification codes or registry codes and addresses of shareholders, nominal value of the share of each shareholder
- Names and personal identification codes of the members of supervisory board, and the auditors, if needed.
- Notarized consent of all members of the management board to becoming a member of the management board, and a certification that no legal barrier exists as to any of the members being members of the management board;
- Information on the planned activity
- Data on the telecommunications of the private limited company (telephone and fax numbers, e-mail and internet home page address etc.)
- Other documents that the law provides must be submitted.
1. Concluding of the employment contract
The core of Estonian labor relations is regulated by the Estonian Employment Contracts Act. It includes numerous provisions governing the entry and the termination of the labor contracts, setting out rules and mandatory requirements in regard to important legal employment procedures.
An employment contract is usually concluded for an unspecified period of time. There is an option to limit the duration of contract by certain period of time or connect its durability to completion of a specific task or assignment, but in this case such a contract cannot be concluded for a period longer than five years. The contact shall be concluded in writing in two exemplars, unless it is entered for a period of less than two weeks.
The employment contract shall contain following mandatory information:
- Identities of the parties, date of entry and commencement, duration of validity;
- The official or professional title, description of the tasks assigned and the place of their performance;
- Standards for working time and wage conditions;
- The length of employee’s annual holidays;
- Terms regarding termination of the employment contract at hand;
- Reference to the relevant collective agreement (if any).
There are certain restrictions concerning contracts with relatives or persons having a direct marital connection. It must also be noted that all employees, including minors, have to conclude the labor contract directly with the employer or its representative.
2. Grounds for termination and formal aspects
Termination of the employment contract and firing of the employees are regulated by many rules and requirements strictly and exhaustively shaped in the Estonian Employment Contracts Act. Legal grounds for initiation of a process of termination are as follows:
- Termination on the basis of agreement of the parties;
- Expiry of the employment contract;
- On the initiative of the employee;
- On the initiative of the employer;
- At the request of third parties;
- In circumstances which occurred independently from parties. (?)
Both employers and employees are required to give each other notice in advance (period of notification is usually included in the employment contract) of the termination,where there are not grounds for immediate termination. Written notice may still be renounced if consent of the party is obtained.
The employer is required to register the termination in the employment contract, stating the basis for termination and providing relevant legislation, date for termination and information considering compensation. Furthermore a employer who is a natural person (on behalf of the company) shall register termination of the contract with the labor inspector of his or her residence within one week of the date of termination.
Termination on the initiative of the employee
If an employment contract is concluded for an unspecified period of time, the employee shall notify the employer of termination one month in advance. During the probationary period that time is fifteen calendar days. An employee does not have to justify the cancellation if the contract was concluded for an unspecified period of time. An employee can terminate a fixed term contract only with good reason as required by law (unless employee was hired for the period of replacement of another employee).
A fundamental breach of an employer’s obligation may justify termination of the contract by the employee without notice, in particular if:
- the employer has degraded the employee or threatened to do so or allowed the employee's colleagues or third parties to do so;
- the employer has considerably delayed payment of wages;
- continuance of work would pose a real threat to the employee's life, health, morals or good name.
An employee may cancel a contract of employment in this manner only within a reasonable time of learning or when they should have learned of the circumstances forming the basis of the cancellation.
If an employer or an employee gives advance notice of cancellation later than provided by law or a collective agreement, the employee or the employer has the right to receive compensation to the extent to which they would have had the right to obtain upon following the term of advance notice.
If an employee cancels an employment contract extraordinarily for the reason that an employer is in fundamental breach of the contract, the employer shall pay the employee compensation to the extent of three months' average wages of the employee. A court or a labour dispute committee may change the amount of the compensation, considering the circumstances of cancellation of the employment contract and the interests of the parties.
Termination on the initiative of the employer
As the termination on the initiative of the employer in most cases has a negative impact on employees, Estonian legislation has set out strict rules in regard to this matter in order to secure the weaker position. Following is the exhaustive list of arguments that may be used by the employer as a ground for premature termination of the employment contract:
- Declaration of bankruptcy of the employer, liquidation of the enterprise, agency or other organization;
- Dismissal of employees on the basis of lack of tasks or assignments;
- Unsuitability due to lack of professional skills, long-term incapacity to perform assigned work or deficient health condition (Long term incapacity factor may be applied if an employee has been absent from work for more than four consecutive months or for more than five months during a calendar year);
- Unsatisfactory results during probation period;
- Breach in duty, loss of trust or indecent act including act of corruption of employee (Reasons for loss of trust in employees may include stealing, losing, endangering or causing a deficit in, damage to, or destruction of, the property of the employer, stealing the property of a co-worker at the workplace, engendering distrust of the employer on the part of consumers, clients or business partners.
An Indecent act is usually considered as an act which is contrary to generally recognized moral standards or which discredits an employee’s or employer’s reputation. An indecent act also constitutes the basis for termination of an employment contract if it is committed outside of the performance of duties);
- Hiring of an employee for whom the position in question is considered to be the principle job;
An employer is required to notify employees of contract termination in advance, simultaneously providing the reasons for such termination. Such notification shall also made to an organization or a person representing the employee in question. An employer shall give an employee advance notice of extraordinary cancellation if the employee’s employment relationship with the employer has lasted:
1) less than one year of employment – no less than 15 calendar days;
2) one to five years of employment – no less than 30 calendar days;
3) five to ten years of employment – no less than 60 calendar days;
4) ten or more years of employment – no less than 90 calendar days.
In the case of a breach in duty, loss of trust or indecent act including act of corruption of employee, the employer can terminate the contract without adhering to the term of advance notification if considering any and all circumstances and mutual interests, it cannot be reasonably demanded that the performance of the contract be continued until the expiry of the agreed term or term of advance notice.
In the case of a failure to adhere the rules of advance notification the employer is required to pay compensation to the employee in the amount of the employee’s average daily wages. However it must be noted that upon the declaration of bankruptcy of an employer, the latter is permitted to terminate employment contracts without advance notice to the employees.
An option exists to terminate the employment contract by a collective termination. This is considered in cases where the termination of the employment contract is taking place at the initiative of the employer and it is being terminated due to termination of a legal person, termination of work of an employer who is a natural person, declaration of bankruptcy of the employer or a dismissal of employees within thirty days. There is an obligation for the employer to immediately inform representatives of the employees, provide the relevant information and consult them in order to reach amicably the best solution.
Upon termination of the employment contract on the basis of a lay-off the employer is required to pay employees one month’s average wages.
Estonian legislation has also outlined several restrictions regarding termination of employment contracts. There are specific rules considering labor relations with a pregnant woman or person raising a child under three years of age, underage persons and employee representatives. An employer may not cancel an employment contract on the grounds of the following:
1) an employee is pregnant or has the right to pregnancy and maternity leave;
2) an employee performs important family duties;
3) an employee does not, in the short term, cope with the performance of duties due to their
state of health;
4) an employee represents other employees on the basis provided by law;
5) a full-time employee does not want to continue working part-time or a part-time employee
does not want to continue working full-time;
6) an employee is in military service or alternative service.
If an employer cancels an employment contract with an employee who is pregnant or raising a child under three years of age, it shall be deemed that the employment contract has been cancelled on account of the reason specified in the above clause, unless the employer proves that it cancelled the employment contract on the basis of a ground for termination accepted in law.
An employer may not cancel an employment contract with a pregnant woman or a woman who has the right to pregnancy and maternity leave or a person who is on parental leave or adoptive parental leave due to a lay-off, except upon cessation of the activities of the employer or declaration of the employer’s bankruptcy if the activities of the employer cease. An employer may not cancel an employment contract with a pregnant woman or a woman who has the right to pregnancy and maternity leave due to a decrease of the employee’s capacity for work.
The Estonian legislation creates preferential rights for different kinds of employees. The representatives of employees and those employees raising children under three years of age have a preferential right to remain at work (unless in the case of bankruptcy or cessation of the activities of the employer).
Termination of contract by agreement of parties and upon expiry
The employment contract can be terminated if one of the parties presents a corresponding written request and the other party gives written consent to termination of the contract. A fixed-term employment contract expires upon expiry of the term. If an employee continues to perform work after the expiry of the term of a contract, it shall be deemed that the contract has been entered into for an unspecified term, unless the employer expressed a different will within five working days of learning or when they should have learned that the employee was continuing to perform the employment contract.
3. Working time
The duration of the working time and guidelines for its organization are set out in the Employment Contracts Act. The general national standard for working time is eight hours per day or forty hours per week. In case of part-time employment the working hours are usually shorter and are regulated on the basis of the relevant employment agreement. Furthermore a person due to being a minor may be subject to a reduced working time. Reduced hours are also applied for employment hazardous to health - a specific list on that matter is provided by the Estonian Government.
Overtime shall be decided in the agreement between the parties. Yet in cases case of force majeure, an employee is usually required to comply with an order of an employer to work overtime if such work is of necessary and temporary nature and has to be performed promptly. There is the requirement to maintain separate records of overtime concerning every employee and every specific case of overtime.
Overtime shall not be undertaken by:
- Pregnant women;
- Employees who are not allowed to work overtime on the decision of a doctor.
Working time together with overtime shall not exceed an average of forty-eight hours per week during a four-month period. Those standards may be abolished in a case of force majeure.
Finally, an employer is required to grant employees a break for rest and meals for every six hours of work unless otherwise provided by the collective agreement. The duration of such a break shall be at least thirty minutes. The rest time between working days and working shifts shall be at least eleven consecutive hours, and at least two days per week shall be available for off time.
Immigration and residency
1. Residence permit for the EU citizen
EU citizens with a valid travel document or identity card have the right to stay in Estonia for a period of up to 3 months. If the person wishes to stay in Estonia longer, the right of temporary residence shall be applied.
The right of temporary residence is granted for a period of 5 years.
An EU citizen who has resided in Estonia permanently for 5 successive years on the basis of temporary right of residence shall obtain the right of permanent residence.
It should be noted that an EU citizen has a right to bring their family members to Estonia, to whom the same the same residence regulation applies as for the EU citizen.
Temporary residence permit
In order to obtain the right of temporary residence an EU citizen must contact the local government authority nearest to his/her place of residence.
Upon the application for an identity card the following documents must be submitted to the Citizenship and Migration Bureau of the Prefecture:
- a standard application form
- an identity document of the applicant;
- a colored photo sized 40x50 mm;
- a document certifying the payment of the state fee 63.91 EUR.
Identity cards are issued within a period of one month from the date of submission of the application.
EU citizens must, in order to register their right of permanent residence, contact the customer service of the Citizenship and Migration Bureau of the Prefecture or submit the respective applications by post containing the documents listed above.
2. Residence permits for persons outside EU
Temporary residence permit may be issued to non-EU citizen:
- married to a person with permanent residence in Estonia;
- for settling down with a close relative permanently residing in Estonia;
- for working;
- for studies at an Estonian educational institution;
- for business;
- in case of substantial public interest;
- whose application for a residence permit is based on an international agreement.
Temporary residence permit may be extended if the basis for the permit has not changed and application is justified.
A non-EU citizen may apply for a residence permit for employment if an open competition (??) has been carried out to staff and the citizen has qualifications, education, health, work experience, special skills and knowledge required for the job. The Estonian Unemployment Insurance Fund has to give its consent before non-EU citizen can be employed. The consent is valid for 2 months from the moment of its issue. A residence permit is issued only if the wages of an alien ensure his/her subsistence in Estonia. An employer must pay an alien a salary which is at least equal to the product of the recent average yearly wages in Estonia published by the Statistical Office of Estonia and the coefficient 1, 24.
A non-EU citizen who owns shares in a company or acts as a sole proprietor and who has continuous financial means, may apply for a residence permit for business in Estonia. The company or the sole proprietor must be registered in the Estonian Commercial Register and the settlement of the alien in Estonia must be important for the business. The company or the sole proprietor is required to have a business plan which states the character and range of the business, number of staff, necessary qualification and know-how of the staff, and:
- Non-EU citizen has invested in Estonia a capital sum of 65 000 EUR under his/her control in the case of a company;
- Non-EU citizen has invested in Estonia a capital sum of 16 000 EUR under his/her control in the case of a sole proprietor.
Non-EU citizen is required to have continuous legal income that ensures his or her subsistence in Estonia during the six months preceding the submission of the application. Lawfully earned remuneration for work, income received from lawful business activities or property, pensions, scholarships, support, benefits paid by a foreign state and the maintenance ensured by family members earning legal income are deemed to be legal income.
An alien has to have an insurance contract guaranteeing that any costs related to his or her medical treatment as a result of illness or injury during the period of validity of the residence permit applied for will be met to the extent equal to persons covered with health insurance.
Documents issued by a foreign state must be translated either into Estonian, Russian or English and the accuracy of the translation must be certified by a notary. Documents must be confirmed by a relevant certificate (apostille) or legalized. Apostille is not required from the states with which Estonia has a contract for legal assistance: Lithuania, Latvia, Poland, Ukraine and Russian Federation.
3. Schengen Visas
The Schengen visa allows the holder to a total stay of up to 3 months days within a period of 6 months for tourism or business purposes. Receiving the multiple entry Schengen visa, it is possible to leave and return any number of times within the 6 months period, but the combined stay within the region must not total more than 3 months (90 days). A Schengen visa shall be applied for by a citizen of a country whose citizens are subject to the visa requirement. A Schengen visa must be applied for in person, not by mail.
Having received a Schengen visa, the person may enter one country and travel freely anywhere within the Schengen territory. Internal border controls have been abolished and there are few, if any, stops or checks. Internal air, road and train travel are handled as domestic trips. The Schengen Agreement still allows customs control as long as there is no passport check, and checks are made randomly, or in cases where there is genuine cause for suspicion.
It takes between 2 and 10 working days to obtain a Schengen visa for short-term stays. Processing time may be up to several months for long-term visas.
Schengen visa types
An airport transit visa (A) allows a person to transit through the international zone of a Schengen airport without entering the Schengen territory.
A transit visa (B) allows a person to transit no more than 5 days through Schengen countries by car, coach or travelling through different airports on the person’s way to a non-Schengen country.
A short stay visa (C) allows a person to visit the Schengen countries for tourist, family or business visits, up to a maximum of 3 months in a given 6 month period.
A circulation visa (C) is a short stay visa valid for at least a year: It is mainly issued for business visits that have an invitation letter from a Schengen country, to aircrew members, to people having a special interest in the Schengen territory.
A long stay visa (D) allows a person to stay for more than 3 months, e.g., study, work, retire etc.
State fees for processing the Schengen visa application
Airport transit visa (A)
Short-term visa (C)
Short-term visa (C) children 6-12 years
EU agreements on the facilitation of the issuance of visas (applies for the citizens of the Russian Federation and Ukraine)
One-time and multiple-entry visa 35€
EU agreements on the facilitation of the issuance of visas (applies for the citizens of Albania, Bosnia and Herzegovina, FYROM, Georgia, Montenegro, Serbia and Moldova)
One-time and multiple-entry visa 35€
Visas are issued at diplomatic missions or consular offices of the Republic of Estonia abroad.
In order to get a visa an alien must submit:
- a valid travel document;
- an established application form for a Schengen Visa;
- one photo of 35x45 mm, corresponding to the age of an alien;
- the receipt of the paid consular fee;
- a valid document certifying his/her health insurance;
- Visa fee