DOING BUSINESS IN ESTONIA

Estonian Chamber of Commerce and Industry

7th of May, 2014

Margus Ilmjärv, head of Jõhvi office

THE ESTONIAN CHAMBER OF

COMMERCE AND INDUSTRY

was founded to represent and protect common interests of

Estonian merchants, manufacturers, bankers, and ship-owners in

the year of 1925.

The Chamber was re-established in 1989

The mission of the Chamber is to develop

entrepreneurship in Estonia through taking actively part in

designing economic policy and via rendering business services.

3

Chamber’s regional offices and division of members by region

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MEMBERSHIP Non-governmental

Membership voluntary

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MEMBERSHIP

by employees

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Analysis and enbetterment of entrepreneurship-related

legislation: Tax Laws; Corporate Law; Property laws; Law on

obligations; Foreign trade; Professional qualification etc.

Some focuses:

• How to make local authorities more entrepreneurial?;

•Improving immigration policy – talents to Estonia;

• Supporting administrative-territorial reforms and education

reforms etc.

ECONOMIC POLICY ACTIVITIES

ECCI SERVICES

• Consultation:

legal, foreign trade, EU

• Contact services :

presentations, seminars, delegations, fairs

• Foreign trade services :

Certificate of origin, ATA Carnet

• Enterprise Europe Network:

EU contact and business information

• Training:

EU, taxes, legal, foreign trade

The Court of Arbitration of the Estonian

Chamber of Commerce and Industry

• Confidential

• Cheaper

• Faster

• The decision of the Court of Arbitration enters

into force from the moment of its making

Estonian Chamber of

Commerce and Industry

Toom-Kooli 17

10130

Tallinn

tel: 604 0060

faks: 604 0061

E-mail: koda@koda.ee

www.koda.ee

www.facebook.com/kaubanduskoda

Estonian Chamber of

Commerce and Industry

Jõhvi office

Pargi 27, 41537, Ida-Virumaa

Margus Ilmjärv

E-post: margus@koda.ee

Tel:+372 337 4950

Gsm:+372 502 3699

Skype:margusilmjarv

Estonia in General

Location: Next to Finland, Latvia and North-West Russia

Area: 45,227 km2 (similar in size to Denmark or the Netherlands)

Population: 1,3 million (69% Estonians, 25% Russians)

Capital Tallinn (420 000)

Government: Parliamentary Democracy

Language: Estonian

Currency: Euro

Member: EU, NATO, OECD, WTO, Schengen Area

Estonia in General

15 counties

226 municipalities among which there are 33 cities and 193 rural municipalities.

Rural municipalities and cities form the local level of Estonian public administration.

Two thirds of local government units have less than 3000 inhabitants.

Key economic indicators

GDP per capita (2013): 18 434 EUR

GDP per capita (EU27=100) 69 %

Real growth of GDP 2012: 3,2 %

Consumer price index (2013): 2,8%

Unemployment 2013: 8,6%

Average monthly wage (2012): 887 EUR

Key economic indicators

Exports (million Euro, 2013): 12 275

Imports (million Euro, 2013): 13 649

Accommodated visitors (2013): 2 981 000

Foreign direct investments (2013): 715,4 (EUR m)

Spring 2014 Forecast

The gross domestic product of Estonia will increase by

2.0% in 2014 and 3.5% in 2015.

Consumer price increase will slow down to 1.4% in 2014

and increase to 2.7% in 2015.

Unemployment will continue to fall with the unemployment

rate expected to decrease below 8% in 2014 .

Spring 2014 Forecast

• The foreign assumptions of this forecast were fixed in the

middle of February 2014, before the escalation of events in

Ukraine

• The future development of the geopolitical crisis is still

related to very big uncertainty and in order to assess and

quantify the short and long term economic impact would

need some stabilization of the situation.

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Japan

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.

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and

Estonia has high position in business environment rankings

Index of Economic

Freedom 2013

47

1113

20 2124 25

27

55

65

USA

UK

Finla

nd

Swed

en

Ger

man

y

ESTO

NIA

Japan

Latvi

a

Lithua

nia

Pol

and

Cze

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ep.

Ease of doing business rankings 2013

14

1317 17

19

32

41

48

54 54

Finland

Swed

en

Ger

man

y

Japan U

KUSA

ESTO

NIA

Pol

and

Lithua

nia

Cze

ch R

ep.

Latvia

... and high e-readiness and low corruption

13

810

1618

24

31

41 42

49

Swed

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Finl

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USA

UK

Ger

man

y

Japa

n

ESTO

NIA

Lith

uani

a

Latv

ia

Cze

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ep.

Pol

and

Networked Readiness Index 2012

Corruption Perceptions Index 2012

20

-13,6-14,2

-9

-1,6

4,55,9

11,7

6,8

9,7

6,3 6,67,8

6,3

8,910,1

7,5

-3,7

-14,3

2,3

7,6

3,22

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-20

-15

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15

1991

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2011

2012

2013

*

Monetary reform

Russian & Asian crises

New corporate

income tax system

EU

Economic growth

Global

financial crisis

GDP growth (%)

GDP composition 2012 (%)

Other

13%

Education

5%Public

administration

and defence

7%

Health and social

work

4%

Realestate

10%

Finance

3%

Information &

communication

5%

Transport &

storage

9%

Wholesale and

retail trade

14%

Construction

7%

Agriculture &

forestry

4%

Electricity and

water supply

5%

Manufacturing

& mining

17%

Inflation

47,7

3 5

89,8

2923,1

11,28,2

3,3 4 5,4 3,61,3 3 4,1

4,4 6,610,9

-13,9

3,5

-20

0

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1993

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Inflation (%)

Credit ratings

Estonia has some of the highest credit ratings in the region

Standard & Poor's

Fitch Moody's

Estonia AA-

(outlook negative)

A+ (outlook stable)

A1 (outlook stable)

Latvia BBB- BBB- Baa3

Lithuania BBB BBB Baa1

Finland AAA AAA Aaa

Russia BBB+ BBB Baa1

World countries Standard &

Poor's ratings

• The World Bank “Doing Business in 2013” report

places Estonia on 21th rank among 185 countries,

because:

– starting a business is easy

– taxation is simple and transparent

– investors feel secure

– trading across borders is active

– communication is easy

– flexible job regulation

but:

too many local government units

Doing Business in Estonia

Starting a Business

• Number of procedures – 5

• Minimum starting capital of most wide-used

company form (Ltd.) – only 2500 Euros. When

owners only private persons the payment of the

starting capital can be postponed (0 EUR)

• 2007 – electronic registering – max 2 hours

• Companies can be 100% foreign owned

Starting a Business

Business registry is public with free online access

https://ariregister.rik.ee/index.py?lang=eng&sess=3

68924835397308299693241533367557806480790

3414610459758315505170

Active companies in 2012

Companies No % employed

Micro 1-9 employees 42 760 86,5 112 007

Small 10-49 5 430 11,0 109 548

Medium 50-249 1 080 2,2 106 069

Large +250 156 0,3 95 540

Sum: 49 426 100 423 163

Active companies in 2013

Companies No % employed

Micro 1-9 employees 45 117 87,4 112 054

Small 10-49 5 293 10,26 106 942

Medium 50-249 1 036 2 102 328

Large +250 157 0,3 95 439

Sum: 51 603 100 416 763

Paying Taxes

Estonian Tax system:

– is simple, motivating and transparent

– is focused on taxing consumption

– has very few exemptions and deductibles

Tax system

• Value Added Tax –20% (with few exceptions – 9% - books, accommodation, medicines)

• Social Tax – 33%: paid by the employer (20% for social security and 13% for health insurance)

• Unemployment insurance - 3%

• Income Tax – flat 21% rate for individuals (perspective – lowering

since 2015), income tax free – 144 EUR/month

• 0% Corporate Income Tax on all reinvested profits or profits

retained in the company

• no property tax

Labour tax calculators online

http://palk.crew.ee/ http://www.calkoo.com/?lang=3&page=1

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Germany Sweden UK Finland Hungary Czech

Rep.

Poland Lithuania Latvia ESTONIA

Taxes on reinvested profits

Corporate Income Tax

Unique corporate tax system since 2000:

• 0% on all reinvested profits or profits retained in the company

• 21% of income tax is paid when profit is taken out of the company

Investors Feel Secure

• Private ownership is inviolable

• Foreign investors have equal rights with local

• Right to purchase and own land

• Continental European commercial legislation

• Shareholders control over management

• Investors prefer to reinvest than repatriate profits

• Total: over 13,9 bln Euros of FDI

• Stable monetary system

81

6863

53

47

41

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ESTONIA Sweden Czech Rep. UK Latvia Poland Lithuania Finland

Foreign investments

Estonia has long been a leading European country in attracting

foreign direct investments

Inward FDI stock as % of GDP 2011

Transport &

storage

5%

Electricity & gas

supply

3%

Manufacturing

17%

Wholesale &

retail trade

13%

Other

13%

Professional,

scientific &

technical

activities

9%

Real estate

activities

14%

Financial &

insurance

activities

26%

Foreign Direct Investments by activities 2012

Finland

23%

Netherlands

11%

Russia

4%

Norway

5%Sweden

28%

USA

2%

Others

27%

Foreign Direct Investments by countries 2012

Jõhvi logistics and business park

New business park being built in Ida-Viru County

Placed on about 105 hectares near to Tallinn-St. Petersburg highway in the county’s center

Infrastructure construction starts in June 2014

Jõhvi logistics and business park

Prices for land 15,00 EUR/m2

More Information:

Teet Kuusmik + 372 5114 685 teet.kuusmik@ivia.ee

www.ivia.ee

Foreign Trade 2000-2012(MEUR)

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16000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Exports

Imports

Balance

Trading Across Borders

• Up until EU-accession (2004) most liberal

foreign trade regime in the world – no import

taxes, quotas, tariffs

• Market is open for competition – increased

competitiveness of local businesses

• Good geographic location for trade with

Scandinavia, the Baltic Countries and North-

West Russia

Foreign Trade by main partner countries 2012 (MEUR)

1823

1997

1096

1515

675

565

584

101

263

1981

1400

1315

933

1182

1410

119

479

524

Finland

Sweden

Latvia

Russia

Lithuania

Germany

USA

China

UK

EXP

IMP

EXP: 12,5 bln euros (0,3% of EU 27) IMP: 13,7 bln euros (0,4% of EU27)

Foreign Trade by main commodity sections 2012 (MEUR)

563

1130

1246

646

623

1041

502

1873

3593

1267

773

1068

2137

3921

Wood & paper

Chemicals

Transport equipment

Metals

Food

Minerals

Machinery & equipment

EXP

IMP

Communication & IT

• Business-to-business:

– over 98% of banking transactions are electronic

– 96% of companies have internet connection

– mobile penetration rate 130%

• Government-to-citizen:

– 94,5% income tax statements submitted online

– e-tax-board for companies

– e-elections

• Advanced knowledge of foreign languages

Labour market

Total labour force (15-74): 696 000

Employed people (2012): 625 000

Unemployment rate (2012): 10,2%

General working time: 8 hours a day, 5 days per week

Duration of the annual vacation: 28 days

Average wage: 887 EUR

Monthly minimum wage for

full-time work: 355 EUR

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2010 2015 2020 2025 2030 2035

Working age population (15-64) (thousands)

Labour force 15-64 (thousands)

Unemployed

Projection of labour force –

challenge for the future

Perspectives

• Taking Euro into use in 2011 =

credibility + stability

• Export development – new markets &

new products

• Skilled labour + flexible legislation =

easier job creation

• Creation of new companies active

Topics for 2014

Employment Register (01.07.2014)

VAT refund on cars, VAT declarations

Labour fource import (01.01.2015)

Ukraine/Russia

Estonian Chamber of

Commerce and Industry

Toom-Kooli 17

Tallinn 10130

Tel: +372 604 0060

Fax: +372 604 0061

koda@koda.ee

www.koda.ee

www.estonianexport.ee