2012 Investment Climate Statement - Estonia

2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012

Openness to, and Restrictions Upon, Foreign Investment

As a member of the EU, the Government of Estonia (GOE) maintains liberal policies in order to attract investments that could produce exports. Foreign investors are treated on an equal footing with local investors. While the GOE still seeks to attract foreign direct investment (FDI) into Estonia, finding new export markets for Estonian goods and services is the GOE’s current priority. Creating favorable conditions for FDI and openness to foreign trade has been the foundation of Estonia's economic strategy.

Estonia's government does not screen foreign investments, nor has it set limitations on foreign ownership. It does, however, establish requirements for certain sectors. These requirements are not intended to restrict foreign ownership but rather to regulate it and establish clear ownership responsibilities. Licenses are required for a foreign investor to become involved in the following sectors: mining, energy, gas and water supply, railroad and transport, waterways, ports, dams and other water-related structures and telecommunications and communication networks. The Estonian Financial Supervision Authority issues licenses for foreign interests seeking to invest in or establish a bank. Additionally, the Estonian Competition Authority reviews transactions for anti-competition concerns. Government review and licensing have proven to be routine and non-discriminatory.

Estonia's privatization program is now complete. Only a small number of enterprises -- the country’s main port, the power plants, the postal system, and the national lottery -- remain wholly state-owned.

Some general facts concerning foreign direct investment inflows into Estonia include:

- There is a trend towards cross-border acquisitions;

- Greenfield investments are increasingly rare;

Estonia by international indexes/rankings:




TI Corruption Index



Heritage Economic Freedom



World Bank Doing Business



More on rankings:

TI Corruption Index: http://www.transparency.org/policy_research/surveys_indices/cpi

Heritage Economic Freedom: http://www.heritage.org/index/Ranking.aspx

World Bank Doing Business: http://www.doingbusiness.org/economyrankings/

Conversion and Transfer Policies

As of January 1, 2011 Estonia is a member of the euro currency area.

The euro has no restrictions on its transfer or conversion. Similarly, there are no restrictions, limitations or delays involved in converting or transferring funds associated with an investment (including remittances of investment capital, earnings, loan repayments, or lease payments) into other currencies at market rates. There is no limit on dividend distributions as long as they correspond to a company's official earnings records. If a foreign company ceases to operate in Estonia, all its assets may be repatriated without restriction. These policies are all long-standing; there is no indication that they will be altered in the future. Foreign exchange is readily available for any purpose.

Expropriation and Compensation

Private property rights are observed in Estonia. The government has the right to expropriate in the case of public interest related to policing the borders, public ports and airports, public streets and roads, supply to public water catchments, etc. Compensation is offered based on market value. Post is not aware of any expropriation cases involving discrimination against foreign owners.

Dispute Settlement

Investment disputes concerning U.S. or other foreign investors and Estonia are rare. Estonia's judiciary is independent and insulated from government influence; however, some business leaders complain the courts are overburdened and too slow. Property rights and contracts are enforced by the courts.

Estonia’s commercial law has proven extremely effective and is often cited as one of the components of Estonia’s successful economic reforms. The Commercial Code, as a part of the overall commercial law, is consistently applied. The Obligation Law, enacted in 2002, is the basis for all commercial agreements. A Bankruptcy Act was adopted in 2004. The full text of these laws can be found at: http://www.legaltext.ee/en/. Estonia has been a member of the International Center for the Settlement of Investment Disputes (ICSID) since 1992 and a member of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards since 1993.

Recognition of court rulings of EU Member States is regulated by EU legislation.

The Arbitration Court of the Estonian Chamber of Commerce and Industry is a permanent arbitration court which settles disputes arising from contractual and other civil law relationships, including foreign trade and other international economic relations.

 Performance Requirements/Incentives

 A fundamental principle of Estonia’s economic policy is equal treatment of foreign and domestic capital. No special investment incentives are available to foreign investors, nor is any favored treatment accorded them. Similarly, there are no specific performance requirements for foreign investments that differ from those required of domestic investments.

Estonia continues to refine its immigration policies and practices. U.S. citizens are exempt from the quota regulating the number of immigration and residence permits issued, as are citizens of the EU and Switzerland.

Estonia has a long-standing system of low, simple, flat-rate taxes; in particular, a 21 percent income tax. To encourage companies to expand their business, all reinvested profits are exempted from corporate income tax. However, any distributed profits, such as dividends, are taxed at 21 percent. This tax strategy was designed to promote business and accelerate economic growth by making additional funds available for investment.

Generally, the government does not impose “offset” requirements on major procurements. There are no government imposed conditions to invest.

Right to Private Ownership and Establishment

Private ownership and entrepreneurship are respected in Estonia. In most fields of business, participation by foreign companies or individuals is unrestricted. As provided for by the Law on Foreign Investments, foreign investors have the same rights and obligations as Estonian citizens. Foreign investors may purchase buildings and land for production purposes and establish, buy, and fully own companies.

Government approval is required for foreign investment and participation in only a handful of sectors (see section A.1).

Competitive equality is the official standard applied to private enterprises in competition with public enterprises. Private companies do not face discrimination in relation to state-owned companies.

Protection of Property Rights

Secured interests in property are recognized and enforced. Mortgages are quite common for both residential and commercial property and leasing as a means of financing is widespread and efficient.

The legal system protects and facilitates acquisition and disposition of all property rights, including land, buildings, and mortgages. The long and complicated process of property restitution (begun when the Principles of Ownership Reform Act came into force June 20, 1991) is almost complete, including in the area of non-residential real properties.

The Estonian legal system adequately protects property rights, including most intellectual property: patents, trademarks, industrial design, and trade secrets. Enforcement of copyright protections is improving, but digital piracy of movies, games, music and software is widespread. Estonia adheres to the Berne Convention, WIPO and TRIPS, the Rome Convention and the Geneva Convention on the Protection of the Rights of Producers. Estonian legislation fully complies with EU directives granting protection to authors, performing artists, record producers, and broadcasting organizations.

Protecting Intellectual Property in Estonia

Several general principles are important for effective management of intellectual property (IP) rights in Estonia. First, it is important to have an overall strategy to protect IP. Second, IP is protected differently in Estonia than in the United States. Third, rights, except for copyright, must be registered and enforced in Estonia under local laws. In Estonia, equal protection of copyright is provided via international conventions and treaties to foreign and Estonian authors. Protection against unauthorized use depends on Estonian normative regulations that adhere to international laws and directives of the European Union.

Registration of patents and trademarks is on a first-in-time, first-in-right basis, so investors should consider applying for trademark and patent protection even before selling products or services in the Estonian market. Companies should understand that intellectual property is primarily a private right and that the U.S. government generally cannot enforce rights for private individuals in Estonia. It is the responsibility of the rights' holders to register, protect, and enforce their rights where relevant, retaining their own counsel and advisors. U.S. Government advice should not be seen as a substitute for the obligation of a rights’ holder to promptly pursue its case. Companies may wish to seek advice from local attorneys or IP consultants who are experts in Estonian law. This list is available on the embassy website: http://estonia.usembassy.gov/local_attorneys.html.

Investors should conduct due diligence on potential partners and Carefully consider whether to permit partners to register IP rights on their behalf. Projects and sales in Estonia require constant attention. Investors should work with legal counsel familiar with Estonian laws to create a solid contract that includes non-compete clauses and confidentiality/non-disclosure provisions. Small and medium-size companies should understand the importance of working together with trade associations and organizations to support efforts to protect IP and stop counterfeiting.

IP Resources

A wealth of information on protecting IP is freely available to U.S. rights holders. Some excellent resources for companies regarding intellectual property include the following:

· For information about patent, trademark, or copyright issues -- including enforcement issues in the U.S. and other countries -- call the STOP! Hotline: 1-866-999-HALT or register at www.StopFakes.gov.

· For more information about registering trademarks and patents (both in the U.S. as well as in foreign countries), contact the U.S. Patent and Trademark Office (USPTO) at: 1-800-786-9199.

· For more information about registering for copyright protection in the U.S., contact the U.S. Copyright Office at: 1-202-707-5959.

· Estonian Patent Office: http://www.epa.ee/

· Estonian Organization for Copyright Protection: http://www.eako.ee

· Estonian Association of the Phonogram Producers: http://www.efy.ee

Transparency of the Regulatory System

The Government of Estonia has set transparent policies and effective laws to foster competition and establish "clear rules of the game." However, due to the small size of Estonia's commercial community, instances of favoritism are not uncommon despite regulations and procedures designed to limit them.

Tax, labor, health and safety laws and policies have been crafted to encourage investment. They appear to have been successful, given the relatively high level of foreign direct investment per capita.

All proposed laws and regulations are published for public comment on the website: http://eelnoud.valitsus.ee/main#fD0RLBmi. Also, the public can comment on draft laws and propose changes to government regulations at: www.osale.ee.

Estonia’s widely-praised "e-governance" solutions and other bureaucratic procedures are generally far more streamlined and transparent than those of other countries in the region and are among the most streamlined and transparent in the EU.

International institutions and organizations give Estonia’s economic policies high marks. The U.S.-based Wall Street Journal/Heritage Foundation’s 2011 Index of Economic Freedom ranked Estonia 14th in the world. The index is a composite of scores in monetary policy, banking and finance, black markets, wages and prices. Estonia scores highly on this scale for investment freedom, fiscal freedom, financial freedom, property rights, business freedom, and monetary freedom.

Efficient Capital Markets and Portfolio Investment

Estonia's financial sector is modern and efficient. Government and Central Bank policies facilitate the free flow of financial resources, thereby supporting the flow of resources in the product and factor markets. Credit is allocated on market terms and foreign investors are able to obtain credit on the local market. The private sector has access to an expanding range of credit instruments similar in variety to those offered by banks in Estonia's Nordic neighbors Finland and Sweden.

Legal, regulatory, and accounting systems are transparent and consistent with international norms. The Security Market Law complies with EU requirements and enables EU securities brokerage firms to deal in the market without establishing a local subsidiary. The NASDAQ OMX stock exchanges in Tallinn, Riga and Vilnius form the Baltic Market, which facilitates cross-border trading and attracting more investments to the region. This includes sharing the same trading system and harmonizing rules and market practices, all with the aim of reducing the costs of cross-border trading in the Baltic region.

Estonia's banking system has consolidated rapidly. Total assets of the commercial banks were approximately USD 26 billion at the end of 2011. Two Swedish-owned banks (Swedbank and SEB) control over 65 percent of the market. More information is available at: http://www.pangaliit.ee/en/welcome

The Scandinavian-owned Estonian banking system is modern and efficient, encompassing the strongest and best-regulated banks in the region. These provide both domestic and international services (including internet and mobile banking) at very competitive rates. Both local and international firms provide a full range of financial, insurance, accounting, and legal services. Estonia has a highly advanced internet banking system: currently 98% of banking transactions are conducted via the internet. In Estonia over 75 percent of the population between the ages of 16-74 uses the internet.

The Central Bank and the government hold no shares in the banking sector. In 2001, the Estonian government created a consolidated Financial Supervisory Authority (FSA) under the auspices of the Central Bank. The FSA conducts financial supervision independently on behalf of the state and has a separate budget. The FSA was established to enhance the stability, reliability, transparency, and efficiency of the financial sector, to reduce system risks, and to prevent the use of the financial sector for criminal purposes.

Takeovers in Estonia are regulated by the EU Takeover Directive 2004/25/EC. More information is available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32004L0025:EN:HTML.

Competition from State Owned Enterprises (SOEs).

Only a small number of enterprises -- the country’s main port, the power plants, the postal system, railway, airports and the national lottery -- are SOEs. Public enterprises operate on the same legal bases as private enterprises without any advantages. Each of the SOEs' management reports to an independent supervisory board consisting of government officials, politically-affiliated individuals and also prominent members of the business community.

There are several sovereign wealth funds (SWFs) in Estonia. They have similar corporate governance to SOEs. Both SOEs and SWFs are required to publish their annual reports (usually available on the internet in English) and submit their books for independent audit.

Corporate Social Responsibility (CSR)

The majority of OECD Guidelines for Multinational Enterprises are incorporated into Estonian legislation. A non-profit organization, Responsible Business Forum in Estonia, was created in 2005 with an aim of furthering CSR in Estonian society. Responsible Business Forum in Estonia is a partner in the CSR360 Global Partner Network. CSR360 (www.csr360gpn.org) is a network of independent organizations who work as the interface of business and society to mobilize business for good.

Political Violence

Civil unrest generally is not a problem in Estonia and there have been no incidents of terrorism. Large public gatherings and demonstrations may occur on occasion in response to political issues, but these have proceeded, with few exceptions, without incident in the past.


Estonia has laws, regulations, and penalties to combat corruption and, while corruption is not unknown, it has generally not been a major problem faced by foreign investors. However, foreign companies have found it difficult to become part of the local commercial community because many Estonian executives have known one another since childhood and often help one another out in ways that make it difficult for outsiders to compete effectively.

Both offering and taking bribes are criminal offenses which can bring imprisonment of up to five years. While “payments” that exceed the services rendered are not unknown, and “conflict of interest” is not a well-understood issue, surveys of American and other non-Estonian businesses have shown the issues of corruption and/or protection rackets are not a major concern for these companies. In 2011 Transparency International (TI) ranked Estonia 29th out of 183 countries on its Corruption Perceptions Index. The GOE is currently drafting a new anti-corruption strategy set to be in place by 2013 and is planning to renew the Anti-corruption Act by 2015.

In 2004, the GOE instituted the “Honest State” program, an anti-corruption platform which included specific policies to reduce the risk of corruption in government. These included auditing local governments (widely seen as the greatest source of corruption in Estonia), requiring public servants to file electronic declarations of their economic interests, setting up a National Ethics Council, increasing the number of specialized investigators and prosecutors who focus on corruption, and setting up an anonymous hotline for people to report corruption cases. The principles of the “Honest State” program continue to be an embedded part of GOE best practices.

The Security Police Board has shown its capacity to deal with corruption offences and criminal misconduct, leading to the conviction of several high-ranking state officials. Estonia co-operates in fighting corruption at the international level and is a member of GRECO (Group of States Against Corruption). Estonia is a party to both the Council of Europe (CoE) Criminal Law Convention on Corruption and the Civil Law Convention. The Criminal Law Convention requires criminalization of a wide range of national and transnational conduct, including bribery, money-laundering, and account offenses. It also incorporates provisions on liability of legal persons and witness protection. The Civil Law Convention includes provisions on compensation for damage relating to corrupt acts, whistleblower protection, and validity of contracts, inter alia. GRECO was established in 1999 by the CoE to monitor compliance with these and related anti-corruption standards. Currently, GRECO comprises 46 member states (45 European countries and the United States). As of December 2009, the Criminal Law Convention had 42 parties and the Civil Law Convention had 34 (see www.coe.int/greco.)

Estonia began as a full participant in the OECD Working Group on Bribery in International Business Transactions (the Working Group) in June 2004, and deposited its instruments of accession on November 23, 2004. The Convention entered into force in Estonia on January 22, 2005. The Convention obligates the Parties to criminalize bribery of foreign public officials in the conduct of international business. The United States meets its international obligations under the OECD Anti-bribery Convention through the U.S. Foreign Corrupt Practices Act.

It is important for U.S. companies, irrespective of their size, to assess the business climate in the relevant market in which they will be operating or investing, and to have an effective compliance program or measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the relevant anticorruption laws of both the foreign country and the United States in order to properly comply with them, and where appropriate, they should seek the advice of legal counsel.

U.S. Foreign Corrupt Practices Act: In 1977, the United States enacted the Foreign Corrupt Practices Act (FCPA), which makes it unlawful for a U.S. person, and certain foreign issuers of securities, to make a corrupt payment to foreign public officials for the purpose of obtaining or retaining business for or with, or directing business to, any person. The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more detailed information on the FCPA, see the FCPA Lay-Person’s Guide at: http://www.justice.gov/criminal/fraud/fcpa/docs/lay-persons-guide.pdf.

UN Convention: The UN Anticorruption Convention entered into force on December 14, 2005, and there are 143 parties to it as of December 2009 (see http://www.unodc.org/unodc/en/treaties/CAC/signatories.html). The UN Convention requires countries to establish criminal and other offences to cover a wide range of acts of corruption. The UN Convention goes beyond previous anticorruption instruments, covering a broad range of issues ranging from basic forms of corruption such as bribery and solicitation, embezzlement and trading in influence, to the concealment and laundering of the proceeds of corruption. The UN Anticorruption Convention entered into force in Estonia on February 26, 2010.

Local Laws: U.S. firms should familiarize themselves with local anticorruption laws, and, where appropriate, seek legal counsel. While the U.S. Department of State cannot provide legal advice on local laws, the embassies can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel. The embassy can also provide services that may assist U.S. companies in conducting their due diligence as part of the company’s overarching compliance program when choosing business partners or agents overseas. For more information, go to: http://estonia.usembassy.gov/polecon/companies/us-companies.html.

The Departments of Commerce and State provide worldwide support for qualified U.S. companies bidding on foreign government contracts through the Commerce Department’s Advocacy Center and State’s Office of Commercial and Business Affairs. Problems, including alleged corruption by foreign governments or competitors, encountered by U.S. companies in seeking such foreign business opportunities can be brought to the attention of appropriate U.S. government officials, including local embassy personnel and through the Department of Commerce Trade Compliance Center “Report A Trade Barrier” website at: tcc.export.gov/Report_a_Barrier/index.asp.

Anti-Corruption Resources

Some useful resources for individuals and companies regarding combating corruption in global markets include the following:

Information about the U.S. Foreign Corrupt Practices Act (FCPA), including a “Lay-Person’s Guide to the FCPA” is available at the U.S. Department of Justice’s website at: http://www.justice.gov/criminal/fraud/fcpa

General information about anticorruption initiatives, such as the OECD Convention and the FCPA, including translations of the statute into several languages, is available at the Department of Commerce Office of the Chief Counsel for International Commerce website: http://www.ogc.doc.gov/trans_anti_bribery.html.

Bilateral Investment Agreements

Estonia has investment promotion and protection agreements with the Belgium-Luxembourg Economic Union, Azerbaijan, China, Czech Republic, Denmark, Finland, Greece, Israel, Italy, Jordan, Latvia, Lithuania, Moldova, Montenegro, Netherlands, Norway, Poland, Spain, Sweden, Switzerland, Turkey, Ukraine, UK and the United States. A Bilateral Taxation Treaty with the U.S. came into force on January 1, 2000.

OPIC and Other Investment Insurance Programs

Estonia is a member of the Multilateral Investment Guarantee Agency.


Estonia has a very small population - only 1.34 million people. The average monthly Estonian salary at the end of 2011 was about USD 1,100 and is expected to increase slowly in coming years. At the end of 2011 the unemployment rate was 10.9 percent. Unemployment is forecasted to remain around 10 percent in 2012. Despite the high level of unemployment, employers report difficulty finding skilled workers in a number of sectors.

Trade union membership remains low. However, the influence of trade unions, which tend to take a cooperative approach to industrial relations, is increasing somewhat. Estonia adheres to ILO Conventions protecting workers’ rights.

With an aging population and a negative birth rate, Estonia, like many other countries of Central and Eastern Europe, faces serious demographic challenges affecting its long term supply of labor. Improving labor efficiency is a key focus for Estonia in the short-to-mid term.

Information on the free movement of labor within the EU is available at: http://ec.europa.eu/social/main.jsp?catId=458

Foreign Trade Zones/Free Ports

Estonia's Customs Act permits the government to establish free trade zones. Goods in a free trade zone are considered as being outside the customs territory. VAT, excise, import and export duties (as well as possible fees for customs services) do not have to be paid on goods brought into free trade zones for later re-export. In Estonia, there are four zones at Muuga port (near Tallinn), Sillamae port (northeast Estonia), Paldiski north port (northwest Estonia) and in Valga (southern Estonia). All free trade zones are open for FDI.

The main supervisory authority responsible for monitoring the movement of goods in or out of free trade zones is the Estonian Tax and Customs Board (governed by the Ministry of Finance). There are ID requirements for companies and individuals using the zone. The U.S. Department of Homeland Security (Coast Guard) has inspected Estonia’s ports and determined that the Republic of Estonia has substantially implemented the International Ship and Port Facility Security (ISPS) Code at all facilities visited.

Foreign Direct Investment Statistics

According to the Bank of Estonia (see the link below), by the end of the third quarter of 2011 (3Q11), the cumulative stock of FDI in Estonia amounted to EUR 12.6 billion or USD 16.9 billion. Roughly 25 percent of FDI has been invested into financial intermediation, 17 percent into manufacturing and about 15 percent both in real estate activities and wholesale and retail trade.

Nordic countries are the largest foreign direct investors in Estonia. Sweden has 30 percent of the total, followed by Finland with 23 percent, and the Netherlands with 10.8 percent. The United States accounts for 2.3 percent of foreign direct investment stock (8th overall). The inward FDI stock in Estonia is currently about 80 percent of GDP.

In 3Q11, Estonian direct investment abroad was about EUR 3.4 billion, which is about 4.6 billion USD.

For the value of inward and outward FDI (position, stock, and flows in recent years by commodity group, as well as country of origin) please go to:


Some examples of the largest FDI companies in Estonia in terms of total investment and influence on the Estonian economy are:


Foreign Shareholder: SEB AB

Country of origin: Sweden

Sector of operation: banking

Swedbank AS

Foreign Shareholder: Swedbank

Country of origin: Sweden

Sector of operation: banking

Eesti Telekom AS

Foreign Shareholder: TeliaSonera AB

Country of origin: Sweden

Sector of operation: telecommunications


Foreign Shareholder: The ABB Group

Country of origin: Switzerland

Sector of operation: power and automation technologies

Ericsson Eesti AS

Foreign Shareholder: Ericsson

Country of origin: Sweden

Sector of operation: telecommunications equipment

Skype Technologies OU

Foreign Shareholder: Microsoft

Country of origin: USA

Sector of operation: telecommunication

Stockmann AS

Foreign Shareholder: Stockmann

Country of origin: Finland

Sector of operation: retail

Eastman Specialties AS

Foreign Shareholder: Eastman Chemical Company

Country of origin: USA

Sector of operation: chemicals

Balti Spoon AS

Foreign Shareholder: Mohring Group of Companies,

Country of origin: USA

Sector of operation: veneer

Estonian Cell AS

Foreign Shareholder: Heinzel Group

Country of origin: Austria

Sector of operation: pulp mill

Molycorp Silmet AS

Foreign Shareholder: Molycorp Inc.

Country of origin: USA

Sector of operation: rear earth metals


Foreign Shareholder: NASDAQ OMX Nordic OY

Country of origin: USA

Sector of operation: exchange company

More information on foreign investors is available at: http://www.investinestonia.com/