Other practical issues - Doing Business in Estonia
Estonia is renowned for its business-friendly environment with a simple tax system and digital-first approach to government services.
Whether you wish to launch a startup, expand your corporation through a local branch, or work here as a freelancer, Estonia offers excellent opportunities and an efficient digital ecosystem.
Here are a few reasons why Estonia is an ideal place to do business:
- A company can be established in a day through a fast and straightforward registration process.
- The minimum share capital of a private limited liability company is 0.01 euros.
- Almost all reports and applications can be easily submitted online.
- Estonia's tax system is simple, with a 0% corporate income tax on undistributed profits.
- There are very few restrictions to foreign ownership or management and foreign entrepreneurs are treated equally to Estonian citizens.
- As an EU member state, Estonia provides access to the European single market and operates under the EU legal framework.
Estonia is also an excellent base for your business, even if you don't plan to live here. With the e-Residency program, you can easily manage your company remotely from anywhere in the world. For more detailed steps on establishing a company in Estonia, please see here.
The following guide will answer common questions that may arise when conducting business in Estonia. We hope to provide an overview of the most important things to expect or keep in mind. For any specific inquiries, please contact our team of expert lawyers who are ready to assist you with any issues you may have.
Other practical issues
Buying property, foreign investments, competition law and sector-specific regulations.
On the whole, foreigners are equal to Estonian citizens and residents when it comes to doing business deals and acquiring property in Estonia. There are some exceptions.
The Foreign Investment Reliability Assessment Act (FIRAA) requires certain foreign investments to obtain government approval.
A foreign investor is a citizen or company of a non-EU country, who acquires a portion of an Estonian company or a significant stake therein or control over said company, whether directly or indirectly. The company in question must be a business that is in some way crucial to the state, such as a provider of essential services, a business with significant state ownership, a producer or supplier of military goods, a nationwide television, radio or media service provider, railway infrastructure companies, international airport or seaport operators, and more as provided by the FIRAA.
The foreign investor must obtain authorization before concluding the foreign investment transaction. Authorization may be granted with additional conditions. If a foreign investment is made without permission, the Consumer Protection and Technical Regulatory Authority may require the party to divest their ownership, undo the transaction, or take other actions to restore the situation. A levy of up to 100,000 euros can also be applied to the investor, repeatedly, until the injunction has been complied with.
An activity license is required for operating in certain business sectors in Estonia. Especially this happens in areas related to providing essential services, national defence, finance, healthcare, etc. Mostly these are fields that require proven qualifications or heightened security requirements for the protection of the public or the environment.
A company subject to licensing requirements must obtain a license before commencing economic activities in the respective sector. The application for an activity license is typically reviewed within 30 days. In areas where there is no licensing obligation, there may still be a requirement to submit a notice of commencing economic activities in the relevant sector. The general principles of the licensing process are established in the General Part of the Economic Activities Code Act, but specific prerequisites for obtaining a license are outlined in various specific laws.
Sectors and activities subject to licensing requirements, their specific requirements, and the relevant laws applicable to them can be checked using the Estonian Classification of Economic Activities (EMTAK) search system (available at emtak.rik.ee).
Certain sectors, such as water usage, mining, waste management and so on, require an environmental permit. The relevant legal act in this regard is the General Part of the Environmental Code Act.
Direct obstacles from the state and local government are usually minimal. These mainly arise from the specific individual you are interacting with. Procedural deadlines, including deadlines for replying to requests for information, are usually set out in law, although in practice you may not always count on timely replies if an institution is overloaded with work. In these cases, local legal representation can help a lot.
Compared to some countries, there can seemingly be a lot of bureaucracy. This happens especially when permits are involved. For example, a local government’s building permit is necessary for any more complex construction work, such as constructing a new building or carrying out significant renovations.
A significant portion of bureaucratic processes can be conducted online through relevant e-registries and personal presence is rarely required anywhere. Most notarial acts can also be performed through remote authentication (video bridge), including the signing of contracts for the sale or purchase of real estate, company shares or other assets. However, for accessing e-registries and signing documents online, possession of an Estonian Digital ID is required.
The majority of individuals in government offices understand English and/or Russian, and with their consent, it is possible to use a foreign language in oral communication. Additionally, e-registries, government websites, and a large portion of legislation are available both in English and Russian. However, the language of public administration in Estonia is understandably Estonian, and official documents such as notarial acts must generally be submitted in Estonian or accompanied by a certified translation. In a local government unit where at least half of the residents belong to a minority ethnic group, there is a right to address authorities in that language (i.e., Russian).
Corruption in Estonia can certainly happen but is not a significant problem that would usually hinder your ability to do business. Transparency International’s Corruption Perception Index ranks Estonia at number 14 on their best-to-worst list among the countries of the world.
The following acts are considered crimes under the Estonian Penal Code:
- Acceptance of a bribe;
- Arrangement of a bribe;
- Giving or promising a bribe;
- Acceptance of a bribe in the private sector, i.e., by a person competent to engage in economic activities in the interests of a private law entity and in exchange for the abuse of their competence;
- Giving a bribe in the private sector.
All these acts are punishable either by a pecuniary fine or depending on the conditions by up to five years' imprisonment or one to ten years' imprisonment. A knowing violation of a procedural restriction established by the Estonian Anti-Corruption Act to a significant extent is also punishable by a pecuniary fine or up to three year's imprisonment.
Failure to comply with obligations provided by legislation implementing international sanctions or establishing sanctions of the Government of the Republic or violation of the prohibition is punishable by a pecuniary punishment or up to five years' imprisonment. Misdemeanors related to sanctions can be found in the International Sanctions Act.
All aforementioned crimes, if committed by a legal person, are punishable by a pecuniary fine. In the case of a legal person, the court may impose a pecuniary fine ranging from 4,000 to 40,000,000 euros.
As an EU member state, Estonia’s laws are harmonized with the relevant EU legislation. The Competition Act is the most important law, regulating among other things merger control, abuse of dominant position and state aid. State supervision is exercised by the Competition Authority.
Unlike other EU states, competition infringements are currently prosecuted and sanctioned in criminal or misdemeanor proceedings instead of administrative proceedings, though as of 2024 there are plans in progress to change this legislation.
The Penal Code states that the following acts are crimes:
- agreements, decisions, or concerted practices between undertakings with the objective or effect of restricting competition;
- agreements, decisions, or concerted practices among competitors, including participation in public procurements, which directly or indirectly fix prices or other trading terms with respect to third parties, limit production, service, goods markets, technical development, or investment, or share markets or sources of supply, restrict access to goods markets for third parties, or attempt to exclude third parties from these markets.
Somewhat more relevant for smaller businesses is the Restriction of Unfair Competition and Protection of Business Secrets Act. First and foremost, it defines unfair acquisition and use of trade secrets, as well as measures for protecting trade secrets, including the right to claim compensation for damages.
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