ESTONIA

COUNTRY ESSENTIALS
ESTONIA
August 2015
TABLE OF CONTENTS
Overview
/ 02
General Information
/ 03
Risk Assessment
The Coface Country Essentials
offer a concise and clearly structured overview of country economic facts.
/ 05
Foreign Trade
/ 05
Economic Key Data
/ 06
Insolvency
/ 08
Checklist for Business
Operations
/ 09
Contacts Coface
/ 10
References
The most important facts for 18
countries in Central and Eastern
Europe include the most recent
risk overview and our Coface
country risk assessment.
You receive a general information on the country ranging from
major cities to natural resources
and most important sectors. This
is followed by our risk assessment giving a general overview
on the economic and political
situation and the strength and
weaknesses of the country. The
next chapter focuses on the key
facts: top trading partners and
economic data like GDP growth,
inflation or public debt. The insolvency part shows you the top
and flop sectors, information on
the development of insolvencies
and the procedure.
Last but not least we provide
you with a checklist for business
operations and the latest corruption and doing business index
data. If you need further information your will find a list of our
contacts in the region.
GENERAL INFORMATION
Estonia is the northernmost of the three Baltic States. The national language – Estonian – is not
related to the languages of the neighbouring countries (Lithuanian, Latvian or Russian), but is part
of the Finno-Ugrian family of languages.
Form of government:
Parliamentary Republic
Administrative
organisation:
15 regions, 33 cities and 194 rural municipalities
Area:
45,227 km²
Population:
1,315,819; density: 29.1 inhabitants/km²
Official language:
Estonian
Local currency:
1 Euro = 100 Cents
Capital:
Tallinn 411,063 inhabitants
Major cities and
population:
Tartu
Narva
Kohtla-Järve
Pärnu
Ethnic groups:
69% Estonians, 25% Russians, 2% Ukrainians,
1% Belarusians, <1% Finns, <2% other
Religion:
15% Lutheran, 14% Estonian-Orthodox, minorities of Baptists, Jehovah’s Witnesses, Catholics, Muslims, Jews; only 32% of the population have declared their affiliation with a religious community.
Natural resources:
Oil shale, peat, phosphorus, limestone, loam
Most important sectors:
Information technology, electronics, machinery and metal processing, transport and logistics, timber industry and the food processing
industry
98,449 inhabitants
59,049 inhabitants
37,198 inhabitants
40,005 inhabitants
/2
RISK ASSESSMENT
Coface
Country
Assessment
Dynamism of consumption
In 2014, activity was impacted by an unfavourable regional context.
Exports suffered from
A3
the European sanctions
against Russia and the
latter’s
counter-sanctions. Moreover, Russia’s economic slump spilled
over onto the other markets of the region, such as
Finland, Lithuania and Latvia. In 2015, growth is expected to accelerate slightly.
Consumption will benefit from the rise in household disposable income associated with tax cuts,
higher family allowances and pensions, an increase
in the minimum wage and, more generally, higher
salaries overall fostered by lower unemployment
and a fall in the number of economically active
people.
Infrastructure spending is set to pick up, thanks to
European funding. Despite cheap credit, businesses will not increase investment much since they are
still concerned about the geopolitical tensions and
their possible impact on demand.
However, exports of timber, furniture, telecommunications equipment and electronic components
are expected to benefit from the recovery, even
though modest, in the neighbouring Baltic States.
Exports of dairy products, fish and alcohol have
found alternative markets to Russia. The drop in
Strengths
Public accounts in excellent health and major
links with Sweden and Finland
Despite the increase in spending, the public accounts deficit will still be small. The reward for this
comfortable budget situation is to maintain public
debt at a low level. The trade deficit (5.5% of GDP
in 2014) and dividend repatriations by Swedish,
Finnish and Dutch investors, who are very involved
in retail, property, finance as well as industry, are to
a great extent offset by sales in services, especially
IT, technology or freight forwarding.
European structural funds and foreign direct investments cover the balance, as well as substantial
portfolio investments made abroad by Estonian
pension funds. Foreign debt represents almost
100% of GDP, excluding intragroup debt associated with the foreign direct investments. Almost
half corresponds to bank commitments, chiefly in
the form of deposits made by Swedish banks with
their local subsidiaries.
As the public part of the debt is weak, the balance is, therefore, made up of non-financial private
sector debt. Moreover, the debt is almost entirely
compensated by Estonian foreign assets.
Weaknesses
Prudent management of public finances
Development of high value-added
(electronics, IT services)
capital goods exports to Russia have hardly had
an impact as three quarters of the goods are simply passing through so as to take advantage from
the rail and road corridors to Russia. But, given the
growth differential between domestic and external
demand, the contribution of trade to growth will
remain negative.
Decline in economically active population
sectors
Close trade, financial and cultural links with
Scandinavia
Membership of Eurozone
Quasi energy self sufficiency thanks to oil shale
Very favourable business climate
Digitisation of administrative procedures
High structural unemployment
Lack of land connections with rest of the
European Union
Banks’ dependence on foreign parent bank
capital
High social security contributions on wages
/3
RISK ASSESSMENT
A significant Russian minority, but energy independence
In March 2014, following the resignation of his
predecessor Andrus Ansip (in post since 2005),
appointed to the European Commission, and the
change in the composition of the ruling coalition,
Taavi Roivas became Prime Minister of a new government. The centre-right Liberal Reform Party,
with elections coming up in March 2015 and the
rise in social demands, preferred to join forces with
the centre-left Social Democratic Party, rather than
with the more right-wing Pro Patria-Res Publica
Union.
The authorities are paying close attention to the
evolution of the Russo-Ukrainian crisis. A quarter
of the population is composed of Russian citizens,
who are still insufficiently integrated, especially
when it comes to the older generations. In effect,
failure to master Estonian prevents many of them
from acquiring Estonian citizenship. Furthermore,
the treaty providing for an exchange of territory
with Russia in order to settle a border dispute dating back to the First World War still had not been
ratified at the beginning of November 2014, even
though it was signed as long ago as February 2014.
However, the country enjoys relative energy independence thanks to the exploitation of oil shale, of
which the country is the world’s leading producer
and which covers most of its electricity needs. In
addition, even if Russian gas covers only 10% of the
country’s energy needs, it is looking to develop alternative sources by building a maritime gas terminal in partnership with Finland, with which Estonia
is already linked via two underwater power cables.
/4
FOREIGN TRADE & ECONOMIC KEY DATA
Estonia’s Top Trading Partners
Imports in MEUR
2011
2012
2013
2014
EU 28
9,718*
11,023*
11,374*
11,386*
Sweden
1,332
1,400
1,382
2,095
Finland
1,606
1,981
2,034
1,583
Latvia
1,363
1,316
1,299
1,476
Russia
1,313
1,515
787
1,176
Exports in MEUR
2011
2012
2013
2014
9,944*
11,020*
8,691*
8,730*
Sweden
1,876
1,998
2,061
2,174
Finland
1,811
1,823
1,980
1,848
Latvia
958
1,097
1,273
1,295
Russia
1,313
1,515
1,404
1,187
2011
2013
2014 (e)
2015 (f)
GDP growth (%)
4.7
1.6
1.5
2.0
Inflation (yearly average) (%)
4.2
3.2
0.8
1.6
Budget balance (in % of GDP)
-0.3
-0.5
-0.4
-0.6
Current account (in % of GDP)
-3.3
-0.9
-2.8
-3.0
Public debt (in % of GDP)
10.0
10.0
10.0
10.0
EU 28
Source: Statistics Estonia.
*
EU 27
Economic Key Data
Key Data
(e) estimate
(f) forecast
Source: Coface
/5
INSOLVENCY
Top 5 sectors

Flop 5 sectors

Financial services
Construction
Electrical equipment
Wholesale
Wood and furniture
Processing industry
Agricultural products
Food products
Food products
Non specialised trade
Insolvencies in 2014
Companies in the Baltic States are suffering from
the deterioration in foreign trade with Russia, although they are actively trying to substitute alternative trade destinations. Company insolvencies
show that deteriorated economic conditions translate into an increased number of bankruptcies.
Whereas official data available for Lithuania shows
that insolvencies rose by 5.4% in 2014, our estimation assumes that one-digit growth was also
recorded in Latvia and Estonia, at 4.3% and 1.8%,
respectively.
As changes in the macroeconomic environment
have an impact on the microeconomic side with
some delay, we forecast a further rise of insolvencies in the Baltics, which will reach 8-10% by the
year end.
Insolvency Laws & Insolvency Procedures
In case of bankruptcy, a court judgment declares
a debtor’s insolvency. If the liabilities of a debtor
become too great and the owner‘s equity of the
company becomes negative, the debtor must file a
bankruptcy petition with a court.
The aim of the bankruptcy procedure is the satisfaction of creditor claims from the debtor’s assets. The defending of claims takes place in the
bankruptcy procedure. The creditors shall receive
money proportionally to the amount of their claim.
A natural person debtor is, through the bankruptcy procedure, given an opportunity to be released
from his or her obligations.
A bankruptcy procedure is carried out by the court
and the trustee in bankruptcy. Upon declaration
of bankruptcy, the debtor’s right to manage and
dispose of the bankruptcy estate transfers to the
trustee in bankruptcy.
The hearing of bankruptcy matters is within the
competence of county courts. Entrepreneurs having experienced bankruptcy should not lose confidence in their ability to embark on a new business.
Bankruptcy petition can be filed with a court by
the debtor or creditor. The court will decide the initiation of the bankruptcy procedure within 10 days
from filing the bankruptcy petition.
In a bankruptcy procedure the claims of the creditors shall be satisfied either out of transferring the
assets of the debtor or by improving (reorganising) the company of the debtor.
Estonia’s Biggest Insolvencies in 2014
Company Name
Sector
Town
1.
ALBERTA TRADE OU
Wholesale of metals and metal ores
Tallinn
2.
FACIO EHITUSE OU
Construction
Tallinn
3.
DELEESIA OU
Wholesale of grain, unmanufactured tobacco, seeds and
animal feeds
Tallinn
4.
4HR RESTAURAATOR OU
Construction
No data
5.
CATMET AS
Manufacture of metal structures and parts of structures
Jõelähtme
/6
INSOLVENCY
A court shall declare bankruptcy if the debtor is insolvent. After that the business or any other name
of the debtor may be used only in combination
with the word “bankrupt”.
In the event of the bankruptcy of a debtor who is a
legal person, the court may order which of the persons may not act as an undertaking, a member of a
management body of a legal person, the liquidator
of a legal person or a procurator until the end of
the bankruptcy proceedings. The same applies for
a debtor who is a natural person.
Information on the persons, who have received a
prohibition on business, shall be published in the
Commercial Register.
Prohibitions on business
The notices related to the bankruptcy procedure
shall be published in the publication Official No-
tices. In case of the insolvency of an employer, the
Unemployment Insurance Fund shall pay compensation to employees for unpaid wages and holiday pay and the compensation. In order to receive
compensation, the application to the Unemployment Insurance Fund shall be submitted by the
trustee in bankruptcy or a temporary trustee, not
the employees themselves.
The compulsory dissolution
The compulsory dissolution of a public limited
company or a private limited company is executed
by a court ruling. Prior to the initiation of the procedure for compulsory dissolution, the court may
grant an additional deadline for the company to
eliminate the circumstances resulting in compulsory dissolution. Compulsory dissolution comes into
force from the enforcement of the relevant court
ruling.
/7
CHECKLIST FOR BUSINESS OPERATIONS
The following table summarizes relevant information for investors and exporters.
Corporate law
 Minimum share capital for a limited liability company: EUR 2,500
 Minimum share capital for a stock company: EUR 25,000
Tax law
 Income tax: 21%
 Profits earned by companies located in Estonia are not subject to tax
as long as they are not distributed.
 VAT: 20%. Companies are required to charge VAT if their taxable revenues exceed EUR 16,000 at the beginning of a calendar year.
 Reduced VAT rate: 9%
Investments
 Foreign investors and domestic investors are treated equally.
 There are no additional tax incentives for investors.
Foreign exchange
 Foreign exchange transactions may only be carried out by theBank of
Estonia (the national bank) or by authorised commercial banks.
 Foreign currency accounts are permitted. Many banks have joined the
SWIFT system.
Labour law
 The normal working time is 8 hours/day, 40 hours/week.
 Minimum wage EUR 355; average wage EUR 1,039
 Foreigners who legally reside in Estonia basically have the same rights
as Estonian citizens under the Estonian Law of Aliens.
Customs
 The harmonised customs tariff of the EU as well as the rules of the
CEFTA, EFTA and WTO apply.
Travel and residence
 EU citizens do not require an entry or transit visa.
 EU citizens do not require a residence permit for stays of up to 90 days.
Corruption
Doing Business
Estonia was 26th in the International Corruption
Perceptions Index 2014. In comparison, Germany
was ranked 12th and Austria was ranked 23rd.
The Doing Business Index issued by the World
Bank (www.doingbusiness.org) expresses the ease
of doing business in a particular country. In this
ranking, Estonia was ranked 17th in 2015. Germany
and Austria were rated 14th and 21st, respectively.
The Corruption Perceptions Index is issued by
Transparency International, and lists countries
according to the perceived level of public sector
corruption. This perception is based on surveys of
managers and experts, and related solely to the
public sector.
This index consists of ten different sub-indexes
that determine whether laws or other regulations
exist in certain areas and whether or how they are
applied. For example, the subcategories deal with
the payment of taxes, hiring of staff and the founding and closing of companies.
/8
CONTACTS COFACE
Coface Austria & Coface Central Europe
Coface Lithuania
Stubenring 24 - 1010 Vienna
T. +43 (1) 515 54-0 - F. +43 (1) 512 44 15
www.coface.at
Vilniaus str. 23-3 - 01402 Vilnius
T. +370 (5) 279 17 27 - F. +370 (5) 279 17 54
www.coface.lt
Coface Albania
serviced by Coface Croatia
Coface Macedonia
serviced by Coface Croatia
Avenija Dubrovnik 46/III - 10 000 Zagreb
T. +385 (1) 469 75 00 - F. +385 (1) 469 75 75
www.coface.hr
Avenija Dubrovnik 46/III - 10 000 Zagreb
T. +385 (1) 469 75 00 - F. +385 (1) 469 75 75
www.coface.hr
Coface Belarus
serviced by Coface Russia
Coface Moldova
serviced by Coface Romania
1st Tverskaya-Yamskaya str., 23, bld. 1 - 125047 Moscow
T. +7 (495) 785 57 10 - F. +7 (495) 785 76 24
www.coface.ru
39 Calea Floreasca - Et. 2-4 - District 1 - 014453 Bucharest
T. +40 (21) 231 60 20 - F. +40 (21) 231 60 22
www.coface.ro
Coface Bosnia & Herzegovina
serviced by Coface Croatia
Coface Montenegro
serviced by Coface Serbia
Avenija Dubrovnik 46/III - 10 000 Zagreb
T. +385 (1) 469 75 00 - F. +385 (1) 469 75 75
www.coface.hr
Bulevar Oslobodjenja 111 - 11000 Belgrade
T. +381 (11) 397 60 51 - F. +381 (11) 397 09 75
www.coface.rs
Coface Bulgaria
Coface Poland
42 Petar Parchevich str. - 1000 Sofia
T. +359 (2) 821 37 35 - F. +359 (2) 820 71 50
www.coface.bg
Al. Jerozolimskie 136 - 02 305 Warsaw
T. +48 (22) 465 00 00 - F. +48 (22) 465 00 55
www.coface.pl
Coface Croatia
Coface Romania
Avenija Dubrovnik 46/III - 10 000 Zagreb
T. +385 (1) 469 75 00 - F. +385 (1) 469 75 75
www.coface.hr
39 Calea Floreasca - Et. 2-4 - District 1 - 014453 Bucharest
T. +40 (21) 231 60 20 - F. +40 (21) 231 60 22
www.coface.ro
Coface Czech
Coface Serbia
I.P. Pavlova 5 - 120 00 Prague
T. +420 246 085 411 - F. +420 246 085 429
www.coface.cz
Bulevar Oslobodenja 111 - 11000 Belgrade
T. +381 (11) 397 60 51 - F. +381 (11) 391 09 75
www.coface.rs
Coface Estonia
serviced by Coface Latvia
Coface Slovakia
Berzaunes iela 11a - 1039 Riga
T. +371 (6) 732 34 60 - F. +371 (6) 782 03 80
www.coface.lv
Soltésovej 14 - 81108 Bratislava
T. +421 (2) 6720 16 44 - F. +421 (2) 6241 03 59
www.coface.sk
Coface Hungary
Coface Slovenia
Tüzoltó utca 57 - 1094 Budapest
T. +36 (1) 299 20 70 - F. +36 (1) 887 03 25
www.coface.hu
Slovenceva ulica 22 - 1000 Ljubljana
T. +386 (1) 425 90 65 - F. +386 (1) 425 91 30
www.coface.si
Coface Latvia
Coface Ukraine
Berzaunes iela 11a - 1039 Riga
T. +371 (6) 732 34 60 - F. +371 (6) 782 03 80
www.coface.lv
4 B. Gmyri Str., of. 10 - 02140 Kyiv
T. +380 (44) 585 31 60 - F. +380 (44) 585 31 60
www.coface.ua
/9
REFERENCES
Internet
http://epp.eurostat.ec.europa.eu
http://www.cofacecentraleurope.com >> Country Risk and Economic Research, CEE Insolvencies Panorama 2014, Coface, Niederlassung Austria, Vienna 2015
http://www.doingbusiness.org
http://www.stat.ee/
http://www.transparency.org
Print
Handbuch Länderrisiken 2015, Coface, Niederlassung Austria, Vienna 2015.
Imprint
Media owner and production: Coface, Niederlassung Austria, Stubenring 24, 1010 Vienna, Austria;
Editorial office: Susanne Krönes.
Copyright and Liability
Coface, Niederlassung Austria (Stubenring 24, 1010 Vienna, Austria) copyright, conditions of use: you
may copy and publish the information on this site provided that you do not make commercial use of it
and clearly indicate that it originates from Coface, Niederlassung Austria. This information is provided
without guarantee and does not bind Coface, Niederlassung Austria in any way. The Coface Country Assessment was included in this country report as of August 2015. Coface, Niederlassung Austria cannot
accept responsibility for changes made at a later date.
/ 10