Estonia: Country and Foreign Investment

Estonia History, Population, Language and Culture

The name “Estonia” is thought to stem from Roman historian Tacitus, who referred to a people known as the Aesti (or Aestii) in his treaties "De Origine et situ Germanorum" ("Concerning the Origin and Situation of the Germans").

The country secured its independence in 1918, after centuries of Danish, Swedish, German and Russian rule, but was occupied by Germany and then the Soviet Union during World War II, only becoming independent again in 1991.

Since then, the Estonian authorities have sought to build ties with Western Europe, and the country became a member of both NATO and the European Union in 2004.

The population was estimated at just under 1.3m in July 2010, comprising (approximately) ethnic Estonians – 68%; Russians – 26%; Ukrainians – 2%; Belarusians – 1%; Finns – 1%; and other – 2%. The languages spoken reflect this balance, with 67.3% of the population speaking Estonian, 29% Russian, 2.3% other languages, and 0.7% unknown, according to the 2000 census. The official language, Estonian; the similarity of the Estonian and Finnish languages betrays the close historical relationship between the two cultures.

The dominant religions are Evangelical Lutheran and Orthodox, although a staggering 72.2% of the population declared themselves as being unaffiliated (34.1%), “other” or unspecified (32%), or none (6.1%) in the 2000 Census.

Owing to its geographical location and the various periods of occupation, Estonia's culture has Finnish, German, Baltic, Russian and Swedish influences. As a consequence, Estonia has little in the way of classic literature in the Estonian language, and true Estonian culture was kept alive by oral traditions of singing and story telling. Intellectuals in the late 1980s began to challenge this, and their efforts were rewarded by the so-called “Singing Revolution” of 1988-1991 – it is said the Estonians sung their way to independence.

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Estonia Government

The President is elected by Parliament, unless there is no clear parliamentary preference, in which case an electoral assembly, comprising Parliament and local government, will make the appointment. The President is usually elected for a five-year term, although a second term is permitted, and is the head of state. Since October 2006, the role has been occupied by Toomas Ilves.

The Prime Minister is the head of government, and is appointed by the President, subject to parliamentary approval. There is also a Council of Ministers, appointed by the Prime Minister and approved by Parliament. The current Prime Minister is Andrus Ansip, who took office in April 2005.

The unicameral (one chambered) Parliament or Riigikogu comprises 101 seats, with members elected by popular vote every four years.

The Estonian legal system is based on the civil law model and has been influenced by the German legal system. Estonia accepts compulsory European Court of Justice rulings, albeit with reservations. The Supreme Court (Riigikohus) comprises 17 justices, with the Chief Justice nominated by the President and appointed by Parliament, for nine terms.

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Estonia Economy and Currency

As with many economies throughout the world, Estonia has been affected by the global financial crisis, and in mid-2008 the economy fell into recession, with previously strong GDP growth declining; this decline continued in 2009 and GDP was estimated at USD24bn, down from an estimated USD27.41bn in 2008 and down from USD28.99bn in 2007. GDP per head in 2009 was estimated at USD18,500, a steep decline on 2008 figures of USD21,400. Unemployment in 2009 more than doubled to 13.8% up from 5.7% in 2008.

By sector, agriculture represented (in 2009) 2.8% of GDP, industry 23%, and services 74.5%. Key sectors include engineering, electronics, wood products, textiles, information technology and telecommunications.

The currency is the Kroon (EEK), which is pegged to the Euro at EUR1 = EEK15.64664. The government plans to adopt the Euro on 1, January 2011.

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Estonia Entry and Residence

Estonia is part of the EU's Schengen Area, meaning that there is visa-free movement within Schengen of nationals of all those EU Member States belonging to the area. Moreover, citizens of EU Member States and of a number of non-EU countries do not require a visa for visits of up to 90 days within a six-month period from the day of arrival.

Foreigners must obtain a residence permit if they wish to remain in the country for more than 90 days within a six-month period from the day of arrival in Estonia.

A temporary residence permit may be issued to a foreigner:

A long-term residence permit may be issued to a foreigner who has stayed in Estonia permanently for at least five years, holds a valid temporary residence permit, has a registered residence, has health insurance and a permanent legal income for subsistence in Estonia, and has at least a basic knowledge of the Estonian language.

For tax purposes, residency applies to anyone whose permanent place of residence is in Estonia, or who spends more than 183 days in Estonia during a year.

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Estonia Business Environment

Estonia’s five major cargo ports – and Tallinn especially – are key players in trade in the Baltic Sea region, and in trade between Russia and Western Europe. Exports in 2009 totalled around USD9.08bn, and imports totalled around USD9.78bn in the same year. There are two Free Zone ports:

Investment in the telecoms sector facilitated by joint business ventures has boosted telecommunications infrastructure and coverage in Estonia, although the sector has traditionally been dominated by four operators: EMT (owned by Eesti Telekom), Elisa, Tele2 and Bravocom. In terms of fixed line telephony, in 2009 there were estimated to be 492,800 lines in use, and in terms of mobile telephones, approximately 2.72m were in use in the same year.

Internet penetration is good in Estonia, with schools and libraries able to readily access the Internet, and a largely online-savvy population; approximately 880,100 Internet users were counted in the country in 2008.

According to EU estimates, more than half of households in Estonia have cable television; this market is dominated by the providers STV and Starman. The switchover date from analogue to digital terrestrial TV in Estonia has been brought forward to June 2010 (it was February 2012 previously), with several free channels launched in 2008 in order to attract subscribers.

Eesti Pank, or the Bank of Estonia, is the country's central bank, and is responsible for monetary policy and for issuing the Estonian currency. Foreign-owned banks play a key role in the banking system in Estonia, with Swedbank-owned Hansabank dominating, and SEB Eesti Ühispank (owned by the Swedish SEB group) following behind. Nordea and Sampo (Danske Bank) are also major players in the banking sector. Other smaller operators include Krediidipank, DnBNord, Handelsbanken, Äripank, and Balti Investeeringute Grupi Pank.

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Estonia Investment Incentives

The fact that there is no corporate income tax on undistributed profits is an incentive for new businesses to reinvest.

Start-up and development grants are available through Enterprise Estonia in conjunction with funding available through the EU. Grants of up to EEK100,000 (EUR15,600) are available and the business must contribute 20% of the total investment. For larger businesses (e.g. with more potential in the export market), grants of up to EEK500,000 (EUR32,050) are available, with the business contribution set at 35% (down from 50% previously). A decision will generally be made within 10 to 20 days, depending on whether the grant applied for is a start-up or development funding. For the former, the grant is available for businesses less than 12 months old: for the latter, the grant is available for businesses that have been active for up to 36 months.

Training vouchers of up to EEK15,000 (EUR960) per head are available for small businesses.

The Estonian government, under the auspices of the Estonian Tax & Customs Board, has established three Free Zones at Muuga Harbour (part of the Port of Tallinn), Sillamäe Port and Valga, which are regarded as being outside the remit of the Customs area for purposes of import and export duties. VAT and excise duties do not have to be paid on goods brought in for later re-export.

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