EMPLOY IN ESTONIA WITH EASE
- Access and hire global talent & deploy them anywhere in the world
- Remove restriction from only hiring from local markets
- Enter any international market without the requirement of opening a local entity
Global expansion is a step to make for any business, regardless of what you wish to achieve. The opportunities that can come with an expansion can be both incredibly exciting as well as intimidating and confusing, especially when you consider all of the registration procedures that needs to be done and documentation required.
Expanding to countries such as Estonia – which is characterized by a talented and highly-skilled workforce, inviting employment and tax laws, a robust infrastructure network, and leading sectors in energy, industry, services, construction, tourism, and technology – can bring both excitement to the possibilities, but also significant stress to ensuring the entity with the country’s rigorous legal structures and laws.
Ensuring compliance without the sufficient knowledge of the country’s laws also adds to the stress of getting your new entity off the ground and ready to test new markets. Going at it without the proper support can increase the costs, time and risks involved. Each new markets bring new challenges, and these can be worked through more efficiently and cost-effectively with the support of an International Professional Employer Organization (PEO) such as Bradford Jacobs, especially through our Employer of Record (EOR) framework. This can be best utilized when businesses are just beginning their expansion process and require more information before committing to incorporating an entity and fully establishing themselves in that market.
Estonia – The Economy
The economy of Estonia is an advanced economy, and the country is a member of the European Union and of the eurozone. Estonia’s economy is heavily influenced by developments in the Finnish and Swedish economies.
Before the Second World War, Estonia’s economy was based on agriculture, but there was a significant knowledge sector, with the university city of Tartu known for scientific contributions, and a growing industrial sector, similar to that of neighboring Finland. Products, such as butter, milk, and cheese were widely known in the west European markets.
The main markets were Germany and the United Kingdom, and only 3% of all commerce was with the neighboring USSR. Estonia and Finland had a relatively similar standard of living.
The country has been quickly catching up with the EU-15; its GDP per capita having grown from 34.8% of the EU-15 average in 1996 to 65% in 2007, similar to that of Central European countries.
It is already rated a high-income country by the World Bank. The GDP (PPP) per capita of the country, a good indicator of wealth, was $35,974 in 2018 according to the World Bank, between that of Lithuania and Cyprus, but below that of most long-time EU members such as Spain or Italy.
Because of its economic performance after regaining independence in 1991, Estonia has been termed one of the Baltic Tigers. With a population of just over 1.3 million, it is one of the least populous members of the European Union, the Eurozone, the OECD, the Schengen Area, and NATO. Estonia has consistently ranked highly in international rankings for quality of life, education, press freedom, digitalization of public services and the prevalence of technology companies.
Small and Medium-Sized Companies
SMEs play a particularly important role in the ‘non-financial business economy’ in Estonia. They generate 78.2% of total value added and 79.5% of total employment, well above the respective EU averages of 56.4% and 66.6%.
Estonian SMEs employ 4.5 people on average, which is slightly higher than the EU average of 3.9. Similar to most EU countries, the most significant SME sectors are wholesale and retail trade, and manufacturing.
The average productivity of Estonian SMEs, calculated as value added per person employed, is around €30,600, 31.4% lower than in the EU as a whole.
In entrepreneurship, Estonia is among the best performing countries in the EU. It has developed a highly dynamic ecosystem for start-ups, scale-ups, and high-tech SMEs, supported by a special public agency ‘Startup Estonia’ and several early-stage investment funds with public participation.
Substantial progress has also been made recently in the uptake of digital technologies by SMEs. According to Statistics Estonia, in 2020, nearly 99% of all Estonian businesses have an internet connection and a website, 57% use paid cloud computing services, 16% use the internet of things and 9% analyze and work with big data.
|Country||Estonia (the Republic of Estonia)|
|No. of States/Provinces||15 Counties|
|Principal Cities||Tallinn, Tartu, Narva, Kohtla-Järve, Pärnu, Viljandi, Rakvere, Sillamäe, Maardu, Kuressaare, Võru & Valga|
|Local Currency||Euro (EUR)|
|Time Zone||Eastern European Time (GMT+3)|
|Country Dial Code||+372|
|Border Countries||Latvia (south), Russia (east), and maritime borders with Finland.|
|Tax Year||1 January – 31 December (calendar year)|
|Minimum Wage||€654 per month|
|Taxpayer Identification Numbers||Personal Identity Code (isikukood)|
Company Registration Code
|Leading Sectors||engineering, electronics, wood and articles of wood, textiles, information technology, telecommunications|
|Main imports||refined petroleum, cars, packaged medicaments, broadcasting equipment, and sawn wood|
|Main exports||broadcasting equipment, refined petroleum, coal tar oil, cars, and prefabricated buildings|
|Main trading partners||Finland, Sweden, Russia, Latvia, and United States, Germany, and Lithuania|
|Government Type||Unitary parliamentary republic|
|Current Prime Minister||Alar Karis (President) & Kaja Kallas (Prime Minister)|
The Main Sectors of the Estonian Economy
Estonia focuses on the following key sectors, which all have a significant impact on the country’s economy:
- Energy – Estonia has produced from oil shale on an industrial scale since the 1930s and today remains a leader in the field. A sizeable proportion of production is exported to the regional Nord Pool market and world-class expertise exists in processes and technologies which improve efficiency and reduce environmental impact.
Estonia is also committed to sustainable consumption. In 2013 Estonia implemented the world’s first nationwide electric vehicle network in collaboration with ABB. Today, gas is commonly used to power transportation and Estonia is a leading proponent of the Circular Economy, recycling by-products from oil shale mining in construction.
Sustainable energy capacity is growing year-on-year in Estonia across a range of segments including waste-to-energy, solar, wind, and biomass. Estonia’s state energy strategy requires renewables to produce the majority of electricity and heat by 2030, enabled through public and private sector investment in capacity and connectivity.
- Industry – The industry sector in Estonia deals in the production of chemical products, textiles, machinery, equipment, electronics, oil shale energy, and timber. Shipbuilding is also part of the industries sector in Estonia. The companies in the shipbuilding sector engage in the manufacture of boats and ships which are used for both recreational and commercial purposes.
The industry contributes over 20% of the country’s GDP.
- Services – The services sector in Estonia is the largest industry in terms of its contribution to the country’s GDP. It mainly consists of transportation, telecommunications, and banking sub-sectors. The transportation sector comprises of favorable infrastructure that has resulted in improved trading operations in Estonia.
- Banking – The Banking services in Estonia are modern and efficient. The sector also boasts of having one of the best-regulated banks in the region as well as a highly advanced internet banking system. There are 7 banking companies registered to operate in Estonia. The rest of the banks are branches of banks located in Sweden and Denmark with 90% of the banks operating in Estonia being under the Scandinavian ownership. The banks are very well capitalized meaning that the customers’ monies are well protected and that there are minimal bankruptcy risks.
- Telecommunications – The telecommunications sector in Estonia has attracted huge foreign investments especially from Nordic countries that have invested in high technology and communication networks. Estonia telecommunications are the most developed in Eastern and Central Europe. The country’s broadband DSL access is the leading among the countries located in Eastern Europe. Estonia possesses over 1,006 free Wi-Fi zones in the country as well as a large network of mobile phone networks.
- The Tax and Customs Board – also known by its acronym MTA, is the taxation authority in the Republic of Estonia. It is an agency of the Ministry of Finance.
The agency deals with collection of revenue for the state budget, the implementation of tax laws, customs rules and related legislation, enforcement, licensing gambling companies and lottery organizations, supervision and inspection of gambling and lotteries, and provision of service to citizens and e-residents to aid in fulfilment of tax liability and customs procedures.
- The Labor Inspectorate – a government agency operating within the Ministry of Social Affairs responsible for enforcing labor legislation. The Labor Inspectorate is divided into four departments Work Environment, Labor Relations, Communications, Finance and Administration Department. The Work Environment Department is responsible for occupational health and safety issues and the Labor Relations Department is responsible for inspections in the area of labor relations.
Labor Contracts Law
Laws that Regulate Labor Relationships
Most elements of employment law are covered by the Employment Contracts Act of 2008, supported by specific pieces of legislation. These include:
- Health Insurance Act
- Family Benefits Act
- Gender Equality Act
- Equal Treatment Act
- Labor Market Services and Benefits Act
- Law of Obligations Act
- Personal Data Protection Act
- Public Information Act
- Electronic Communications Act
- Cybersecurity Act
- The Language Act
- The Aliens Act
- European Union’s General Data Protection Regulation
Any employees engaged in Estonia will be covered by the Employment Contracts Act, the Law of Obligations Act and a host of supplementary legislation covering all aspects entitlements, benefits, and compensation. General requirements applying to all contracts include:
- Contracts should be in writing if employment is for more than 14 days, although there is no strict legal requirement for written contracts. However, the absence of a written contract does not invalidate any agreement between the parties
- A written contract should be given to the employee before they start work
- Contracts can be for a fixed or unspecified term and also cover probation periods, which can be up to a maximum of four months
- Contracts must include identities and full details of all parties; start date of employment and in the case of a fixed-term contract, the end date; job description and location; terms of employment such as salary, working hours, paid vacations; notice periods and termination/ severance terms; and whether collective agreements apply
- Employers and employees are free to negotiate the terms of their agreement, but these cannot be for less than any statutory minimums.
The main contract types/agreements that affect employment in Estonia include:
- Open-ended Employment Contracts: This is the standard contact in Estonia, for full-time, permanent employment. There is no time limit or stipulated end date, and it is terminated by due process between employer and employee.
- Fixed-term Employment Contracts: Employers must demonstrate the need for a fixed-term contract, due to such as seasonal work, a short-term increase in workload, temporarily replacing a member of staff, or tied to a specific project. Successive fixed-term contracts, where there is less than two months between them, are limited to a total of five years, after which they become permanent.
- Probation Period Employment Contracts: For a probationary period to be effective it must be stipulated in the employment contract, otherwise the employment is deemed to have no probationary period. Trial periods are restricted to maximum of four months and the employer can terminate the trial within the four months by giving 15 days’ notice. In a fixed-term contract, the probation cannot exceed half of the contract up to the maximum four months.
- Collective Bargaining Agreements: Around 30% of workers in Estonia are covered by collective agreements, which can operate at national, industry or company level. Unusually, employees’ work councils can sign collective agreements with their employer where there is no union presence in the company. Agreements typically last for one or two years and cover pay, working conditions, health and safety, provisions for redundancies etc. All collective agreements have to be registered with the Ministry of Social Affairs.
Payroll – Tax Contributions and Benefits
The tax year is the calendar year in Estonia, which has a flat rate of 20% on personal income. Returns are generally by April 30 of the following year and assessments are received 30 days before final payment is paid by October 1 to the Tax and Customs Board.
Spouses can file jointly or separately. Tax residents are those with a permanent residence in Estonia or those exceeding 183 days in the country in any 12-month period. Once 183 days is reached, they are considered to have been tax residents from day one.
Active income, from such as employment and business, and passive income, from such as capital gains, rents, and royalties, are all taxable.
Health and Social Insurance: Estonia’s social program is based on residency, not nationality, and comprises funds for pension insurance, health insurance and unemployment insurance administered by the Ministry of Social Affairs. Employers pay a total of 33% on employment and business income, 20% of which goes to public pension funds and 13% to public health insurance. The percentage paid is usually based on salaries, directors’ fees, and service fees and is paid monthly on tax return Form TSD.
Employers also pay unemployment insurance contributions of 0.8%. Employees contribute 1.6% through payroll withheld by the employer.
Estonian healthcare includes consultations by GPs and specialists; check-ups; outpatient and inpatient tests and procedures; hospital and nursing care and medications, pre-natal and post-natal care. Healthcare providers are allowed to make minimal charges of up to €5 for consultations and €2.5 per day for hospital care up to 10 days.
Sick Leave and Benefit: Sickness benefit begins after the third day of incapacity, with days four to eight paid by the employer and after that from the Health Insurance Fund. Benefit is 70% of the daily wage with the employer’s contribution based on average wages over the previous six months; the Health Fund’s payment is based on social tax contributions over the previous calendar year. Benefit is paid up to 182 days, or 240 in cases of tuberculosis.
Paid Vacations: Annual paid holiday for employees is calendar 28 days, not including national or public holidays. Employees who have worked at least six months with an employer are entitled to leave calculated pro rata. Some professions have extra days allowed, such as state and local government officials, teachers, academics, and scientific staff.
Public Holidays: Estonia celebrates public holidays, national holidays, and flag days, of which public holidays entitle employees to a day off work. These are:
- New Year’s Day – January 1
- Independence Day – February 24
- Good Friday and Easter Sunday – March / April
- Spring Day – May 1
- Pentecost – May / June
- Victory Day – June 23
- Midsummer Day – June 24
- Restoration of Independence Day – August 20
- Christmas Eve – December 24
- Christmas Day – December 25
- Boxing Day – December 26
Maternity / Paternity / Parental Leave and Benefit: Women receive a minimum of 140 fully paid days and can take between 30 and 70 days before the anticipated birth date. Benefit is paid from the Health Insurance Fund for women covered by the health insurance program. The paternity leave provision totals 30 days until the child reaches three years old.
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