ESTONIA GUIDE
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Expanding into Estonia – which is characterised 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 excitement to the possibilities but also significant stress to ensuring the entity with the country’s legal structures and laws. Global expansion is a step to make for any business, regardless of what you wish to achieve, but 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.
Going at it without the proper support can increase the costs, time and risks involved. This can be worked through more efficiently and cost-effectively with the help of a Professional Employer Organisation (PEO) such as Bradford Jacobs, primarily through our Employer of Record (EOR) framework. It can be best utilised when businesses are just beginning their expansion process and require more information before incorporating an entity and fully establishing themselves in that market.
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Estonia – The Economy
The economy of Estonia is an advanced economy, and the country is a member of the European Union and 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 neighbouring Finland. Products such as butter, milk, and cheese were widely known in the Western European markets.
The main markets were Germany and the United Kingdom, and only 3% of all commerce was with the neighbouring USSR. Estonia and Finland had relatively similar standards of living.
The country has been quickly catching up with the EU-15; its GDP per capita has 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 technology companies’ prevalence.
Small and Medium-Sized Companies
SMEs play a vital role in Estonia’s ‘non-financial business economy’. 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, slightly higher than the EU average of 3.9. Like most EU countries, the most significant SME sectors are wholesale, 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, ‘Start-up Estonia’ and several early-stage investment funds with public participation.
Substantial progress has also been made recently in SMEs’ uptake of digital technologies. 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.
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Country |
Estonia (Republic of Estonia) |
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Capital |
Tallinn |
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No. of Counties |
15 Counties: Harju, Hiiu, Ida-Viru, Jõgeva, Järva, Lääne, Lääne-Viru, Põlva, Pärnu, Rapla, Saare, Tartu, Valga, Viljandi, and Võru. |
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Principal Cities |
Tallinn, Tartu, Narva, Kohtla-Järve, Pärnu, Viljandi, Rakvere, Sillamäe, Maardu, Kuressaare, Võru & Valga |
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Language |
Estonian |
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Local Currency |
Euro (EUR)
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Major Religion |
No religion (64.9%) - Christianity (34% - of which 19.9% Orthodoxy and 12% Lutheranism). |
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Date Format |
dd/mm/yyyy |
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Time Zone |
Eastern European Time (UTC+2/+3 with DST) |
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Country Dial Code |
+372 |
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Population |
1.32 million |
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Border Countries |
Latvia (south), Russia (east), and maritime borders with Finland.
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Tax Year |
1 January – 31 December (calendar year) |
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VAT & |
20% |
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National Minimum Wage |
EUR 725/month (January 2023) |
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Taxpayer Identification Numbers |
Personal Identity Code (Isikukood) - 11-digits code.
8 numbers registration code for legal persons (starting with 1 for public limited company, private limited company, general partnership, limited partnership and commercial association).
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Leading Sectors |
engineering, electronics, wood and articles of wood, textiles, information technology, telecommunications |
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Main imports |
In 2020: Refined Petroleum ($1.19B), Cars ($1.07B), Packaged Medicaments ($476M), Broadcasting Equipment ($431M), and Sawn Wood ($359M) |
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Main exports |
In 2020: Broadcasting Equipment ($1.2B), Refined Petroleum ($581M), Coal Tar Oil ($553M), Cars ($475M), and Prefabricated Buildings ($443M). |
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Main trading partners |
Main customers: Finland ($2.24B), Sweden ($1.53B), Russia ($1.4B), Latvia ($1.37B), and United States ($1.34B) - in 2020
Main suppliers: Russia ($2.28B), Germany ($2.02B), Finland ($1.78B), Latvia ($1.59B), and Lithuania ($1.33B) - in 2020 |
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Government Type |
Unitary parliamentary republic |
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Current President / PM |
President: Alar Karis (since October 2021)
Prime Minister: Kaja Kallas (since January 2021) |
The 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 various segments, including waste-to-energy, solar, wind, and biomass. Estonia’s state energy strategy requires renewables to produce most 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 industry sector in Estonia. The companies in the shipbuilding sector engage in the manufacture of boats and ships, which are used for recreational and commercial purposes. The industry contributes over 20% of the country’s GDP.
- Banking – The Banking services in Estonia are modern and efficient. The sector also boasts of having one of the region’s best-regulated banks and a highly advanced internet banking system. There are seven 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 under 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 substantial 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 has over 1,006 free Wi-Fi zones and an extensive network of mobile phone networks.
- 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 favourable infrastructure that has improved trading operations in Estonia.
Contracts Law in Estonia
All 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 of entitlements, benefits, and compensation.
General requirements
- 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.
Tax and Labour Authorities in Estonia
Tax Authorities
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 the 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 the fulfilment of tax liability and customs procedures.
Labour Authorities
The Labour Inspectorate – a government agency operating within the Ministry of Social Affairs responsible for enforcing labour legislation. The Labour Inspectorate is divided into four departments Work Environment, Labour Relations, Communications, Finance and Administration Department.
The Work Environment Department is responsible for occupational health and safety issues, and the Labour Relations Department is responsible for inspections in the area of labour relations.
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