Transparency of the Regulatory System
The Government of Estonia has set transparent policies and effective laws to foster competition and establish “clear rules of the game.” However, due to the small size of Estonia’s commercial community, instances of favoritism are not uncommon despite regulations and procedures designed to limit these practices.
Accounting, legal, and regulatory procedures are transparent and consistent with international norms. Financial statements should be prepared in accordance with either:
- Accounting principles generally accepted in Estonia; or
- International Financial Reporting Standards (IFRS) as adopted by the EU.
Listed companies and financial institutions are required to prepare financial statements in accordance with IFRS as adopted by the European Union.
The Estonian Generally Accepted Accounting Principles (GAAP) are written by the Estonian Accounting Standards Board (EASB). Estonian GAAP, effective since 2013, is based on IFRS for Small and Medium-sized Entities (IFRS for SMEs) with limited differences from IFRS for SMEs with regard to accounting policies as well as disclosure requirements. More info: https://investinestonia.com/business-in-estonia/establishing-company/accounting-requirements/ .
The Minister of Justice has responsibility for promoting regulatory reform. The Legislative Quality Division of the Ministry of Justice provides an oversight and coordination function for
Regulatory Impact Analysis (RIA) and evaluations with regard to primary legislation. For government strategies, EU negotiations and subordinate regulations, oversight responsibilities lie within the Government Office.
The GOE has placed a strong focus on accessibility and transparency of regulatory policy by making use of online tools: There is an up-to-date database of all primary and subordinate regulations (https://www.riigiteataja.ee/en/ ) in an easily searchable format. An online information system tracks all legislative developments, and makes available RIAs and documents of legislative intent (http://eelnoud.valitsus.ee/main). Estonia also established the website www.osale.ee , an interactive website of all ongoing consultations where every member of the public can submit comments and review comments made by others. Regulations are reviewed on the basis of scientific and data-driven assessments.
Estonia’s widely-praised “e-governance” solutions and other bureaucratic procedures are generally far more streamlined and transparent than those of other countries in the region and are among the easiest to use globally.
Estonia, an OECD member country, has committed, at the highest political level, to an explicit whole-of-government policy for regulatory quality and has established sufficient regulatory oversight.
Estonia scores the same as the United States on the World Bank`s Global Indicators of Regulatory Governance on whether governments publish or consult with public about proposed regulations: http://rulemaking.worldbank.org/data/explorecountries/estonia#cer_assessment .
International Regulatory Considerations
Estonia is a member of the European Union. An EU regulation is a legal act that becomes immediately enforceable by law in all member states simultaneously. Regulations can be distinguished from directives which, at least in principle, need to be transposed into national law. Regulations can be adopted by means of a variety of legislative procedures depending on their subject matter. European Standards are under the responsibility of the European Standardization Organizations (CEN, CENELEC, ETSI) and can be used to support EU legislation and policies.
Estonia has been a member of WTO since November 13, 1999. More on Estonian information exchange with the WTO Committee on Technical Barriers to Trade (TBT): https://www.evs.ee/Tootedjateenused/WTOteatised/tabid/101/language/en-US/Default.aspx .
Estonia is a signatory to the Trade Facilitation Agreement (TFA) since 2015.
Legal System and Judicial Independence
Estonia’s judiciary is independent and insulated from government influence. The legal system in Estonia is based on the Continental European civil law model and has been influenced by the German legal system. In contrast to common law countries, Estonia has detailed codifications.
Estonian law is divided into private and public law. Generally private law consists of civil and commercial law. Public law consists of international law, constitutional law, administrative law, criminal law, financial law, and procedural law.
Estonian arbitral tribunals can decide in cases of civil matters that have not previously been settled in court. More on Estonian court system: https://www.riigikohus.ee/en . Arbitration is usually employed because it is less time-consuming and cheaper than court settlements. The following disputes can be settled in arbitral tribunals:
- Labor disputes;
- Lease disputes;
- Consumer complaints arguments;
- Insurance conflicts;
- Public procurement disputes;
- Commercial and industrial disputes.
The Court of Arbitration of the Estonian Chamber of Commerce and Industry serves as a permanent arbitration court to settle disputes arising from private law relationships, including foreign trade and other international business relations. More info: https://www.koda.ee/en/about-chamber/court-arbitration .
Recognition of court rulings of EU Member States is regulated by EU legislation. More info: http://www.europarl.europa.eu/RegData/etudes/STUD/2015/509988/IPOL_STU(2015)509988_EN.pdf .
Laws and Regulations on Foreign Direct Investment
Estonia is part of the Continental European legal system (civil law system). The most important sources of law are legal instruments such as the Constitution, EU law, international agreements and Acts and Regulations. Major laws affecting incoming foreign investment include: the Commercial Code, Taxation Act, Income Tax Act, Value Added Tax Act, Social Tax Act, Unemployment Insurance Payment Act. More information is available at https://www.riigiteataja.ee/en/ . An overview of the investment-related regulations can be found here: http://www.investinestonia.com/en/investment-guide/legal-framework .
Competition and Anti-Trust Laws
The Estonian Competition Authority reviews transactions for anti-competition concerns. Government review and licensing have proven to be routine and non-discriminatory.
More info on specific competition cases: http://www.konkurentsiamet.ee/?lang=en .
Expropriation and Compensation
Private property rights are observed in Estonia. The government has the right to expropriate for public interest related to policing the borders, public ports and airports, public streets and roads, supply to public water catchments, etc. Compensation is offered based on market value. Cases of expropriation are extremely rare in Estonia, and the Embassy is not aware of any expropriation cases involving discrimination against foreign owners.
ICSID Convention and New York Convention
Estonia has been a member of the International Center for the Settlement of Investment Disputes (ICSID) since 1992 and a member of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since 1993, meaning local courts are obliged to enforce international arbitration awards that meet certain criteria.
Investor-State Dispute Settlement
The Embassy is not aware of any claims under Estonia’s Bilateral Investment Treaty (BIT) with the United States. Investment disputes concerning U.S. or other foreign investors in Estonia are rare.
In October 2014, AS Tallinna Vesi and its shareholder United Utilities (Tallinn) B.V., registered in the Kingdom of the Netherlands, commenced international arbitration proceedings against the Republic of Estonia for breach of the Agreement on the Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands and the Republic of Estonia. The decision in the matter is expected in 2018. More info: https://www.tallinnavesi.ee/en/investor-news-eng/recordings-of-the-international-arbitration-hearings-are-available-on-as-tallinna-vesis-website .
International Commercial Arbitration and Foreign Courts
The Arbitration Court of the Estonian Chamber of Commerce and Industry is a permanent arbitration court, which settles disputes arising from contractual and other civil law relationships, including foreign trade and other international economic relations. More info: http://www.lawyersestonia.com/arbitration-in-estonia .
Recognition of court rulings of EU Member States is regulated by EU legislation. More: http://www.europarl.europa.eu/RegData/etudes/STUD/2015/509988/IPOL_STU(2015)509988_EN.pdf .
Local courts recognize and enforce foreign arbitral awards. The Embassy is not aware of any investment disputes involving state-owned enterprises (SOEs).
Bankruptcy is not criminalized in Estonia. Bankruptcy procedures in Estonia fall under the regulations of Bankruptcy Act that came into force in February 1997. The Estonian Bankruptcy Act focuses on the protection of the debtors’ and creditors’ rights. According to the Act, bankruptcy proceedings in Estonia can be compulsory, in which case a court will decide to commence the procedures for debt collection, or voluntarily by company reorganization. More info on bankruptcy procedures: http://www.lawyersestonia.com/bankruptcy-procedures-in-estonia .
The detailed information about the creditor’s rights: https://www.riigiteataja.ee/en/eli/ee/Riigikogu/act/504072016002/consolide .
More info from World Bank’s Doing Business Report on Estonian ranking for ease of “resolving insolvency” http://www.doingbusiness.org/data/exploreeconomies/estonia#resolving-insolvency .