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. Despite these measures, due to the small size of Estonia’s commercial community, instances of favoritism are not uncommon.
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 EU.
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 regards to primary legislation. For government strategies, EU negotiations and subordinate regulations, oversight responsibilities lie within the Government Office.
The Government of Estonia has leveraged online tools to increase accessibility and transparency of regulatory policy. 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 includes RIAs and documents of legislative intent ( http://eelnoud.valitsus.ee/main ). Regulations are reviewed on the basis of scientific and data-driven assessments.
Estonia has 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/en/data/explorecountries/estonia . Estonia’s widely praised e-governance solutions and other bureaucratic procedures are generally more streamlined and transparent than those of other countries in the region and are among the easiest to use globally. In addition, Estonia’s budget and debt obligations are transparent and easily accessible to the general public on the Ministry of Finance website.
Estonia adheres to EU requirements for companies’ environmental, social, and governance (ESG) disclosures. In January 2023, the EU Corporate Sustainability Reporting Directive (CSRD) entered into force, which broadens sustainability reporting requirements for large companies and publicly listed companies. The new CSRD rules will be phased in beginning with reports for large companies in financial year 2024. The directive is available here: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32022L2464
International Regulatory Considerations
Estonia is a member of the EU. An EU regulation is a legal act of the European Union that becomes immediately enforceable as 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 1999. Estonia signed onto the WTO Trade Facilitation Agreement (TFA) in 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 law 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 info on the Estonian court system: https://www.riigikohus.ee/en . Arbitration is usually employed because it is faster 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.
Recognition of court rulings of EU Member States is regulated by EU legislation.
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, European Union 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, and 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: https://www.konkurentsiamet.ee/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.
International Commercial Arbitration and Foreign Courts
The Arbitration Court of the Estonian Chamber of Commerce and Industry ( https://www.koda.ee/en/about-chamber/court-arbitration ) is a permanent arbitration court which settles disputes arising from contractual and other civil law relationships, including foreign trade and other international economic relations.
Local courts recognize and enforce foreign arbitral awards. The Embassy is not aware of any investment disputes involving 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. Detailed information about 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: https://data.worldbank.org/indicator/IC.BUS.DFRN.XQ?locations=EE