Jurisdiction of Estonia

Legal Disclaimer: The material presented in this document is intended for general information purposes only and does not constitute legal advice or recommendation in any manner.

1. About Estonia

1.1. Geography and Population

Estonia, officially the Republic of Estonia (Eesti Vabariik), is a country in the Baltic region of Northern Europe. It borders on the Baltic Sea in the west; the gulfs of Riga and Finland (both arms of the Baltic) in the southwest and north, respectively; Latvia in the south; and Russia in the east. Estonia covers the area of 45,227 sq. km including some 1,500 islands and islets in the Baltic Sea with Saaremaa and Hiiumaa being the largest.

Despite its northerly location, Estonia enjoys a mild climate because of marine influences. Mainly lowland, the republic has numerous lakes, frequently of glacial origin; Peipus (Lake Chudskoye), the largest, is important for both shipping and fishing.

We appreciate your visit to our site.

You can download a full version of the document in PDF (0.9 Mb)

Download PDF file

Estonia is divided into 15 counties, 194 rural municipalities and 33 towns. According to Statistics Estonia, on 1 January 2016, the population of Estonia was estimated at 1,315,944, of which around 32% live in Tallinn, the capital and the largest city. Other major cities are Tartu, Narva, Kohtla-Järve and Pärnu. Estonia is one of the least-populous member states of the European Union.

Estonians, who are ethnically and linguistically close to the Finns, make up about 69% of the population; Russians constitute some 26%, and there are also Ukrainian, Belarusian, and Finnish minorities.

The official language in Estonia is Estonian which belongs to the Finno-Ugric language family and is closely related to Finnish. Along with Finnish, English, Russian and German are also widely spoken and understood.

1.2. History

Estonia has been dominated by foreign powers through much of its history. Estonians resisted the assaults of Vikings, Danes, Swedes, and Russians before the 13th century.

In 1346, the Danes, who possessed northern Estonia, sold the land to the Teutonic Knights of Germany, who already possessed Livonia (southern Estonia and Latvia). The Teutonic Knights reduced the Estonians to serfdom.

In 1526, the Swedes took over, and the power of the German (Balt) landowning class was reduced. But after 1721, when Russia succeeded Sweden as the ruling power under the Peace of Nystad, the Estonians were subject to a double bondage — the Balts and the tsarist officials.

The oppression lasted until the closing months of World War I, when Estonia finally achieved independence after a victorious war (1918–1920). But in 1940 shortly after the start of World War II, Estonia was incorporated into the USSR and remained a Soviet republic until March 1990, when the nation declared its independence. The Soviet Union recognized independence of Estonia and the other Baltic states on September 6, 1991. UN membership followed on September 17.

In 2004, Estonia became a member of the European Union and the North Atlantic Treaty Organisation and in 2011 joined the Eurozone.

1.3. Government Structure

According to the Constitution, Estonia is an independent and sovereign democratic republic wherein the supreme power of state is vested in the people.

1.3.1. The Parliament

The people exercise their supreme power of state through the election of the Estonian parliament (Riigikogu). Estonia’s Parliament is unicameral and comprises 101 members of Parliament.

Parliamentary elections are held every four years. Members are elected by proportional representation. A party must gather at least 5% of the votes to take a seat in Parliament.

Citizens of 18 years of age or older may vote in parliamentary elections and be members of political parties.

The Parliament is Estonia’s highest legislative authority and it is vested with the right to adopt laws. In addition, the Parliament has the right to ratify and withdraw from international treaties and decide on government loans.

1.3.2. The President

The President of the Republic is elected for five years by the Parliament or, under specific circumstances, i.e. if no candidate wins a two-thirds majority in the Parliament, by an electoral body consisting of the members of the Parliament and representatives of local government. The President is the formal head of state and the supreme commander of national defence.

The laws passed by the Parliament are presented to the President of the Republic for proclamation. The President has a right to veto with respect to the laws passed by the Parliament pursuant to which he / she may return the act to the Parliament.

If the Parliament does not thereafter amend the law, the President of the Republic can proclaim the law or has the right to propose that the Supreme Court declare the law unconstitutional. If the Supreme Court finds that the law is in conformity with the Constitution, then the President of the Republic proclaims the law.

If the Parliament is unable to convene in a situation of emergency, the President of the Republic may, in matters of urgent state need, issue decrees which have the force of law.

1.3.3. The Government

After parliamentary elections, the President traditionally asks the party with the most votes to form a new government. The President chooses the Prime Minister - usually the leader of the largest party or coalition in the Parliament - with the consent of the Parliament to supervise the work of the government. The Estonian government has a total of 14 ministers.

The Government of the Republic (Vabariigi Valitsus) and the ministers carry out the legislative function by using the right to pass regulations on the basis of and for the implementation of laws (so called intra legem regulations).

1.3.4. Local Government Councils

Local Government Councils are regional representative and legislative bodies, elected by the residents of a rural municipality or city for the period of three years. The individual councils vary in size, but election laws stipulate minimum size requirements depending on the population of the municipality.

All permanent residents (including citizens and non-citizens) of at least 18 years of age are eligible to vote. Local executive power is vested in local governments that resolve local issues and have local budgets to fulfil their duties.

Estonians may vote via the Internet in local and parliamentary elections.

1.4. Legal System

Like all continental European legal systems, the Estonian legal system is founded upon the principle of the priority of legislative acts as a source of law and their precedence over any other sources, such as judicial practice, doctrine or custom.

The highest authority of national legislation in Estonia is the Constitution of the Republic of Estonia. The Constitution was adopted by a referendum and came into effect on 29 June 1992, after Estonia had regained its independence.

Any other legislative acts must be in conformity with the Constitution as well as with the generally recognized principles and rules of international law which are an inseparable part of the Estonian legal system.

A distinction is made between ordinary laws which are passed by a simple majority of votes in the Parliament, and constitutional laws, the adoption and amendment of which requires a vote by the majority of all members of the Parliament.

Pursuant to the Constitution, the Republic of Estonia is not to enter into international treaties which are in conflict with the Constitution. If laws or other legislation in Estonia are in conflict with international treaties ratified by the Parliament, the provisions of the international treaty apply.

As a member of EU since 1 May 2004, Estonia is bound by EU law. The Ministry of Justice is responsible for the coordination of the harmonization of Estonian law and EU law, making suggestions about harmonizing Estonian legal acts with EU legal acts and giving the ministries and other institutions advice about the EU legal system and the principles of legislation.

1.4.1. Estonian Court System

Estonia has a three-level court system, where:

  • county courts and administrative courts adjudicate matters in the first instance;
  • appeals against decisions of courts of first instance are heard by courts of second instance and;
  • the Supreme Court is the court of the highest instance
  • County courts as courts of first instance hear all civil, criminal and misdemeanour matters. The majority of courts of first instance are situated in county centres. The decisions of county courts can be appealed to the courts of appeal (also called circuit courts), being the courts of second instance. Administrative courts hear administrative matters as courts of first instance.

    The decisions of county and administrative courts are reviewed by courts of appeal in the second instance by way of appeal proceedings on the basis of an appeal, an appeal against a ruling, or a protest.

    The Supreme Court is the court of the highest instance, which reviews decisions by way of cassation proceedings, i.e. the parties to the proceedings have the right to appeal to the Supreme Court against the decisions of the courts of appeal. A matter is accepted for proceedings in the Supreme Court if the statements presented in the appeal show an opinion that the appeals court applied incorrectly, or materially violated a procedural rule that may involve an incorrect judicial decision. The Supreme Court is also the constitutional review court.

    1.4.2. Attorneys at Law

    In Estonia, only members of the Estonian Bar Association may provide legal services as attorneys.

    Estonian Bar Association is a self-governing professional association acting on local government administration principles established on 14 June 1919 for the organization of the provision of legal service in private and public interest and defending of the professional rights of the attorneys. Since 1992 Estonian Bar Association is a member of the International Bar Association (IBA) and since 1 May 2004 a full member of a body uniting the bar associations of the member states of the EU (CCBE).

    1.5. Economy

    Estonia is considered one of the most liberal economies in the world. Hallmarks of Estonia's free, market-based economy include a balanced budget, a flat-rate income tax system, a competitive commercial banking sector, and a hospitable environment for foreign investment, including no tax on reinvested corporate profits (tax is not levied unless a distribution is made).

    Estonia's liberal economic policies and macroeconomic stability have fostered exceptionally strong growth and better living standards than those of most new EU member states.

    The economy benefits from strong electronics and telecommunications sectors - the country is so wired that it is nicknamed E-stonia. Tourism has also driven Estonia's economic growth, with beautifully restored Tallinn already a Baltic tourist landmark.

    1.5.1. Economic Development Perspectives 2015-2018

    Main economic indicators

    2015*

    2016*

    2017*

    2018*

    GDP real growth (%)

    1.7

    2.6

    3.4

    3.2

    GDP (in nominal terms, billion EUR)

    20.6

    21.7

    23.1

    24.6

    GDP deflator (%)

    2.0

    2.6

    2.9

    3.0

    Consumer price index (%)

    -0.3

    2.0

    2.9

    3.0

    Employment (15–74 years old, thousands)

    631.2

    627.5

    625.4

    622.8

    Employment growth (%)

    1.0

    -0.6

    -0.3

    -0.4

    Unemployment rate (ILO)

    6.5

    6.3

    7.2

    8.4

    Average wage (EUR)

    1,049

    1,096

    1,155

    1,224

    Wage real growth (%)

    5.0

    2.4

    2.4

    3.0

    Current account (% of GDP)

    2.4

    1.6

    1.3

    1.0

    Deficit (-)/Surplus of state budget (% of GDP)

    0.4

    -0.2

    0.1

    0.8

    General government consolidated debt (% of GDP)

    10.0

    n/a

    n/a

    n/a

    * Source: Ministry of Finance, September 2015

    1.5.2. Free Trade Zones

    There are four free trade zones in Estonia:

  • Paldiski free trade zone in Paldiski Northern Port in northwestern Estonia
  • Muuga free trade zone in Port of Muuga in northern Estonia
  • Sillamae free trade zone in Port of Sillamae in northeastern Estonia
  • Valga free trade zone in southern Estonia
  • All free zones in Estonia are open to foreign direct investments.

    Goods in the free trade zone are considered as being outside the customs territory. Goods brought to the free zone for later re-export are not subject to VAT, excise nor customs duties. Also the Estonian speciality - no tax on reinvested profits - preserves in free trade zones.

    The free trade zones are established by the Estonian government and the Estonian Tax and Customs Board is responsible for monitoring the movement of goods in the free trade zones.

    1.6. Business Environment

    Estonia stands consistently high as business-friendly environment. It ranks 16th globally in the World Bank’s Ease of Doing Business Ranking 2015 thanks to its business-oriented policy-making and low levels of red tape.

    Estonia also has some of the highest credit ratings in the region. As of January 25, 2015 Standard & Poor's credit rating for Estonia stands at AA- ; Moody's at A1 and Fitch's at A+ with stable outlook.

    The government aims to achieve long-term economic growth and welcomes foreign capital, especially investments in sectors that are export-oriented, innovative and support regional development. Currently, Estonia is the leading country in Central and Eastern Europe in terms of attracting foreign direct investments.

    Business environment is supported by a simple, unique and stable flat-rate tax system, which encourages long-term value creation. There is no tax on retained profits , no withholding tax on interest or dividends , and there are numerous double taxation treaties, facilitating efficient flows and long-term planning.

    Estonia's favourable corporate tax regime provides numerous opportunities to use Estonia as a location for holding, financing or trading activities by multinational companies.

    Estonia is a member of the WTO since 1999. In 2010, Estonia became the 34th member of OECD. Estonia is a member of the euro area, but the country’s cost level is still significantly lower than that in the neighbouring Scandinavian countries.

    1.6.1. Foreign Business

    Foreign investors have equal rights and obligations with local entrepreneurs. All foreign investors may establish a company in Estonia in the same way as local investors; no special restrictions apply.

    Internal law and international agreements protect foreign investments in Estonia. Estonia has concluded treaties for the protection of investments with 31 countries including USA, Germany, France, Finland, Sweden, Norway and Switzerland.

    Estonia is one of the leaders in Central and Eastern Europe in terms of foreign direct investments (FDI) per capita. The stock of total FDI peaked at 15.9 billion EUR as of 31 December 2014. 48.2% of foreign investment came from Sweden and Finland.

    1.6.2. Transport

    Transport is well developed in Estonia.

    Estonia is connected to the international flight network via its international airport in Tallinn, serving direct flights to numerous European cities. Most major European, Scandinavian and Russian cities are within just 3 hours' flight from Estonia.

    There is a well-developed rail connection between Estonia and Russia. In combination with the conveniently located ice-free ports in the northern part of the country (the Port of Muuga near Tallinn being the largest), Estonia has served as a major transit corridor between the West and the East.

    1.6.3. Telecommunications and IT

    Estonia benefits from a modern business and technological infrastructure. It ranks among the most wired and technologically advanced countries in the world. It marries world class IT skills with innovation and is a home for cutting edge e-Government, cloud computing, financial technology and cyber security solutions. Estonia hosts both the cyber security centre of NATO and the IT agency of the European Union. Skype for voice and video communications and TransferWise for moving money have their origins in Estonia.

    With a high Internet penetration rate and widespread e-commerce and e-government services, Estonia has become a model for free Internet access as a development engine. The EstWin project, which began in 2009, aims at bringing 100 Mbit/s Internet access to every citizen of Estonia by the end of this year and by 2018 the speed for many users is expected to be boosted to 2.5 Gbit/s.

    Investment in cutting edge ICT infrastructure and security, world first in adoption of e-services and a proven, world-class, multi-lingual ICT talent pool have established Estonia as one of the best new locations in the European Union and worldwide for developing, testing, implementing and supporting ICT services. Estonia offers distinctive possibilities and opportunities for ICT services.

    Some facts and figures concerning IT and telecom in Estonia:

  • 80% of the population aged 16-74 years use the internet (Statistics Estonia, 2013)
  • 83% of households have internet capabilities (Statistics Estonia, 2014)
  • 98% of households with children have Internet capabilities (Statistics Estonia 2014)
  • All Estonian schools are connected to the internet
  • Rapid Wi-Fi internet connections are available in more than 1007 public places; in many places that service is free of charge. The area of Wi-Fi internet is constantly growing and encompasses all of Estonia
  • 98% of banking transactions in Estonia are conducted through the internet
  • Income tax declarations can be made electronically via the Internet. In 2013, over 95% of income tax declarations were presented through the e-Tax Board
  • Cabinet meetings have been changed to paperless sessions using a web-based document system
  • There are more mobile phone contracts than residents - 139 per 100 people (Estonian Competition Authority, 2011)
  • Estonia is completely covered by digital mobile phone networks
  • According to the research undertaken by the World Economic Forum on the use of information technology in 148 countries (The Global Information Technology Report 2014) Estonia ranks 21st in the Networked Readiness Index and is the highest-ranking Central and Eastern European country
  • 1.6.4. Financial Technology

    Service providers’ major expertise in Estonian market lies in banking, fund management, treasury & shared services, insurance and e-government. Market players constantly absorb new technologies. Some of the largest banks in Estonia have been experimenting for some time already with blockchain technology to develop new innovative products, e.g. wallets for digital currencies, digital certificates of deposits etc. The blockchain is regarded as potentially more suitable for some banking and finance related applications.

    Estonian highly innovative e-Banking services are among the most advanced in the world and, providing information and transaction opportunities in every possible way, not to mention m-Banking services through mobile ID. 99% of people in Estonia use internet banking services. The rate of credit card fraud in the country is the lowest in the euro zone.

    Estonian finance infrastructure relies heavily on public-key cryptography.

    Estonian financial technology experts have over 20 years of greenfield development experience having established a high-level functional financial system from scratch.

    1.6.5. E-Estonia

    The roll-out of e-government services in Estonia began in 2000 with the introduction of the E-Tax Board, a public system for electronic tax filing, and the e-Cabinet system, which allowed the government to make cabinet meetings paperless sessions using a web-based document system and reduce the average length of a weekly cabinet meeting from 5 hours to 30 to 90 minutes.

    In 2002, Estonia introduced a universal electronic identification card with digital signatures, which paved the way for many e-services that have made life in Estonia a lot easier and efficient for companies as well as for private persons. As of 2012, more than 1.1 million people have ID cards. The digital signatures scheme saves the country 2% of its GDP.

    Since then, the Estonian government and industry have been putting more and more functions online, all connected by a nationwide data backbone called X-Road. As of 2014, there were already more than 900 organisations and public registries connected to the X-Road.

    Among the most popular e-services in Estonia are:

  • Electronic ID card - a highly sophisticated digital access plastic card with a chip with information about the cardholder and two certificates, one for identity authentication and the other for digital signature used as the national health insurance card, as proof of identity when logging into bank accounts, as a pre-paid public transport ticket as well as i-voting, accessing government databases to check medical records, filing taxes, and picking up e-prescriptions;
  • e-Tax Board - the electronic tax filing system;
  • e-Business register – an e-solution enabling entrepreneurs to register their new business online in just minutes;
  • e-School - one of the most widely used web applications in Estonia enabling teachers and parents to collaborate and organize the study process;
  • e-Prescription - a centralized, paperless system for issuing and handling medical prescriptions
  • Currently, the e-Estonia project offers some 600 e-services to citizens and 2,400 to businesses.

    From 2015 non-residents may apply for e-Residency - a transnational digital identity available to anyone in the world interested in administering a location-independent business online. It allows digital authentication and digital signing of documents.

    Estonia’s e-Solutions have resulted in:

  • An unprecedented level of transparency and accessibility in government;
  • Safe, convenient and flexible exchange of private, government and corporate data;
  • A healthier, better educated population with an easy access to social services;
  • A prosperous environment for business and entrepreneurship
  • Estonia's success in adopting advanced technologies has grown out of partnership between a forward-thinking government, a pro-active ICT sector and a switched-on, tech-savvy population. Today Estonia can rightfully be called an insightful and courageous implementer of new ideas and technologies.

    1.7. Overview of the Estonian Financial Services Market

    Compared to 2014, the combined volume of customer deposits grew 4% or by 657 million euros in 2015, whereby the growth was driven by demand and overnight deposits (1.4 billion euros were added). However, the volume of fixed-term deposits diminished by 0.7 billion euros. The total volume of customer deposits was 15.5 billion euros as at the end of 2015.

    The combined volume of loan portfolios of banks increased 5% or by 0.8 billion euros in 2015. As at the end of 2015, the size of the combined loan portfolio of banks was 16.3 billion euros.

    The developments in investment services took different paths. While the combined volume of the assets of pension funds increased 18% over the year, the combined volume of the assets of other investment funds registered in Estonia (excluding pension funds) grew 6%. At the same time, investments into foreign funds decreased 29% year-on-year, the volume of insurance premiums received under unit-linked life insurance (ULI) contracts decreased 4% and the combined volume of individual portfolios declined 38%.

    All in all, the volume of assets invested into financial services designed for saving and investing, including ULI products, investment funds, pension funds, individual portfolios, other financial instruments, fixed-term and savings deposits, and investment and other deposits, decreased 4%, comprising 9,695 billion euros at the end of 2015 (10,127 billion euros as at the end of 2014). At the same time, the funds held in current accounts increased 13% over the year, amounting to 12 billion euros at the end of December.

    The volume of investing and banking services rendered by Estonian financial institutions, including data about private persons that are Estonian residents, is shown in the table below (as at 31 December 2015).

     

    Including Estonian resident individuals

    Service

    Total, EUR m

    EUR million

    Share in total service

    Volume of investment funds

    604

    NA

    NA

    Volume of pension funds

    2,740

    2,740

    100%

    Volume of foreign funds offered in Estonia

    527

    105

    20%

    Volume of ULI provisions

    232

    232

    100%

    Volume of individual portfolios

    628

    89

    14%

    Volume of loans

    16,313

    7,265

    45%

    Volume of demand and overnight deposits

    12,036

    3,976

    33%

    Volume of fixed-term and savings deposits

    3,387

    1,717

    51%

    Volume of investment and other deposits

    112

    80

    71%

    Volume of other financial instruments

    1,465

    306

    21%

    As a result of the continuing growth in the volume of financial assets in 2015, the financial assets of Estonian resident individuals exceeded their liabilities. At the end of 2015, the volume of financial assets of Estonian resident individuals was 9.2 billion euros, while the balance of financial liabilities amounted to 7.3 billion euros. Hence, the net financial assets of Estonian resident individuals increased from 1.3 billion euros to 1.9 billion euros over the year.

    By the number of contracts, demand deposit (current account) is the most popular financial service in Estonia. As at the end of 2015, private persons held 1,919 million current accounts (many individuals have several current accounts).

    Pension funds are the second most popular financial product used by private persons. The number of persons that have made contracts with pension funds increased from 766,000 to 770,000 in a year.

    The number of loan contracts made with private persons increased from 661,000 to 680,000 during 2015.

    The number of fixed-term, savings and investment deposit contracts decreased from 480,000 to 449,000. The number of life insurance contracts grew from 356,000 to 394,000, including unit-linked life insurance (ULI) contracts that increased from 51,000 to 53,000.

    1.7.1. Life Insurance

    In 2015, life insurance companies in Estonia collected insurance premiums in the amount of 83.3 million euros (80.8 million euros in 2014). The volume of insurance premiums increased 3.2% in a year.

    The largest growth in insurance premiums took place on the account of annuities and whole life insurance contracts.

    The life insurance product with the largest volume was continuously unit-linked life insurance (ULI) with a share of 39% among all products (42% in 2014). The second most popular life insurance product by volume is annuity with a share of 23% (20% in 2014).

    The share of endowment insurance was 19% (21% in 2014).

    Overall market breakdown

    Service Provider

    Market Share in 2015

    Swedbank Life Insurance SE

    41%

    AS SEB Elu-ja Pensionikindlustus

    25%

    Compensa Life Vienna Insurance Group SE

    19%

    ERGO Life Insurance SE Estonia branch

    8%

    Mandatum Life Insurance Baltic SE

    7%

     

    Customers

    394,066 effective contracts

    Service volume

    total EUR 83.3 million in insurance premiums received in 2015

     

    Market breakdown: unit-linked life insurance (ULI)

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    Swedbank Life Insurance SE

    60%

    51%

    SEB Elu-ja Pensionikindlustus

    19%

    17%

    Mandatum Life Insurance Baltic SE

    14%

    26%

    Compensa Life Vienna Insurance Group SE

    7%

    6%

     

    Market breakdown: endowment insurance

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    SEB Elu-ja Pensionikindlustus

    47%

    46%

    Swedbank Life Insurance SE

    32%

    32%

    ERGO Life Insurance SE Estonia branch

    11%

    11%

    Compensa Life Vienna Insurance Group SE

    5%

    5%

    Mandatum Life Insurance Baltic SE

    5%

    6%

     

    Market breakdown: annuity

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    Compensa Life Vienna Insurance Group SE

    67%

    73%

    ERGO Life Insurance SE Estonia branch

    20%

    19%

    SEB Elu-ja Pensionikindlustus

    13%

    8%

     

    Market breakdown: term and whole life insurance

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    Swedbank Life Insurance SE

    62%

    61%

    SEB Elu-ja Pensionikindl ustus

    27%

    28%

    ERGO Life Insurance SE Estonia branch

    4%

    4%

    Mandatum Life Insurance Baltic SE

    4%

    4%

    Compensa Life Vienna Insurance Group SE

    3%

    3%

    1.7.2. Life Insurance Brokers

    According to the data received by the Financial Supervision Authority, insurance brokers registered in Estonia brokered insurance premiums in life insurance for the total amount of 491,000 euros in 2015. The volume of brokered insurance premiums increased 14% over the year.

    Estonian life insurance brokers largely brokered insurances contracts of insurance companies of the European Economic Region countries, which account for 51% of insurance premiums (54% in 2014) and 48% of the number of contracts (also 48% in 2014).

    Overall market breakdown

    Service Provider

    Market Share in 2015

    KindlustusEst Kindlustusmaakler OU

    57%

    OU Marks ja Partnerid Kindlustusmaaklerid

    18%

    Kominsur Kindlustusmaakler

    10%

     

    Customers

    662 brokered contracts

    Service volume

    EUR 491,000 insurance premiums brokered in 2015

    1.7.3. Non-life Insurance

    In 2015, non-life insurance companies and branches of foreign non-life insurance companies operating in Estonia under activity permits received insurance premiums of 280 million euros in total (262 million euros in 2014), including 63 million euros or 23% of all collected insurance premiums (64 million euros or 24% of all collected insurance premiums in 2014) by the branches of foreign insurance companies in Estonia. Of insurance premiums collected by non-life insurance companies, 111 million euros (or 40% of all premiums) were collected via insurance brokers.

    Insurance premiums increased in all non-life insurance classes in 2015. The biggest growth occurred in property insurance, where the volume of insurance premiums grew by 6 million euros over the year.

    Land vehicle insurance, i.e. comprehensive insurance, remained the largest insurance class with insurance premiums amounting to 96 million euros. It was followed by property insurance and motor third party liability insurance with the volume of premiums of 74 million euros and 71 million euros respectively.

    Overall market breakdown

    Service Provider

    Market Share in 2015

    IF P&C Insurance AS

    27%

    ERGO Insurance SE

    17%

    Swedbank P&C Insurance AS

    15%

    AB Lietuvos draumimas

    14%

     

    Customers

    information not available

    Service volume

    EUR 280 million insurance premiums received in 2015

     

    Market shares of non-life insurance companies by premiums received

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    IF P&C Insurance

    27%

    26%

    ERGO Insurance

    17%

    16%

    Swedbank P&C Insurance

    15%

    15%

    Lietuvos draudimas

    14%

    0%

    Seesam Insurance

    10%

    10%

    Salva Kindlustus

    7%

    6%

    BTA

    5%

    6%

    Gjensidige

    3%

    4%

    Inges Kindlustus

    1%

    1%

    Other

    1%

    1%

     

    Market breakdown: motor third party liability insurance

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    IF P&C Insurance

    27%

    25%

    ERGO Insurance

    22%

    19%

    Lietuvos draudimas

    13%

    0%

    Salva Kindlustus

    9%

    8%

    Seesam Insurance

    8%

    7%

    Swedbank P&C Insurance

    7%

    7%

    Gjensidige

    7%

    7%

    BTA

    5%

    9%

    Inges Kindlustus

    2%

    4%

     

    Market breakdown: land vehicle insurance

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    IF P&C Insurance

    25%

    23%

    Swedbank P&C Insurance

    19%

    19%

    Lietuvos draudimas

    17%

    0%

    ERGO Insurance

    15%

    15%

    Seesam Insurance

    11%

    12%

    BTA

    7%

    6%

    Salva Kindlustus

    4%

    4%

    Gjensidige

    2%

    3%

     

    Market breakdown: property insurance

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    IF P&C Insurance

    30%

    31%

    Swedbank P&C Insurance

    18%

    17%

    Lietuvos draudimas

    15%

    0%

    ERGO Insurance

    12%

    13%

    Seesam Insurance

    12%

    12%

    Salva Kindlustus

    7%

    6%

    Gjensidige

    3%

    2%

    BTA

    3%

    3%

    1.7.4. Non-life Insurance Brokers

    According to the data received by the Financial Supervision Authority, insurance brokers registered in Estonia brokered insurance contracts in non-life insurance for the total amount of insurance premiums of 139 million euros in 2015 (135 million euros in 2014).

    In 2015, the insurance premiums brokered by Estonian brokers were the following:

  • 111 million euros or 80% of insurance premiums were insurance premiums of Estonian insurance companies and
  • 28 million euros or 20% were insurance premiums of foreign insurance companies
  • The biggest share of contracts of foreign insurance companies was vehicle and goods in transit insurance (15 million euros), financial loss insurance (5 million euros) and property insurance (also 5 million euros).

    In 2015, non-life insurance contracts were brokered by 41 insurance brokers. 90% of brokered contracts have been made by 12 insurance brokers out of 41.

    Overall market breakdown

    Service Provider

    Market Share in 2015

    IIZI Kindlustusmaakler Aktsiaselts AS

    31%

    Marsh Kindlustusmaakler AS

    13%

    AS Vandeni Kindlustusmaaklerid

    7%

    KindlustusEst Kindlustusmaakler OU

    7%

     

    Customers

    778,603 brokered contracts

    Service volume

    EUR 139 million insurance premiums received in 2015

    1.7.5. Investment and Pension Funds

    The volume of the assets of investment funds, including pension funds, increased by 450 million euros or 16% in 2015 and amounted to 3.3 billion euros at the end of 2015.

    In the aggregate structure of the fund sector, mandatory pension funds remained the biggest fund type with a share of 78%. Equity funds with a share of 9% remained in the second place in terms of size. Property funds with a share of 7% have climbed to the third place. The remaining funds – bond funds and voluntary pension funds – amounted to 2% and 4% of the volume of the total assets of funds respectively. The share of venture capital funds was 1%.

    In 2015, the number of unit holders in Estonian funds increased by 1,657, totalling 782,666 at the end of December. The main growth was achieved on the account of mandatory pension funds. However, the number of unit holders has decreased in other fund types. The number of unit holders showed the greatest decline in equity funds. In the last five years, the number of unit holders of equity funds has dropped more than two times.

    Overall market breakdown

    Service Provider

    Market Share in 2015

    Swedbank Investeerimisfondid AS

    39%

    AS SEB Varahaldus

    19%

    AS LHV Varahaldus

    17%

     

    Total number of unit holders

    782,666 effective contracts

    Service volume

    total volume of funds EUR 3.3 billion

     

    Market breakdown: all funds in total

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    Swedbank Investeerimisfondid

    39%

    39%

    SEB Varahaldus

    19%

    19%

    LHV Varahaldus

    17%

    17%

    Nordea Pensions Estonia

    7%

    7%

    Danske Capital

    7%

    8%

    Eften Capital

    5%

    4%

    Avaron Asset Management

    2%

    2%

    Trigon Funds

    2%

    2%

    Northern Horizon Capital

    1%

    1%

    SmartCap

    1%

    1%

    1.7.6. Portfolio Management Service

    The portfolio management service is provided by management companies, banks and investment firms. The combined volume of portfolios decreased 38% in 2015 and constituted 628 million euros (1,010 million euros as at the end of 2014).

    The cause of a decrease in the combined volume of securities in 2015 was a 69% decrease in the volume of the assets managed by management companies.

    The volume of customer portfolios managed by banks increased from 439 million euros to 454 million euros in 2015. The volume of customer portfolios managed by investment firms dropped from 13 million euros to 3 million euros.

    As at the end of 2015, the largest amount of the volume of the customer combined portfolio belonged to Estonian residents – almost 88% of the volume of customer portfolio or 550 million euros (646 million euros in 2014).

    The largest customer group by type of customers were financial institutions, whose volume of portfolios amounted to 340 million euros at the end of 2015.

    The volume of portfolios of companies was 151 million euros at the end of 2015 (161 million euros at the end of 2014). The volume of portfolios of resident companies decreased from 132 million euros to 117 million euros in a year.

    The volume of portfolios of private persons increased from 119 million euros to 131 million euros over the year, including the volume of portfolios of resident individuals from 83 million euros to 89 million euros.

    Overall market breakdown

    Service Provider

    Market Share in 2015

    Swedbank grupp

    50%

    SEB Bank grupp

    27%

    Nordea Bank AB Estonia branch

    9%

     

    Total number of unit holders

    no information available

    Service volume

    total volume of portfolios EUR 628 million

     

    Market breakdown of customer portfolios by service providers

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    Swedbank

    45%

    29%

    SEB Varahaldus

    16%

    10%

    SEB Pank

    11%

    7%

    Nordea Bank AB

    9%

    4%

    LHV Pank

    7%

    4%

    Swedbank Investeerimisfondid

    5%

    2%

    Danske Capital

    3%

    9%

    Kawe Kapital

    2%

    1%

    Other

    2%

    2%

     

    Market breakdown by management companies

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    SEB Varahaldus

    60%

    18%

    Swedbank Investeerimisfondid

    16%

    5%

    Danske Capital

    11%

    17%

    Kawe Kapital

    8%

    2%

    Avaron Asset Management

    3%

    1%

    Limestone Platform

    2%

    0%

     

    Market breakdown by credit institutions

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    Swedbank

    63%

    66%

    SEB Pank

    15%

    16%

    Nordea Bank AB

    12%

    10%

    LHV Pank

    10%

    8%

     

    Market breakdown by investment firms

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    Cresco Vaartpaberid

    99%

    18%

    KIT Finance Europe

    1%

    0%

    The selection of instruments in customer portfolios became more balanced during 2015. However, there were great differences in the selection of instruments by service providers. The instruments selected by credit institutions is more balanced and the largest share belongs to fund units.

     

    Portfolio structure by instrument

    Instrument

    As at 31 Dec 2015

    As at 31 Dec 2014

    Bonds

    38%

    45%

    Fund units

    31%

    30%

    Equities

    23%

    16%

    Deposits

    7%

    7%

    Cash in bank

    1%

    2%

     

    Portfolio structure managed by management companies

    Instrument

    As at 31 Dec 2015

    As at 31 Dec 2014

    Bonds

    63%

    60%

    Fund units

    22%

    22%

    Equities

    6%

    9%

    Deposits

    5%

    6%

    Cash in bank

    4%

    3%

     

    Portfolio structure managed by credit institutions

    Instrument

    As at 31 Dec 2015

    As at 31 Dec 2014

    Fund units

    35%

    37%

    Equities

    29%

    27%

    Bonds

    28%

    27%

    Deposits

    8%

    9%

     

    Portfolio structure managed by investment firms

    Instrument

    As at 31 Dec 2015

    As at 31 Dec 2014

    Bonds

    90%

    15%

    Equities

    8%

    5%

    Cash in bank

    1%

    1%

    Other

    1%

    1%

    1.7.7. Payment Services

    As at the end of 2015, there were 12 payment service providers in Estonia, including five that operate under special permits (Section 12 of the Payment Institutions and E-money Institutions Act).

    The volume of payments intermediated by Estonian payment service providers decreased 3% in 2015, while the number of payments increased 50%.

    In summary, the volume of payments intermediated by Estonian payment service providers amounted to 892 million euros in 2015 (920 million euros in 2014). Altogether, 2,562,599 payments were made in 2015 (1,711,994 payments in 2014).

    The average amount of a payment was 348 euros (538 euros in 2014).

    The payment service market experienced big changes in 2015: Tavid AS, which had historically held the largest market share, gave up its activity licence. At the same time, TavexWise AS and AS Pocopay entered the payment service market. 25% of all payments were made via TavexWise AS in 2015.

    The largest market share belonged to AS Eurex Capital, whose share in the amount of payments increased to 68% compared to 55% the year before.

    Overall market breakdown

    Service Provider

    Market Share in 2015

    AS Eurex Capital

    68%

    AS TavexWisel

    25%

     

    Customers

    data not available

    Service volume

    volume of payments EUR 892 million

     

    Turnover of transactions intermediated by payment service providers by quarter (EUR million)

    Year

    QI

    QII

    QIII

    QIV

    2013

    201

    212

    258

    332

    2014

    241

    213

    225

    242

    2015

    209

    211

    267

    205

     

    Market shares of payment service providers by turnover of intermediated transactions

    Service Provider

    2015

    2014

    Eurex Capital

    68%

    55%

    TavexWise

    25%

    0%

    Coop Finants

    4%

    3%

    Other

    3%

    3%

    1.7.8. Loans

    Lending continued to grow in 2015. All in all, the volume of the loan portfolio of banks increased about 5% or by 0.8 billion euros over the year and totalled 16.3 billion euros by the end of 2015, reaching the same level as in 2008.

    Corporate loans formed 43% and loans to private persons formed 45% of the total portfolio.

    The balance of loans issued to private persons grew by 277 million euros in 2015. Loans to companies increased by 373 million euros. Loans to financial institutions increased by 652 million euros and loans to the government decreased by 57 million euros.

    In summary, private persons had been issued loans for 7.3 billion euros and companies had been given loans for 6.9 billion euros as at the end of 2015. Loans to financial institutions accounted for 1.6 billion euros and loans to the government accounted for 483 million euros.

    In 2015, the biggest growth of the loans issued to private persons was in the home loans sector (by 262 million euro), reaching 6.3 billion euros by the end of the year.

    The volume of loans intended for consumption increased substantially – by 28 million euros over the year and amounted to 415 million euros at the end of December.

    As in previous years, Estonian loan market was divided in 2015 mainly between four largest banks that covered 89% of the loan market. The remaining 11% of the market was divided between 12 market participants, of which AS DNB Pank held the largest market share (3%).

    Overall market breakdown

    Service Provider

    Market Share in 2015

    Swedbank AS

    40%

    AS SEB Pank

    24%

    Nordea Bank AB Estonia branch

    16%

    Danske Bank A/S Estonia branch

    9%

    DNB Pank

    3%

    Other

    8%

     

    Private customers

    680,090 effective contracts

    Service volume

    volume of combined loan portfolio EUR 16.3 billion

     

    Market breakdown: government loans

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    Danske Bank

    30%

    19%

    Swedbank

    29%

    28%

    SEB Pank

    20%

    20%

    Nordea Bank AB

    15%

    26%

    Other

    6%

    7%

     

    Market breakdown: corporate loans

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    Swedbank

    34%

    35%

    SEB Pank

    22%

    23%

    Nordea Bank AB

    19%

    21%

    Danske Bank

    8%

    6%

    DNB Pank

    6%

    6%

    LHV Pank

    4%

    3%

    Other

    7%

    6%

     

    Market breakdown: financial institution loans

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    Swedbank

    38%

    20%

    SEB Pank

    28%

    27%

    Nordea Bank AB

    17%

    30%

    LHV Pank

    8%

    8%

    BIGBANK

    4%

    8%

    Danske Bank

    1%

    1%

    Other

    4%

    6%

     

    Market breakdown: private person loans

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    Swedbank

    46%

    46%

    SEB Pank

    26%

    26%

    Nordea Bank AB

    14%

    14%

    Danske Bank

    9%

    10%

    DNB Pank

    2%

    2%

    Other

    3%

    2%

    The private person loan market is very concentrated: almost half of the market belonged to Swedbank AS at the end of 2015 and the remaining market was divided between AS SEB Pank, Danske Bank A/S Estonia branch and Nordea Bank AB Estonia branch.

    There were no changes in the division of different loan types granted to private persons in 2015. Majority of loans given to private persons have been home loans – altogether 86% or 6.3 billion euros.

    Distribution of private person loans

    Loan type

    As at 31 Dec 2015

    As at 31 Dec 2014

    Home loans

    86%

    86%

    Consumer loans

    5%

    5%

    Credit cards

    2%

    2%

    Student loans

    2%

    2%

    Other loans

    4%

    4%

     

    Average balance of loans issued to private persons (EUR)

    Loan type

    31.12.2014

    30.06.2015

    31.12.2015

    Home loans

    37,069

    37,386

    37,892

    Student loans

    2,208

    2,227

    2,219

    Consumer loans

    2,977

    2,369

    2,425

    Overdraft

    310

    277

    282

    Credit cards

    775

    779

    794

    Other loans

    13,475

    13,260

    13,624

    The high average balance of other loans is caused primarily because of the size of loans taken out for business purposes.

    1.7.9. Deposits

    The volume of deposits in Estonian banks increased 4.4% or by 657 million euros in 2015, amounting to 15.5 billion euros by the end of 2015. Only 22% of deposits were the fixed-term deposit type.

    The majority of deposits were made by companies with 44% of all deposits. Majority of deposits or 88% made by companies were demand and overnight deposits.

    Private persons held 41% of deposits, which amounted to 6.4 billion euros, of which demand and overnight deposits in the amount of 4.3 billion euros accounted for the majority of the total volume of private person deposits (68%). Fixed-term and savings deposits formed 31% or 2 billion euros and investment and other deposits 0.1 billion euros.

    At the end of 2015, 16% of deposits belonged to non-residents (19% in 2014).

    Overall market breakdown

    Service Provider

    Market Share in 2015

    Swedbank AS

    47%

    AS SEB Pank

    22%

    Nordea Bank AB

    10%

    Danske Bank

    7%

    LHV Pank

    4%

    Citadele banka

    2%

    DNB Pank

    2%

    Eesti Krediidipank

    2%

    Versobank

    2%

    BIGBANK

    1%

    Tallinna Aripank

    1%

     

    Customers

    2,628,988 effective contracts

    Service volume

    total volume of deposits EUR 15.5 billion

     

    Market breakdown: deposits of financial institutions

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    Swedbank

    52%

    45%

    SEB Pank

    19%

    17%

    Nordea Bank AB

    10%

    9%

    Danske Bank

    8%

    19%

    LHV Pank

    5%

    3%

    Citadele banka

    2%

    2%

    Other

    4%

    5%

     

    Market breakdown: company deposits

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    Swedbank

    45%

    40%

    SEB Pank

    20%

    21%

    Nordea Bank AB

    11%

    9%

    Danske Bank

    7%

    17%

    LHV Pank

    5%

    3%

    Versobank

    4%

    3%

    Citadele banka

    2%

    1%

    DNB Pank

    2%

    2%

    Eesti Krediidipank

    2%

    1%

    Tallinna Aripank

    2%

    2%

     

    Market breakdown: private person deposits

    Service Provider

    As at 31 Dec 2015

    As at 31 Dec 2014

    Swedbank

    55%

    54%

    SEB Pank

    22%

    23%

    Nordea Bank AB

    7%

    7%

    Danske Bank

    5%

    6%

    BIGBANK

    3%

    3%

    LHV Pank

    3%

    3%

    Eesti Krediidipank

    2%

    2%

    Citadele banka

    1%

    1%

    Tallinna Aripank

    1%

    1%

    Other

    1%

    0%

    The average amount of the demand and overnight deposits of private persons as at the end of 2015 was 2,261 euros (1,809 euros at the end of 2014), the amount of fixed-term and savings deposits was 4,590 euros (4,707 euros) and the amount of investment and other deposits was 3,714 euros (3,519 euros).

    Source: Estonian Financial Services Market as at 31 December 2015

    1.8. The Estonian Payment Infrastructure

    Cash is used very little in Estonia as most people usually use cards to make purchases in shops or they make payments over the Internet. The only European countries where card payments are even more common are Denmark, Sweden and Finland. Every day some 700,000 card payments are made in Estonia and 200,000 payments through internet banking. The systems used for the payments have to function without interruption and so Eesti Pank as the overseer has to pay close attention to the functioning of the card payment system, the securities settlement system and the interbank payment system.

    There are three payment systems that are important for the payment market in Estonia:

  • STEP2 – a Pan-European retail payments system where the banks operating in Estonia settle interbank payments;
  • Card payment system – a local system where card transactions are processed;
  • TARGET2-Eesti – part of TARGET2, the Pan-European real-time gross settlement system used to make fast and large-value payments
  • 1.8.1. STEP2

    Banks operating in Estonia settle both domestic and cross-border euro retail payments in the Pan-European retail payment system STEP2. The system is operated by EBA Clearing, a private company that was founded by 52 European and international banks.

    The system is used by 127 direct participants across the European Union and other SEPA countries. Today, over 4,700 banks and 14 interoperable systems are reachable via STEP2 all over Europe. Banks can be part of the system as direct or indirect participants. SEB AS and AS LHV Pank are the only banks operating in Estonia that are direct participants in STEP2.

    The STEP2 payment system makes transfers across Europe in the same way by settling credit transfers and direct debits using SEPA schemes. Banks operating in Estonia do not provide the SEPA direct debit service yet.

    STEP2 is a designated-time net settlement system. STEP2 has five daytime settlement cycles for processing SEPA credit transfers, and there are two optional night-time settlement cycles that are usually not used in Estonia. The multilateral net settlement of STEP2 discloses the net claims and liabilities of the banks and the final settlement takes place in TARGET2.

    1.8.2. Card Payment System

    The card payment system is operated by the card centre Nets Estonia AS, which was founded by banks in 1993. The card payment centre provides card payment processing services for intermediating card payment information and for clearing. The liabilities that banks have to each other as a result of the processing of card transactions in the card payment system are settled in the interbank payment systems, e.g. STEP2.

    Nets Estonia provides card payment processing services to seven banks:

  • AS Eesti Krediidipank
  • AS LHV Pank
  • AS SEB Pank
  • Danske Bank AS Estonia branch
  • Nordea Bank Finland AB Estonia branch
  • Swedbank AS
  • Tallinna Äripanga AS
  • 1.8.3. TARGET2-Eesti

    TARGET2 is a Pan-European automated real-time gross settlement express transfer system that is owned and operated by the Eurosystem. The legal structure of TARGET2 consists of component systems that are operated by national central banks. Eesti Pank operates the TARGET2-Eesti component system, which was launched on 19 May 2008.

    TARGET2 is operated on a single technical platform and provides its services to all of its participants under the same conditions. The direct participants of TARGET2 are usually credit institutions but TARGET2 also allows indirect participation through direct participants.

    At the end of 2014 there were 15 participants in TARGET2-Eesti, which included all the banks operating in Estonia:

  • AS Citadele Banka Estonia branch
  • AS Eesti Krediidipank
  • AS Eesti Vaartpaberikeskus
  • AS LHV Pank
  • AS SEB Pank
  • BIGBANK AS
  • Danske Bank AS Estonia branch
  • DNB Pank AS
  • Eesti Pank
  • Nordea Bank Finland AB Estonia branch
  • Pohjola Bank plc Estonia branch
  • Svenska Handelsbanken AB Estonia Branch
  • Swedbank AS
  • Tallinna Aripanga AS
  • Versobank AS
  • The TARGET2 services that participants of TARGET2-Eesti can use are:

  • Settlement of transactions arising from the monetary policy operations of the Eurosystem
  • Settlement of transactions arising from the use of the deposit facility and the marginal lending facility of the Eurosystem
  • A range of liquidity management options including prioritisation of transactions, limits for counterparties, timing of transactions, and monitoring of intra-group consolidated liquidity
  • Settlements with net settlement systems
  • Settlement of interbank transactions
  • Settlement of customer payments; TARGET2 allows participants of TARGET2-Eesti to offer their customers express euro payment services. Customer payments are made from the payer to the payee in about 15 minutes
  • Direct participants of TARGET2-Eesti can access the TARGET2 platform in two ways:

  • through SWIFT: participants choosing a SWIFT connection need to apply for access to the TARGET2 services on the SWIFT website and to meet the technical requirements
  • through secure internet-based access run by the Eurosystem
  • Over 100,000 payments are made each day in Estonia through STEP2 while only around a thousand payments are made each day through TARGET2-Eesti , but these payments are very large, averaging around one million euros per payment.

    The Estonian securities settlement system is a local system where obligations arising from securities transactions are met. In 2017 the Estonian securities settlement system will start using the services of TARGET2-Securities. This will make the same settlement services as elsewhere in Europe available in Estonia and will provide access to a large range of securities.

    1.9. Overview of the Estonian Taxation System

  • Main principles of Estonian tax policy: simple tax system, broad tax base and low rates;
  • The aim of the Estonian Government is to shift the tax burden from labour to consumption;
  • Flat income tax rate since 1994 (flat income tax rate at 20% applies to both individuals and companies);
  • Unique corporate tax system since 2000: all undistributed corporate profits are tax-exempt;
  • Local taxes play an insignificant role in the Estonian tax system;
  • Estonia operates a self-assessment system;
  • The Government's intention is to improve tax administration (electronic tax administration is well established)
  • 1.9.1. Administration of the Tax System

    Taxes are levied on the basis of tax laws enacted by Parliament. The Taxation Act can be regarded as a framework act in respect of other tax laws. It is a general act, which regulates tax proceedings and contains the description of basic concepts used in taxation.

    The Estonian tax system consists of state taxes provided for and established by the tax laws, and local taxes established by a rural municipality or city council on the basis of the law in their administrative territory.

    The tax administrator is the Estonian Tax and Customs Board. Local taxes are administrated by the local municipal councils and local offices of the Tax Board.

    All the taxes in Estonia can be declared via E-tax/e-customs, which is an electronic service desk of the Estonian Tax and Customs Board. E-tax/e-customs works 24 hours a day and 7 days a week. Via E-tax/e-customs it is possible to:

  • Submit declarations and notices;
  • Perform customs operations;
  • Be aware of one's tax operations;
  • Securely communicate with the Tax and Customs Board
  • 1.9.2. Classes of Taxpayers

    Estonian taxpayers are resident and non-resident legal entities and individuals. The term legal entity includes companies, partnerships, legal entities under public law and non-profit organizations and foundations.

    A legal entity is treated as resident in Estonia if it is founded under Estonian laws. An Estonian branch of a foreign company is treated as a permanent establishment of a non-resident entity. An individual is treated as resident in Estonia if he has a permanent place of residence in Estonia, is present in the country for 183 days or more during any 12-month period, or if a person is employed in the public state service of Estonia, dispatched abroad.

    Non-resident taxpayers include foreign entities and individuals, or their permanent establishments in Estonia.

    Non-residents can choose a tax representative in Estonia. The tax representative of a non-resident is a person to whom the Tax and Customs Board has issued a corresponding activity licence and who a non-resident may authorise to represent him / her for the performance of the obligations arising in Estonia.

    1.9.3. Direct and Indirect Tax Burden

    Direct taxation in Estonia takes the form of corporate and individual income taxes, as well as a gambling tax. Indirect taxes include VAT, excise taxes and customs duty.

    1.9.4. Principal Taxes

    The structure and basis of the tax system are set out in the Taxation Act.

    The existing state taxes are:

  • income tax (corporate & personal);
  • social tax;
  • land tax;
  • gambling tax;
  • value added tax;
  • customs duty;
  • excise duties (alcohol, tobacco, fuel, some packaging materials & electricity);
  • heavy load vehicles tax
  • Currently, Estonia does not impose any gift or estate taxes. Various transactions subject to registration with the authorities are liable to payment of a state fee (stamp duty).

    Employers and employees must also make mandatory unemployment contributions and compulsory accumulative pension contributions to the state budget.

    As permitted by the Local Taxes Act, a few municipalities have introduced the following local taxes:

  • advertisement tax;
  • road and street closure tax;
  • motor vehicle tax;
  • animal tax;
  • entertainment tax;
  • parking charges
  • 1.9.5. Assessment

    Estonia operates a self-assessment system. Tax returns show the tax due and taxpayers must pay this amount without waiting for a formal assessment notice.

    1.9.6. Taxation of Corporations
    1.9.6.1. Corporate Income Tax
  • All undistributed corporate profits are tax-exempt ;
  • Estonia has no thin capitalisation or controlled foreign company (CFC) rules for corporate taxpayers;
  • The period of taxation is one calendar month;
  • Corporate income returns are due by the 10th day of the month following the taxation period
  • Starting from January 2015 distributed profits are generally subject to a 20% corporate income tax (20/80 on the net amount of profit distribution).

    All undistributed corporate profits are tax-exempt. This exemption covers both active (e.g. trading) and passive (e.g. dividends, interest, royalties) types of income, as well as capital gains from sales of all types of assets, including shares, securities and immovable property. This tax regime is available to Estonian companies and permanent establishments of foreign companies that are registered in Estonia.

    Corporate profits are not taxed until the profits are distributed as dividends or deemed profit distributions, such as transfer pricing adjustments, expenses and payments that do not have a business purpose, fringe benefits, gifts, donations and business entertainment expenses. The transfer of assets of the permanent establishment to its head office or to other companies is also treated as distribution.

    There are specific anti-tax haven rules for certain dealings with tax haven companies, treating these as deemed profit distributions.

    As of 1 January 2009, dividends paid to non-residents are no longer subject to withholding tax of 20%, irrespective of participation in the share capital of the distributing Estonian company. However, various withholding taxes may still apply to other payments to non-residents if they do not have a permanent establishment in Estonia or unless the tax treaties otherwise provide.

    1.9.6.2. Value Added Tax (VAT)
  • Estonian VAT legislation is based on the EC VAT Directive (2006/112/EEC);
  • The standard VAT rate is 20% from 1 July 2009 and the reduced rate is 9% ;
  • An option to tax is available in respect of certain exempt supplies
  • VAT applies to the supply of goods and services performed by a taxable person in the course of its business activities in Estonia.

    The standard 20% rate applies to all supplies of goods and services not qualifying for a reduced 9% rate or exemption. A reduced rate applies to accommodation, books, certain periodicals, listed pharmaceutical products and medical devices. The VAT rate on the export of goods, intra-Community supply of goods and certain services is 0% (i.e. exemption with credit).

    The following transactions are subject to Estonian VAT:

  • the supply of goods and provision of services with a place of supply in Estonia;
  • the import of goods into Estonia;
  • intra-Community acquisition of goods in Estonia by a taxable person;
  • the supply of goods or services specified in the Estonian VAT Act, if the taxable person has opted for taxation of those
  • Certain supplies are subject to a 0% rate (i.e. exemption with credit or zero-rating), including but not limited to:

  • export of goods;
  • intra-Community supply of goods;
  • the products which can be put into a licensed VAT warehouse;
  • supply of services which are not deemed to be supplied in Estonia
  • Supplies that are exempt without credit include the following activities among others:

  • certain universal postal services;
  • insurance services, including reinsurance and insurance mediation;
  • leasing or letting of immovable property or parts thereof;
  • listed financial services;
  • transactions in securities
  • Of the above exempt supplies, an option to tax is available in respect of the following:

  • disposal of immovable property, except residential housing;
  • lease of or establishment of a usufruct on immovable property or its parts, except residential housing;
  • listed financial services and transactions in securities, unless such a service is provided to the taxable person (or taxable person with a limited liability) of another EU member state
  • The taxable period is one calendar month and VAT returns have to be submitted to the tax authority by the 20th day of the month following the taxable period.

    1.9.6.3. Social Tax

    Employers registered in Estonia (including permanent establishments of the foreign entities) must pay social tax on all payments made to employees, except on those specifically exempted by law. In case of an individual engaged in business and registered as such with the Tax Authorities, social tax liability lies with the individual. Fringe benefits and the income tax thereof are also included in the taxable base. Currently only employers and individuals engaged in business are liable to make social tax contributions. Employees are not required to pay social tax.

    The rate of social tax is 33% (20% for social security and 13% for health insurance).

    1.9.6.3.1. Other Taxes

    Other taxes include:

  • Land Tax (levied on the taxable value of all land based on an official valuation at the rate of between 0.1% and 2.5% of the assessed value of the land);
  • Excise duties (levied on tobacco, alcoholic beverages, fuel, electricity and packages);
  • Heavy goods vehicle tax (paid for certain classes of vehicles intended for the carriage of goods);
  • Gambling tax (imposed on amounts received from operating games of skill, totalizator, betting and lotteries as well as on gambling tables and machines used for games of chance located on licensed premises)
  • 1.9.7. Taxation of Individuals
  • A flat 20% income tax applies to taxable income of individuals;
  • Estonian resident individuals are subject to taxation on their worldwide income;
  • Non-resident individuals are subject to taxation on the listed Estonian source income;
  • Tax on employment income is collected by employers
  • Residents pay tax on their worldwide income. Taxable income includes, in particular, income from employment (salaries, wages, bonuses and other remuneration); business income; interest, royalties, rental income; capital gains; pensions and scholarships (except scholarships financed from state budget or paid on the basis of law). Taxable income does not include dividends paid by Estonian or foreign companies when the underlying profits have already been taxed.

    Non-residents pay tax only on their income received from Estonian sources. Income taxable in Estonia includes:

  • income from work under a labour contract or contractor's agreement in Estonia;
  • income from a business carried on in Estonia;
  • interest income received from Estonia (only if it is substantially higher than that on similar debt claims);
  • royalties;
  • income from the lease of assets located in Estonia;
  • gains from disposal of assets located in Estonia;
  • directors' fees paid by Estonian enterprises;
  • income of a sportsman or an artist from his or her activities in Estonia;
  • pensions and scholarships
  • 1.10. Estonia's Advantages

  • Member of the Eurozone, NATO and OECD, one of the most politically stable countries in CEE region
  • Convenient geopolitical location
  • No corporate income tax on reinvested profits, the lowest public debts in the EU
  • Playing field for foreign investors level with local firms
  • Costs of living and doing business considerably lower than in other parts of the Baltic Sea region
  • Highly educated and motivated workforce
  • Advanced ICT infrastructure and modern IT solutions: wide range of state e-services, e-banking, nation-wide ID-card, digital signature legally equal to handwritten signature
  • Most transparent and the least corrupt country in CEE (Transparency International Corruption Perception Index 2014, 26th out of 174 countries)
  • Economic freedom regarded as one of the highest in the World and the best in EU (Economic Freedom World Ranking 2015, 8th out of 178 countries)
  • Regulatory environment is conducive for starting and operating a company (World Bank Ease of Doing Business 2015, 16th out of 189 countries)
  • 1.11. Main Facts about Estonia

  • Official name: Republic of Estonia
  • National Day: Independence Day, February 24
  • Head of state: President
  • National legislature: the Riigikogu, unicameral parliament of 101 members
  • Executive power: exercised by the Government, headed by the Prime Minister
  • Highest judicial power: Supreme Court
  • Currency: Euro
  • Memberships: EU, NATO, OECD, Schengen area
  • Area: 45,227 square km neighbouring Finland, Sweden, Latvia and Russia
  • Population: 1,294,455 (PHC 2011)
  • Capital: Tallinn with 393,222 inhabitants (PHC 2011)
  • Other major cities: Tartu (97,600), Narva (58,663), Kohtla-Järve (37,201), Pärnu (39,728)
  • Administrative division: Estonia is divided into 15 counties, 194 rural municipalities and 33 towns
  • Official language: Estonian
  • Other languages widely spoken: English, Russian, Finnish and German
  • Main religion: Lutheran
  • Major natural resources: Timber, shale oil, phosphorite, peat, limestone, dolomite
  • Time zone: GMT + 2 hours
  • Distances from Tallinn: Helsinki 85 km, Riga 307 km, St Petersburg 395 km, Stockholm 405 km, Vilnius 605 km
  • Flight times: Helsinki 35min, Stockholm 1h, Copenhagen 1h 30min, Moscow 1h 40min, Amsterdam 2h 20min, London 2h 45min
  • Climate: Estonian climate is humid and temperate. 50% of Estonian land is covered by forests
  • 2. Setting up a Payment or E-money Institution in Estonia

    2.1. Legal and Regulatory Framework

    The legal framework that governs payments and securities settlement comes from European Union and Estonian legislation. The directly applicable rules of the European Union are not replicated in the domestic law of the member states.

    The acts of general application of the European Union are regulations and directives of the European Parliament and the Council, which are adopted at the initiative of the European Commission. Member states have to transpose the directives into their national law, while regulations apply directly.

    The legislative framework for the payment services sector includes the following basic laws:

  • Directive 2007/64/ECon payment services in the internal market (PSD);
  • Directive 2009/110/ECon the taking up and pursuit of the business of electronic money institutions;
  • Directive 2015/2366/EUon payment services in the internal market (PSD 2) repealing Directive 2007/64/EC;
  • Directive 98/26/ECon settlement finality in payment and securities settlement systems;
  • Directive 2014/92/EUon the comparability of fees related to payment accounts, payment account switching and access to payment accounts with basic features;
  • Directive (EU) 2015/849on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing;
  • Regulation 260/2012, establishing technical and business requirements for credit transfers and direct debits in euros;
  • Regulation 924/2009on cross-border payments in the European Community;
  • Regulation 1781/2006on information on the payer accompanying transfers of funds;
  • Regulation (EU) 2015/751on interchange fees for card-based payment transactions
  • Regulation (EU) 2015/847on information accompanying transfers of funds
  • Estonian legislation in the field of payment services and electronic money issuing implements European Union legislation and regulates areas that are not harmonised at the European Union level. The most important of these are:

  • Law of Obligations Act;
  • Credit Institutions Act;
  • Payment Institutions and E-money Institutions Act;
  • Money Laundering and Terrorist Financing Prevention Act;
  • Requirements for the Rules of Procedureestablished by credit and financial institutions and for their implementation and verification of compliance;
  • Criteria of low risk of money laundering and terrorist financingwhich allows the application of simplified customer due diligence measures;
  • Advisory Guidelines of the Financial Supervision Authority on Measures for the Prevention of Money Laundering and Terrorist Financing in Credit Institutions and Financial Institutions;
  • Eesti Pank Governor’s Decree on conditions for the acceptance of payment orders;
  • Financial Supervision Authority Act
  • Law of Obligations Act apply to all contracts including payment orders and payment service contracts (Chapter 40, § 703 - § 733-14)

    Credit Institutions Act regulates the foundation, activities, dissolution, liabilities and supervision of credit institutions.

    Payment Institutions and E-money Institutions Act regulates the provision of payment services and e-money services, the activities and liability of payment institutions and e-money institutions and supervision over payment institutions and e-money institutions.

    Money Laundering and Terrorist Financing Prevention Act regulates:

  • the taking of due diligence measures by obligated persons for the prevention of money laundering and terrorist financing;
  • the supervision exercised over obligated persons in complying with this Act;
  • the bases of operation of the Financial Intelligence Unit;
  • the liability of obligated persons for violations of the requirements arising from this Act
  • This Act applies in particular to credit institutions and financial institutions , including payment service providers, electronic money institution, providers of currency exchange services, providers of services of alternative means of payment and some others, which are regarded as obligated persons.

    Financial Supervision Authority Act determines the objective of state financial supervision and the legal status, the bases for the activities, including the organisation of international cooperation, and the bases and procedure for the financing of the Financial Supervision Authority.

    2.1. Getting Authorised

    2.2.1.1. Competent Authorities

    In Estonia the payment market is regulated and supervised by the following authorities:

  • The Bank of Estonia(Eesti Pank);
  • The Financial Supervision Authorityand
  • The Financial Intelligence Unit
  • 2.2.1.2. The Bank of Estonia (Eesti Pank)

    Eesti Pank is the central bank of the Republic of Estonia and a member of the European System of Central Banks.

    It abides by the Constitution of the Republic of Estonia, the Constitution of the Republic of Estonia Amendment Act, the Treaty on the Functioning of the European Union, the Statute of the European System of Central Banks and European Central Bank, the legal acts of the European Central Bank, the Eesti Pank Act, other laws and the Statute of Eesti Pank.

    The primary aim of the Bank of Estonia is to maintain price stability. Among other functions of the Bank of Estonia are:

  • the assistance in defining the monetary policy of the European Community and implementation of the monetary policy set by the Governing Council of the European Central Bank;
  • the management of the official foreign exchange reserves;
  • the promotion of the stability of the financial system and exercise of macro-prudential supervision of the financial system;
  • the promotion of the efficient operation of payment systems, exercise of the oversight of the payment systems and participation in the development of the clearing environment;
  • the regulation of money circulation and some others
  • The Bank of Estonia operates independently of other government agencies. The Bank of Estonia reports on its activities to the Estonian parliament (Riigikogu) and is not subordinate to the Government of the Republic or any other executive agency of the government or to any third party.

    2.2.1.2. The Financial Supervision Authority (Finantsinspektsioon)

    The Financial Supervision Authority (FSA) is an agency with autonomous competence and a separate budget, which operates at Eesti Pank and is independent in the conduct of financial supervision.

    The Financial Supervision Authority conducts state supervision over the banks, insurance companies, insurance intermediaries, investment firms, management companies, investment and pension funds as well as payment service providers , e-money institutions , small loan offices and securities market that have been authorised by the Financial Supervision Authority.

    Under § 47(2) of the Money Laundering and Terrorist Financing Prevention Act (MLTFPA) the FSA also exercises supervision over fulfilment by credit and financial institutions which are subject to supervision by the FSA under the FSA Act of the requirements arising from MLTFPA and legislation adopted on its basis.

    The activities of the Financial Supervision Authority are planned and its management is monitored by the Supervisory Board of the Financial Supervision Authority. The Board consists of six members, two of whom are members by virtue of office - the Minister of Finance and the Governor of the Bank of Estonia - and four of whom are appointed members. The Minister of Finance is the Chairman of the Board by virtue of office.

    The Management Board manages the daily work of the Financial Supervision Authority. It is competent to pass all resolutions related to performance of the obligations of the Financial Supervision Authority, and to perform all obligations and exercise all rights which pursuant to the Financial Supervision Authority Act are not in the competence of the Supervisory Board, the Chairman of the Supervisory Board or the Chairman of the Management Board.

    The management board consists of three members appointed by the supervisory board for three years. The chairman of the management board is elected by the supervisory board from among the members of the management board for four years. Each member of the Management Board has their areas of responsibility. Structural units and / or positions within such areas of responsibility are directly subordinated to the respective Management Board member.

    In issues relating to the conduct of financial supervision the management board decides on:

  • the issue and revocation of activity licences and other issues relating to activity licences;
  • the granting of consent, permission or concordance;
  • the issues relating to performance of the registration obligation and entering items in lists;
  • the issue of precepts;
  • the application of administrative coercive measures;
  • the ordering of special audits or expert assessments;
  • early intervention measures, establishment of a moratorium or a special regime and the performance of related acts;
  • the filing of bankruptcy petitions and the performance of other acts relating to bankruptcy or liquidation proceedings
  • Members of the management board give orders on behalf of the Supervision Authority for:

  • requesting information relevant to financial supervision procedure from subjects of financial supervision and third persons;
  • requesting the appearance of subjects of financial supervision and third persons at the offices of the Supervision Authority in connection with provision of information relevant to financial supervision procedure;
  • conducting on-site inspection of financial supervision subjects
  • An appeal may be filed with an administrative court against a resolution or precept of the management board, an order of the management board or a member of the management board, or a financial supervision operation on the bases and pursuant to the procedure prescribed by law.

    Expenses of the FSA are covered from compulsory payments by subjects of financial supervision pursuant (the supervision fee), administrative fees and other sources. For details on the supervision fee , see the section on applicable fees below.

    In the context of PIEMIA, the FSA supervises compliance of the activities of payment and e-money institutions and persons who have a qualifying holding in these with the requirements of PIEMIA and other Acts and legislation established on its basis.

    Under § 90 of PIEMIA, the supervision activities of the FSA cover:

  • all payment and e-money institutions whose registered seat is in Estonia, including their agents and distributors;
  • branches of Estonian payment or e-money institutions founded in foreign states, if they are not supervised by foreign financial supervision authorities or if agreed accordingly with the corresponding foreign financial supervision authority;
  • branches of payment or e-money institutions of foreign states founded in Estonia, unless otherwise agreed with the financial supervision authority of the corresponding foreign state;
  • exempt payment and e-money institutions;
  • companies belonging to the same consolidation group as the payment institution or e-money institution
  • Rights of the Financial Supervision Authority to Information

    In order to exercise supervision, the FSA has the right to demand information, documents and oral or written explanations without charge concerning facts which are relevant to the exercise of supervision from the following persons:

  • payment institutions and e-money institutions, managers and employees of payment and e-money institutions;
  • managers and employees of companies belonging to the same consolidation group as payment or e-money institutions;
  • shareholders of payment institutions and e-money institutions;
  • in case of justified need, third parties;
  • liquidators and trustees in bankruptcy of payment and e-money institutions;
  • state and local government agencies, general national registers, national registers and the chief processors and authorised processors of state databases
  • For the purposes of supervision activities, the FSA has the right to:

  • carry out on-site inspections of companies belonging to the same consolidation group as the payment or e-money institution in order to verify information submitted to the FSA, and to demand submission of information and documents necessary for the exercise of supervision;
  • demand submission of any information from a payment or e-money institution necessary for the verification of compliance with prudential requirements;
  • receive information from internal auditors of payment and e-money institutions and cooperate with them
  • If necessary, the FSA may require that a person appear at the offices of the FSA at the time designated by the FSA in order to provide explanations.

    For the purposes of supervision, the FSA has the right to receive information related to a payment or e-money institution from a third party without informing the payment or e-money institution involved. The third party is required not to inform the payment or e-money institution of communicating such information.

    In order to exercise supervision, the FSA has the right to receive from credit institutions information which contains banking secrets concerning a payment institution, e-money institution and their clients, and a third party to whom the duties of a payment or e-money institution have been transferred.

    The FSA Register

    The Financial Supervision Authority maintains a list of:

  • licensed payment and e-money institutions registered in Estonia;
  • persons having a qualifying holding in payment or e-money institutions registered in Estonia;
  • agents and distributors;
  • managers of payment and e-money institutions;
  • branches founded abroad by payment or e-money institutions registered in Estonia;
  • branches founded in Estonia by foreign payment or e-money institutions;
  • payment and e-money institutions providing cross-border services in Estonia;
  • mergers of payment institutions and mergers of e-money institutions;
  • exempt payment and e-money institutions
  • 2.2.1.3. The Financial Intelligence Unit

    Estonian Financial Intelligence Unit (FIU) is an independent structural unit of the Estonian Police and Border Guard Board. The Financial Intelligence Unit analyses and verifies information about suspicions of money laundering or terrorist financing, takes measures for preservation of property where necessary and immediately forwards materials to the competent authorities upon detection of elements of a criminal offence.

    The head of the Financial Intelligence Unit is appointed by the Director General of the Police and Border Guard Board on a proposal of the Deputy Director General in the Field of Intelligence Management and Investigation.

    The Financial Intelligence Unit is financed by the Police and Border Guard Board.

    The functions of the Estonian Financial Intelligence Unit include:

  • collecting, registering, processing and analysing information on activities or circumstances identified as indicative of money laundering or terrorist financing or attempted money laundering or terrorist financing received pursuant the Money Laundering and Terrorist Financing Prevention Act (MLTFPA);
  • tracing criminal proceeds and application of the enforcement powers of the state;
  • supervising activities of obligated persons in complying with the MLTFPA;
  • cooperation with obligated persons, investigative bodies and police institutions in the prevention of money laundering and terrorist financing;
  • training of obligated persons, investigative bodies, prosecutors and judges in matters related to prevention of money laundering and terrorist financing;
  • organisation of foreign communication and exchange of information;
  • conducting proceedings in matters of misdemeanours provided for in MLTFPA;
  • processing of applications for authorisations, suspending or prohibiting economic activities or suspending or revoking authorisations
  • The FIU issues precepts and other administrative decisions in order to perform its functions. An appeal against an administrative decision issued or an administrative act performed by the FIU may be filed with an administrative court.

    The fulfilment of requirements arising from MLTFPA and legislation adopted on its basis by credit institutions and financial institutions which are subject to supervision by the Financial Supervision Authority under the Financial Supervision Authority Act is supervised by the Financial Supervision Authority.

    The Financial Intelligence Unit exercises state supervision over fulfilment of the requirements arising from MLTFPA and legislation adopted on its basis by financial institutions not subject to supervision exercised by the Financial Supervision Authority, e.g. currency exchange service providers, providers of services of alternative means of payment, pawnbrokers.

    The Financial Intelligence Unit has the right to receive information from the Financial Supervision Authority and other state and local authorities and, on the basis of precepts, from obligated persons regarding the circumstances, transactions or persons related to suspicion of money laundering or terrorist financing.

    The Financial Supervision Authority cooperates with the Financial Intelligence Unit pursuant to the goals of MLTFPA.

    2.2.2. The Definition of Financial Institution and Activities Requiring Authorisation
    2.2.2.1. Financial Institutions

    A financial institution , as defined in section 5 of the Credit Institutions Act , is as a company other than a credit institution, the principal and permanent activity of which is to acquire holdings or conclude one or more of the following transactions:

  • borrowing and lending operations, including consumer credit, mortgage credit, factoring and other transactions for financing business transactions;
  • leasing transactions;
  • payment services as defined in the Payment Institutions and E-Money Institutions Act (PIEMIA);
  • issue and administration of non-cash means of payment , e-g. electronic payment instruments, electronic money , traveller's cheques and bills of exchange;
  • guarantees and commitments and other transactions creating binding obligations to persons in future;
  • transactions for their own account or for the account of clients in traded securities, such as shares, bonds, investment fund units, and in foreign exchange and other money market instruments, including transactions in cheques, exchange instruments, certificates of deposit and other such instruments;
  • transactions and acts related to the issue and sale of securities;
  • provision of advice to clients on issues concerning economic activities, and transactions and acts related to the merger or division of companies or participation therein;
  • money broking;
  • portfolio management and consultation on investment issues;
  • safekeeping and administration of securities;
  • collection, processing and transmission of credit information;
  • safe custody services
  • Credit institutions differ from financial institutions in that they have the exclusive right to receive money from the public for the purposes of depositing or to receive repayable funds in any other manner. A credit institution may provide any of the above-mentioned financial services if these are directly ancillary or supplementary to its principal activity of taking deposits and other repayable funds from the public.

    The Money Laundering and Terrorist Financing Prevention Act defines a financial institution in section 6 as follows. Financial institution means:

  • a provider of currency exchange services;
  • a payment service provider within the meaning of the Payment Institutions and Electronic Money Institutions Act;
  • an electronic money institution within the meaning of the Payment Institutions and Electronic Money Institutions Act;
  • a provider of services of alternative means of payment;
  • an insurer engaged in life assurance within the meaning of the Insurance Activities Act;
  • an insurance broker engaged in mediation of life assurance within the meaning of the Insurance Activities Act;
  • a management company and an investment fund established as a public limited company within the meaning of the Investment Funds Act;
  • an investment firm within the meaning of the Securities Market Act;
  • a savings and loan association within the meaning of the Savings and Loan Associations Act;
  • another financial institution within the meaning of the Credit Institutions Act;
  • a branch of a foreign service provider registered in the Estonian commercial register and providing the above-mentioned services
  • MLTFPA defines a provider of services of alternative means of payment as a person who in its economic or professional activities and through communications, transfer or clearing system buys, sells or mediates funds of monetary value by which financial obligations can be performed or which can be exchanged for an official currency, but who is not a person specified in MLTFPA definition shown above or a financial institution for the purposes of the Credit Institutions Act.

    2.2.2.2. Payment Institutions and Electronic Money Institutions
    Payment Institutions

    A payment institution is a financial institution within the meaning of § 5 of the Credit Institutions Act.

    Under § 5 of the Payment Institutions and E-Money Institutions Act (PIEMIA), a payment institution is a company the permanent activity of which is the provision of payment services (for details, see the Authorised Activities section below).

    Under § 5 of PIEMIA, in Estonia a payment institution may operate only as a public limited company. A payment institution may operate as a private limited company if it only provides money remittance services.

    Only payment institutions may use the word makseasutus (payment institution) or derivatives or foreign language equivalents thereof in their business names.

    Exempt Payment Institutions

    A payment institution may apply to the Financial Supervision Authority for exemption from the requirements for payment institutions provided for in Chapters 2–10 of PIEMIA and these requirements will not apply to the activities of such an exempt payment institution, except for the provisions concerning managers and employees of the company (§§ 47–49 of PIEMIA), the safekeeping of assets (§ 79) and reporting (§ 82(3) and (4)).

    To apply for the exemption a payment institution must meet all of the following conditions:

  • the company provides only money remittance service ;
  • the average total amount of payment transactions made within the preceding twelve months does not exceed one million euros a month including payment transactions made by agents;
  • managers of the company or persons responsible for business management have not been convicted of an economic offence, official misconduct, offence against property or offence against public trust or financing and support of act of terrorism or activities directed at it, or the information concerning the punishment has been expunged from the punishment register
  • An exempt payment institution is obliged to have its seat and principal place of business in Estonia and is prohibited from founding a branch in another EEA State or providing cross-border services.

    An exempt payment institution may operate as a private limited company.

    E-money Institutions

    An e-money institution is a company the permanent activity of which is the issue of e-money in its name.

    Under § 7 of PIEMIA an e-money institution may operate as a public or private limited company.

    PIEMIA defines e-money as monetary value stored on an electronic medium (e-money device ) which expresses a monetary claim against the issuer and meets all the following conditions:

  • it is issued at par value of the amount of the monetary payment received;
  • it is used as a payment instrument to execute payment transactions;
  • it is accepted as a payment instrument by at least one person who is not the issuer of the same e-money
  • Only e-money institutions may use the word combination e-raha asutus (electronic money institution) or derivatives or foreign language equivalents thereof in their business names.

    Exempt E-money Institutions

    An e-money institution which issues e-money as low value payment instruments , i.e. a payment instrument with the value of single payment transaction not exceeding 30 euros or having the limit for its use of up to 150 euros or with the amount kept on it not exceeding an amount equalling 150 euros , may apply to the Financial Supervision Authority for exemption from the requirements provided for in Chapters 2–10 of PIEMIA and these requirements will not apply to the activities of such an exempt e-money institution, except for the provisions concerning managers and employees of the company (§§ 47–49 of PIEMIA) and reporting (§ 82(1) and (3)).

    To apply for the exemption an e-money institution must meet the following conditions:

  • average outstanding e-money does not exceed 500,000 euros ;
  • managers of the company or persons responsible for business management have not been convicted of an economic offence, official misconduct, offence against property or offence against public trust or financing and support of act of terrorism or activities directed at it, or the information concerning the punishment has been expunged from the punishment register
  • The average outstanding e-money means the average total amount of financial liabilities related to e-money in issue at the end of each calendar day within the preceding six calendar months and is calculated on the first calendar day of each calendar month to be applied for that calendar month (§ 12(5) of PIEMIA).

    An exempt e-money institution is obliged to have its seat and principal place of business in Estonia and is prohibited from founding a branch in another EEA State or providing cross-border services or distributing e-money through a distributor in another EEA States.

    An exempt e-money institution may provide payment services if it meets the conditions applicable to an exempt payment institution.

    2.2.2.3. Authorised Activities
    Payment Services

    According to § 3(6) of the Payment Institutions and Electronic Money Institutions Act (PIEMIA) the following persons may provide payment services:

  • payment institutions;
  • e-money institutions;
  • credit institutions;
  • postal service providers providing financial services;
  • the European Central Bank and central banks of states which are contracting parties to the EEA Agreement when not performing their duties as monetary authorities or other state agencies;
  • Contracting States or their regional or local governments when not performing their duties as state agencies;
  • companies enjoying the exemption under § 11 of PIEMIA
  • § 5(7) of PIEMIA extends this list to include savings and loan associations. Under subsection (7), a savings and loan association which provides payment services is a payment service provider and provisions of PIEMIA and other legislation concerning payment service providers apply to them as well.

    These payment services are as follows (§ 3(1) of PIEMIA):

  • services which enable cash payments to payment accounts;
  • services which enable cash withdrawals from payment accounts;
  • execution of payment transactions, including transfer of funds to a payment account opened with a payment service provider (execution of direct debit orders, including one-off direct debit orders);
  • execution of payment transactions if the funds have been granted as a loan to the client of the payment institution;
  • issue and acquisition of payment means, means of payment or payment instruments;
  • money remittance;
  • execution of payment transactions if the consent of the payer for making a payment is given by means of a telecommunications, digital or information technology device and the payment transaction is executed through a telecommunications network, information technology system or other similar network operator acting only as an intermediary between the client of the payment institution and the supplier of goods or services
  • In addition to the provision of payment services, a payment institution may engage in the following services and activities:

  • provision of ancillary services closely related to payment services, such as ensuring the execution of payment transactions, foreign exchange services, safekeeping activities, and the storage and processing of data;
  • operation of payment systems;
  • other activities not related to the provision of payment services unless otherwise provided by law
  • Payment institutions may use payment accounts held with them only for the execution of payment transactions. Funds received from a client of the payment institution for the provision of payment services are not deemed to be a deposit or other repayable funds or e-money.

    Payment institutions may grant loans related to the provision of payment services only if the following conditions are met:

  • the granting of loans is an ancillary service and loans are granted only for the execution of a payment transaction;
  • loans related to the execution of a payment transaction are repayable within twelve months;
  • loans are not granted from the funds received or held for the purpose of executing a payment transaction;
  • own funds of the payment institution are sufficient to cover the risks related to granted loans;
  • the activities of the payment institution comply with requirements of the Creditors and Credit Intermediaries Act, e.g. the activities are carried out with due professionalism, honesty, precision and care in order to ensure the protection of the interests and rights of consumers; members of staff or representatives of the creditor have the knowledge, skills and experience required for these activities; relevant internal rules are in place etc.
  • § 5(6) of PIEMIA prohibits payment institutions from engaging in the receipt of deposits or other repayable funds as defined in the Credit Institutions Act.

    E-money Services

    The following persons (e-money issuers ) may provide e-money services:

  • e-money institutions;
  • companies enjoying the exemption under § 12 of PIEMIA;
  • credit institutions;
  • the European Central Bank and central banks of Contracting States when not performing their duties as monetary authorities or other state agencies;
  • Contracting States to the EEA agreement or their regional or local governments when performing their duties
  • E-money services include the issue of e-money and ancillary services closely related to the issue or administration of e-money.

    An e-money institution may, in addition to the issue of e-money, be engaged in the following:

  • provision of payment services;
  • granting loans related to the provision of payment services if the following conditions are met:
  • the granting of loans is an ancillary service and loans are granted only for the execution of a payment transaction;
  • loans related to the execution of a payment transaction are repayable within twelve months;
  • loans are not granted from the funds received or held for the purpose of executing a payment transaction;
  • own funds of the payment institution are sufficient to cover the risks related to granted loans;
  • the activities of the payment institution comply with requirements of the Creditors and Credit Intermediaries Act, e.g. the activities are carried out with due professionalism, honesty, precision and care in order to ensure the protection of the interests and rights of consumers; members of staff or representatives of the creditor have the knowledge, skills and experience required for these activities; relevant internal rules are in place etc.
  • provision of ancillary services closely related to the issue or administration of e-money or payment services;
  • operation of payment systems;
  • other activities not related to the issue of e-money unless otherwise provided by law
  • E-money are not deemed to be a deposit or other repayable funds (§ 6(6) of PIEMIA).

    Interest or other fees must not be charged or paid, or other benefits granted for the period of holding e-money.

    Up to 1,000 euros of e-money may be stored on an e-money device if the e-money device does not allow repeated storage of e-money (recharging). If it is possible to recharge an e-money device, up to 2,500 euros of e-money may be stored or recharged on the e-money device during a calendar year.

    If an e-money institution provides payment services, it is allowed to use payment accounts held with them only for the execution of payment transactions.

    § 7(3) of PIEMIA prohibits e-money institutions from granting loans out of or secured by the funds received in exchange for e-money.

    E-money may be distributed or redeemed by the e-money issuer or a person acting on behalf of the e-money issuer (a distributor ). An e-money institution may also provide payment services through a distributor.

    Transactions Excluded from Payment Services

    The following services and transactions are not deemed to be payment services under PIEMIA:

  • payment transactions made exclusively in cash directly from the payer to the payee, without any intermediary intervention;
  • payment transactions from the payer to the payee through a commercial agent authorised to negotiate or conclude the sale or purchase of goods or services on behalf of the payer or the payee;
  • transport of banknotes and coins, their collection, processing and delivery;
  • payment transactions consisting of cash collection and delivery in the course of charity or non-profit activities;
  • services where cash is paid by the payee to the client as part of a payment transaction following an explicit request by the client before the execution of the payment transaction through a payment for the purchase of goods or services;
  • cash exchange services where the funds are not held on a payment account;
  • payment transactions carried out within a payment or securities settlement system between settlement agents, central counterparties, clearing houses or central banks and other participants of the system, and payment service providers;
  • payment transactions related to the administration and safekeeping of securities, including distribution of dividends or other income received therefrom, or redemption, repurchase or sale of securities carried out by persons specified in the bullet above or by investment firms, credit institutions, management companies or other persons with the right to provide investment services or the service of safekeeping of securities;
  • technical support services for the provision of payment services, including services related to the processing and storage of data, trust and privacy protection, services related to data and entity authentication, communications network and information technology, provision and maintenance of terminals and devices used for payment services, without the service providers entering into possession of the funds to be transferred during the services;
  • services or transactions based on payment instruments that can be used to purchase goods or services only in the indoor premises and territories in the possession of the issuer of the aforementioned payment instrument or under a contract entered into with the issuer in connection with the economic activities either within a common limited network of service providers or for the purchase of a limited range of goods or services;
  • payment transactions executed by means of any telecommunications, digital or information technology device where the goods or services purchased are delivered and used through a telecommunications, digital or information technology device, provided that the telecommunications, digital or information technology operator does not act only as an intermediary between the client of the payment institution and the supplier of the goods or services;
  • payment transactions carried out between payment service providers, their agents or branches for their own account;
  • payment transactions between a parent undertaking and its subsidiary or between subsidiaries of the same parent undertaking, without any intermediary intervention by a payment service provider other than an undertaking belonging to the same consolidation group;
  • services to withdraw cash by means of automated teller machines acting on behalf of one or more card issuers, which are not a party to the payment service contract entered into with the client withdrawing money from an account, on the condition that these providers do not provide other payment services
  • Besides, transactions based on any of the following documents by which the provider places funds at the disposal of the payee are not deemed to be payment services:

  • paper cheques;
  • paper-based drafts;
  • paper-based vouchers;
  • paper-based traveller's cheques;
  • paper-based postal money orders
  • 2.2.3. Obligation to Apply for Authorisation

    § 14(1) of PIEMIA states that in order to operate as a payment institution or e-money institution, a company must hold a relevant activity licence.

    An activity licence for provision of payment services or an activity licence for issuing e-money is issued to a company founded in Estonia or revoked by a decision of the Financial Supervision Authority (FSA).

    If a company being founded or an operating company wishes to exercise the exemption right provided for in § 11(1) or 12(1) of PIEMIA, such a company is required to apply to the Financial Supervision Authority for an exemption authorisation.

    A company to which FSA has refused to grant the exemption is required to hold an activity licence for provision of payment services in order to provide the payment services or an activity licence for issuing e-money in order to provide the e-money services.

    Credit institutions, e-money institutions, exempt payment and e-money institutions holding exemption authorisations, postal service providers, the ECB and central banks of the EEA states, EEA states or their regional or local governments when not performing their duties as state agencies are not required to apply for an activity licence for provision of payment services.

    Credit institutions, exempt payment and e-money institutions holding exemption authorisations, the ECB and central banks of the EEA states, EEA states or their regional or local governments when not performing their duties as state agencies are not required to apply for an activity licence for issue of e-money.

    Providers of currency exchange services , services of alternative means of payment (for the definition, see the section on financial institutions above), trust and company services, pawn-broking services and some others are required to obtain authorisation from the Financial Intelligence Unit (FIU).

    The obligation to obtain authorisation from FIU does not apply to persons which hold:

  • an authorisation granted by the Financial Supervision Authority;
  • an authorisation granted by the financial supervision authority of a contracting state based on which the person is authorised to operate in Estonia via a branch or across borders, provided that the Financial Supervision Authority has been notified of such operations
  • 2.2.4. Application for Activity Licence
    2.2.4.1. Requirements for Legal Form

    A company wishing to apply for an activity licence for the provision of payment services (see Authorised Activities section above) is required to be formed as a public limited company.

    A private limited company may apply for the activity licence if the scope of its intended activities is limited to the provision of money remittance services only (§ 5 of PIEMIA).

    A company wishing to apply for an activity licence for the provision of e-money services may be formed either as a public or private limited company (§ 7 of PIEMIA).

    2.2.4.2. Requirements for Place of Business

    The seat and the principal place of business of a payment institution or e-money institution entered in the commercial register in Estonia is to be in Estonia (§ 46 of PIEMIA).

    2.2.4.3. Capital Requirements
    Payment Institutions

    The share capital of a payment institution is to be:

  • at least 20,000 euros if the payment institution only provides money remittance services ;
  • at least 50,000 euros if the payment institution provides payment services where the consent of the payer is given by means of a telecom, digital or IT device and the payment transaction is executed through a telecom network, IT system or other similar network operator acting only as an intermediary between the client of the payment institution and the supplier of goods or services;
  • at least 125,000 euros if the payment institution provides one or several payment services from the list of payment services other than those mentioned above
  • E-money Institutions

    The share capital of an e-money institution is supposed to be at least 350,000 euros.

    2.2.4.4. Own Funds Requirements
    Minimum Own Funds Requirements for a Payment Institution

    The own funds of a payment institution are at all times to be equal to or exceed the following indicators:

  • the amount of its share capital (see the relevant section above or § 64(1) of PIEMIA);
  • the amount of own funds calculated pursuant to one of the three calculation methods (for details see §§ 73–75 of PIEMIA):
  • Fixed overheads method
  • Payment volume method
  • Indicator-based method
  • The FSA will determine which of the methods will have to be used by a payment institution to calculate own funds, taking into account the nature of the services provided by the payment institution and the nature, extent and level of complexity of the operation. The FSA may determine the appropriate method on the basis of financial data presented in the business plan of the payment institution.

    Based on the evaluations given to the risk management processes, database of loss events, and internal control mechanisms, the FSA has the right to:

  • demand that the payment institution should increase the result received from the application of the prescribed calculation method up to 20 per cent;
  • permit the payment institution to decrease the result received from the application of the prescribed calculation method up to 20 per cent
  • Minimum Own Funds Requirements for an E-money Institution

    The own funds of an e-money institution are at all times to be equal to or exceed the following indicators:

  • the amount of the share capital (350,000 euros );
  • the sum of the following:
  • 2 per cent of the average outstanding e-money issued by the e-money institution (for an e-money institution related to the issue of e-money), and
  • the result of own funds calculation based on one of the following calculation methods (for an e-money institution related to payment services):
  • Fixed overheads method
  • Payment volume method
  • Indicator-based method
  • The FSA will determine which of the methods will have to be used by the e-money institution to calculate the own funds requirement. Upon determining the appropriate method, the FSA will be taking into account the nature of the payment services provided by the e-money institution and the nature, extent and level of complexity of the operation on the basis of the financial data presented in the business plan of the e-money institution.

    Based on the evaluations given to the risk management processes, database of loss events, and internal procedures and control, the FSA has the right to:

  • demand that the e-money institution should increase the result received from the application of the prescribed calculation method up to 20 per cent;
  • permit the e-money institution to decrease the result received from the application of the prescribed calculation method up to 20 per cent
  • An e-money institution which commences activities or has operated for less than six months is to calculate its own funds on the basis of the amount of e-money presented in the business plan. The FSA has the right to demand adjustment of the business plan if in the opinion of the FSA the amount of e-money planned to be issued in the business plan does not correspond to the needs of the e-money institution.

    Composition of Own Funds

    The own funds of a payment or e-money institution are composed of Tier 1 own funds and Tier 2 own funds (for definition of Tier 1 and Tier 2 Own Funds see below) from which the following deductions have been made:

  • qualifying holdings (for details see the relevant section below and / or § 37 of PIEMIA) in credit or financial institutions, including in other payment or e-money institutions, and subordinated claims (for definition see below) and other instruments included in Tier 2 own funds which are included in the own funds of the credit or financial institutions and other payment or e-money institutions;
  • holdings the size of which remains below qualifying in credit or financial institutions, including in other payment or e-money institutions, and subordinated claims and other instruments included in Tier 2 own funds which are included in the own funds of the credit or financial institutions and other payment or e-money institutions if the total amount of all such holdings, subordinated claims and instruments is higher than 10 per cent of the own funds of the payment or e-money institution before deductions;
  • holdings in insurers , reinsurers and insurance holding companies which exceed 20 per cent of the share capital of or number of votes in the company, subordinated claims and securities of indeterminate duration or claims arising from other instruments which conform to the requirements of § 68 of the Insurance Activities Act and are included in the own funds of the insurers, reinsurers and insurance holding companies mentioned above
  • The amount of Tier 2 own funds must not exceed Tier 1 own funds.

    The total amount of subordinated liabilities and preferred shares included in Tier 2 own funds must not exceed 50 per cent of Tier 1 own funds.

    Tier 2 own funds in excess of the 2 limitations mentioned above will not be taken into account for the purposes of calculating own funds.

    From the total amount of the above-mentioned deductions, 50 per cent will be deducted from Tier 1 own funds and 50 per cent from Tier 2 own funds after the limitations have been applied. If the amount to be deducted from Tier 2 own funds exceeds Tier 2 own funds, the deficit will be covered from Tier 1 own funds.

    The principles of calculation of own funds and the minimum amount of own funds and the procedure for submission of reports are established by a regulation of the Minister of Finance.

    Basic Definitions in connection with Own Funds Requirements

    Tier 1 own funds consist of:

  • paid-up share capital, except for amounts paid for preferred shares;
  • issue premium;
  • reserves formed on the basis of law and the articles of association on account of the profits, and reserve capital;
  • audited profits from previous years;
  • audited loss from previous years;
  • profits for the current financial year, the size of which has been verified by an auditor;
  • other instruments of a capital nature similar to share capital, issue premium and reserves
  • Only amounts which actually exist may be indicated to be contained in the share capital, issue premium and reserves.

    In order to calculate the size of Tier 1 own funds, the following are to be deducted from the total of own funds as defined above:

  • the sum of the value of treasury shares, except for preferred shares treated as treasury shares;
  • the sum of the value of intangible assets;
  • losses of the current financial year
  • Audited profits from previous years and profits for the current financial year verified by an auditor are included in Tier 1 own funds only after deduction of all the requisite taxes and dividends.

    Tier 1 own funds are to be available for immediate and unrestricted use to cover losses or risks.

    Tier 2 own funds consist of:

  • subordinated liabilities;
  • preferred shares, except for preferred shares treated as treasury shares;
  • fixed assets revaluation reserve;
  • securities of indeterminate duration and other instruments which comply with the conditions provided for in § 70 of PIEMIA;
  • other liabilities and instruments of a capital nature which are similar to subordinated liabilities and preferred shares
  • Only such instruments are considered as Tier 2 own funds that have been placed in full as a monetary payment at the disposal of the payment or e-money institution.

    Subordinated liability is a liability where the claim arising out of such liability, in the event of the dissolution or bankruptcy of a payment or e-money institution, is satisfied after the justified claims of all other creditors have been satisfied.

    Own Funds Calculation Methods
  • 1. Fixed Overheads Method
  • Own funds of a payment institution which commences activities or has operated for less than six months must not be less than 10 per cent of the fixed overheads planned in the business plan after deductions.

    For an operating payment institution own funds must not be less than 10 per cent of the fixed overheads of the previous financial year after deductions.

  • 2. Payment Volume Method
  • In the case of the payment volume method, the own funds of a payment institution are to be at least equal to the sum of the following shares multiplied by the scaling factor (0.5; 0.8 or 1 depending on the type of authorised activity, for details see § 76 of PIEMIA):

  • 4 per cent of the share of payment volume which is up to or equal to 5 million euros;
  • 2.5 per cent of the share of payment volume which is over 5 million euros but not more than 10 million euros;
  • 1 per cent of the share of payment volume which is over 10 million euros but not more than 100 million euros;
  • 0.5 per cent of the share of payment volume which is over 100 million euros but not more than 250 million euros;
  • 0.25 per cent of the share of payment volume which is over 250 million euros
  • The shares of payment volume are calculated on the basis of one twelfth of the total amount of payment transactions executed by the payment institution during the preceding year.

  • 3. Indicator-based method
  • In the case of the indicator-based method, the own funds of a payment institution are to be at least equal to the sum of the following indicators multiplied by the multiplication factor (shown below or in § 75(6) of PIEMIA) and the above-mentioned scaling factor (§ 76 of PIEMIA):

  • interest income;
  • interest expenses;
  • received commissions and fees;
  • other operating income
  • All the indicators are to be added up before multiplying, calculating the income with its positive sign and expenses with its negative sign. The indicator is to be calculated on the basis of the previous annual report approved by the general meeting or meeting of shareholders.

    A payment institution which commences activities or has operated for less than six months is to calculate own funds on the basis of the income and expenses planned in the business plan.

    If the audited data on the basis of which the indicator is calculated are not available, the estimated values reflected in the business plan may be used.

    Income from extraordinary or irregular items may not be used in the calculation of the indicator.

    The expenses related to the transfer of services to third parties may reduce the indicators if the third party is another payment institution.

    The multiplication factors for the purpose of the calculation are as follows:

  • 10 per cent of the share of the indicator which is up to or equal to 2.5 million euros;
  • 8 per cent of the share of the indicator which is over 2.5 million euros but not more than 5 million euros;
  • 6 per cent of the share of the indicator which is over 5 million euros but not more than 25 million euros;
  • 3 per cent of the share of the indicator which is over 25 million euros but not more than 50 million euros;
  • 1.5 per cent of the share of the indicator which is over 50 million euros
  • Own funds calculated based on the indicator-based method must not fall below 80 per cent of the average amount of the above-mentioned indicators of the previous three financial years.

    Consolidation Groups

    If at least one credit institution belongs to the consolidation group of a payment or e-money institution, the consolidation group is deemed to be the consolidation group of the credit institution and the relevant provisions of the Credit Institutions Act and legislation established on its basis will apply with respect to the group.

    If a payment or e-money institution and a credit institution which is the parent company of the payment or e-money institution are subject to consolidated supervision by the FSA, the payment or e-money institution will not be required to follow the provisions regarding prudential requirements of PIEMIA upon calculation of own funds with prior consent of the FSA.

    The consent will be granted by the FSA if the following conditions are met:

  • the parent company has no practical or legal impediments at the moment of requesting the consent or in the future as far as it is known for the immediate transfer of own funds or performance of obligations;
  • either the parent company proves to the FSA the sufficient management of prudential requirements of the subsidiary and guarantees the performance of all the obligations assumed by the subsidiary or the risks related to the subsidiary are insignificant;
  • the procedures for the establishment, measurement, management, constant monitoring and reporting of risks of the parent company also apply to the subsidiary
  • In order to prevent multiple application of own funds requirements, the FSA may decide which obligations related to own funds and their calculation an e-money institution will be obliged to perform if:

  • the e-money institution belongs to the same consolidation group as a credit institution, payment institution, investment firm, management company, insurer or reinsurer or another e-money institution;
  • the e-money institution provides services other than issue of e-money
  • 2.2.4.5. Application Pack Requirements

    In order to apply for an activity licence for the provision of payment services or an activity licence for issuing e-money, the members of the management board entered in the memorandum of association or registry card of the company being founded or operating (the applicant ) are to submit to the Financial Supervision Authority a written application (application for activity licence ) and the following documents and information:

  • a copy of the articles of association and, in the case of an operating company, the resolution of the general meeting on amendment of the articles of association, and the amended text of the articles of association;
  • upon foundation of a company, a notarised transcript of the memorandum of association or foundation resolution;
  • a document certifying the existence of the share capital paid up or to be paid up;
  • an action plan setting out in particular the planned payment services or e-money services;
  • a business plan complying with requirements of § 16 of PIEMIA;
  • the opening balance of the applicant and an overview of revenue and expenditure or, in the case of an operating company, the balance sheet and income statement as at the end of the month prior to submission of the application for an activity licence and the last three annual reports if they exist;
  • a description of the application of the general requirements for safekeeping and protection of assets;
  • internal rules of the payment institution (e-money institution) and accounting policies and procedures or drafts thereof;
  • information on the information and other technological means and systems, security systems, control mechanisms and systems needed for provision of the planned services;
  • a description of internal control system and measures which would ensure performance of obligations in connection with preventing money laundering and terrorist financing and information on the payer upon transfer of funds;
  • a description of the organisational structure of the applicant including, if necessary, a description of the procedure for the use of agents and branches or for the transfer of services, and its participation in national or international payment systems;
  • a list of shareholders of the applicant which sets out the name and the personal identification code or registry code of each shareholder, or the date of birth in the absence of a personal identification code or registry code, and information on the number of shares and votes to be acquired or owned by each shareholder;
  • information on persons who own qualifying holdings in the applicant (for details, see § 40 of PIEMIA or the relevant section below);
  • information on managers of the applicant, including each person's name and surname, personal identification code or date of birth in the absence of a personal identification code, place of residence, educational background, a complete list of places of employment and positions and, in the case of members of the management board, a description of their areas of responsibility, and documents certifying the managers' trustworthiness and conformity to the requirements of PIEMIA which the applicant deems necessary to submit;
  • information on companies in which the holding of the applicant or its manager exceeds 20 per cent, which also sets out the amount of share capital, a list of the areas of activity and the size of the holding of the applicant and each manager;
  • information on the auditor and internal auditor of the applicant, including their name, residence or seat, personal identification code or, in the absence of the identification code, the date of birth or registry code;
  • in the case of an operating company, documents certifying the amount of own funds together with the sworn auditor’s report;
  • the technical, financial and legal principles of the functioning of the payment system approved by Eesti Pank beforehand and the draft rules for the functioning of the system if the applicant wishes to be engaged in the operation of payment systems
  • If, during the processing of an application for an activity licence, there are changes in the information or documents mentioned above, the applicant is obliged to submit the updated information or documents to the Financial Supervision Authority immediately after making or becoming aware of the amendments.

    The applicant is also required to submit a description of the auditing arrangements and organisational administration concerning the safekeeping and protection of assets, the internal rules and the accounting policies and procedures, the internal control system, and the completion of the documents which have been established by the applicant in order to apply all necessary measures to protect the legitimate interests of its clients and ensure continuity and reliability in the performance of payment services (§ 15(3) of PIEMIA).

    2.2.4.6. Business Plan Requirements

    A business plan must cover at least three years and include a description of the character of the planned business activities, organisational structure, internal control system and management structure of the applicant, a description of the rights, obligations and liability related to the provision of planned services and also a description, forecast and analysis of the following factors:

  • the amount of revenue and expenditure by area of activity;
  • obligations related to the provision of payment services or e-money services;
  • the size of the assets and share capital of the applicant;
  • the level of the technical administration of the activities of the applicant;
  • strategy and market share in which the applicant proposes to engage in activities;
  • the planned activities, provided services and offered products, the potential agents or distributors, and clients and competitors;
  • plans regarding annual balance sheets and financial indicators which, inter alia, set out revenue, expenditure, profit and cash flows, and the presumptions which constitute the basis thereof;
  • general principles and strategy of risk management;
  • investment policy
  • 2.2.4.7. Requirements for Internal Rules of a Payment or E-money Institution

    A payment or e-money institution are obliged to establish and apply rules of procedure regulating the activities of the payment or e-money institution and its managers and employees (internal rules), which ensure that legislation regulating the activities of the payment or e-money institution and that decisions taken by the managing bodies are complied with.

    Internal rules established and applied by a payment or e-money institution are to ensure legitimate and regular provision of services. A payment or e-money institution are to regularly evaluate the efficacy of its internal rules and their correspondence to the actual situation, and are expected to update the internal rules in order to guarantee the protection of interests of their clients.

    Among other matters, internal rules are to set out the following:

  • a procedure for the movement of internal information and documents, including requirements for submission and forwarding of information;
  • a procedure for the provision of payment services or e-money services, including a plan for determination of a risk of interruption of business, for managing or prevention of such risk;
  • a procedure for the conclusion of transactions and performance of acts in the name and for the account of the payment or e-money institution or in the name and for the account of clients;
  • duties and functions of employees, relationships of subordination, reporting chains, the procedure for reporting and delegation of rights, and the separation of functions upon assumption of obligations in the name of the payment or e-money institution, the recording of services for accounting and reporting purposes and the assessment of risks;
  • a procedure for maintaining databases and processing of data;
  • internal rules of procedure which set out the safety and regular monitoring of information technology systems used and systems used for the safekeeping of assets of clients;
  • a procedure for the functioning of the internal control system;
  • internal rules of procedure for imposing international sanctions established on the basis of the International Sanctions Act and application of the Money Laundering and Terrorist Financing Prevention Act, and the code of conduct for verification of compliance with these
  • 2.2.4.8. Requirements for AML Rules of Procedure

    A financial institution is required to establish written rules of procedure for taking the due diligence measures provided for in MLTFPA, including assessment and management of the risk of money laundering and terrorist financing, collection and keeping of records, and performance of the notification obligation and notification of the management, as well as internal control rules for checking adherence to these.

    A financial institution is required to pay special attention to implementing rules of procedure and internal control rules in the subsidiaries where it has a majority holding, in branches and in representative offices if their seat or place of business is located in a third country which does not implement sufficient measures for prevention of money laundering and terrorist financing or does not participate in international cooperation for the prevention of money laundering and terrorist financing or if the country is a low tax rate territory.

    Financial institutions must ensure that, upon implementation of rules of procedure and internal control rules in the subsidiaries where they have a majority holding and in their branches and representative located in a third country, requirements at least equivalent to those provided for in MLTFPA are established.

    The rules of procedure established by a financial institution are to correspond to the type, scope and complexity of the economic or professional activities of the financial institution and regulate the taking of due diligence measures.

    A financial institution is obliged to regularly check whether the established rules of procedure are up-to-date and establish new rules of procedure where necessary.

    The rules of procedure are to:

  • describe transactions of a lower risk level and establish the appropriate requirements and procedure for carrying out such transactions;
  • describe transactions of a higher risk level, including risks arising from means of communication, computer network and other technological development, and establish the appropriate requirements and procedure for carrying out and monitoring such transactions;
  • set out the rules for monitoring of business relationships, including monitoring transactions carried out during the business relationship, regular verification of data used for identification, updating relevant documents, data or information and, if necessary, identification of the source and origin of funds used in the transaction;
  • set out the requirements and procedure for keeping the documents and records concerning the identification of natural and legal persons and registration of transaction data;
  • set out the requirements and procedure for registering the information:
  • about the circumstances of refusal to establish a business relationship or carry out a transaction by the financial institution;
  • about the circumstances of giving up the establishment of a business relationship or carrying out a transaction on the initiative of the person participating in the transaction or professional operation, the person using a professional service or the customer, provided that the giving up is related to the taking of due diligence measures by the financial institution;
  • about the circumstances of termination of a business relationship in the cases where a person participating in a transaction carried out in economic or professional activities or a customer does not submit documents and relevant information required for performing due diligence obligations;
  • serving as the basis for notifying the competent authority of money laundering or terrorist financing
  • The rules of procedure are to contain instructions for how to effectively and quickly identify whether or not the person is:
  • a politically exposed person;
  • a person whose place of residence or seat is in a country where no sufficient measures for prevention of money laundering and terrorist financing have been taken;
  • a person with regard to whose activities there is prior suspicion that the person may be involved in money laundering or terrorist financing;
  • a person with regard to whom international sanctions are imposed;
  • a person with whom a transaction is carried out using telecommunications
  • The rules of procedure are to be introduced to all employees of a financial institution whose duties include establishment of business relationships or carrying out transactions.

    The detailed requirements for the rules of procedure of financial institutions, internal audit rules for checking their performance and application are established by a regulationof Estonia's Minister of Finance.

    2.2.4.9. Requirements for Internal Control

    A payment or e-money institution is required to apply sufficient internal control measures which cover all levels of management and operations of the payment or e-money institution.

    The supervisory board of a payment or e-money institution is to appoint the head of the internal audit for the performance of duties of the internal audit unit (auditor). An internal auditor is to be governed by the requirements and legal bases for the activities established for a certified internal auditor in the Auditors Activities Act. An internal auditor may not perform duties which create or may create a conflict of interests.

    The duty of an internal auditor is to monitor whether the activities of a payment or e-money institution and its managers and employees comply with legislation, precepts of the FSA, resolutions of managing bodies, internal rules, agreements entered into with the payment or e-money institution and good practice.

    A payment or e-money institution is to ensure that the internal auditor has the rights and working conditions necessary to perform their duties, including the right to obtain explanations and information from the managers and employees of the payment or e-money institution and to observe the elimination of any deficiencies discovered and compliance with any precepts issued.

    An internal auditor is required to forward any information concerning the payment or e-money institution which becomes known to them and which indicates a violation of law or damage to the interests of clients to the managers of the payment or e-money institution and the FSA immediately in writing.

    2.2.4.10. Requirements for Preservation of Information

    A payment or e-money institution and their branches in a foreign state are obliged to preserve the information provided for in PIEMIA unaltered and available to the FSA for a period of at least five years unless the FSA has established a different term or a longer term is provided by law.

    A payment or e-money institution and their branches in a foreign state are obliged to preserve the records which set out the respective rights and obligations of the payment or e-money institution and the client under a contract to provide services, or the terms on which the payment or e-money institution provides the services to the client for at least the duration of the legal relationship related to the provision of payment or e-money services to the client unless a longer term is provided by PIEMIA or other legislation.

    Following the termination of the activity licence of a payment or e-money institution, the FSA has the right to require the payment or e-money institution to preserve information for five years.

    2.2.4.11. Qualifying Holding

    PIEMIA defines a qualifying holding as any direct or indirect holding in the share capital of a payment or e-money institution which represents 10 per cent or more of the share capital of the company, of all related rights or of the voting rights in the company or which makes it possible to exercise a significant influence over the managing bodies of the company in which that holding subsists.

    Holding is direct if a person holds or exercises it personally.

    Holding is indirect if:

  • a person holds or exercises it together with one or several controlled companies;
  • it is held or exercised by one or several companies controlled by a person;
  • it is held or exercised by a person or a company controlled by the person upon agreement with a third party;
  • the voting rights arising from that are deemed to belong to a person
  • Requirements for Persons Having Qualifying Holding

    Qualifying holdings in a payment or e-money institution may be acquired, held and increased and control over a payment or e-money institution may be gained, held and increased by any person:

  • who has impeccable business reputation and whose activities in connection with the acquisition comply with the principles of sound and prudent management of the payment or e-money institution;
  • who after the acquisition or increase of the holding will elect, appoint or designate only such persons as managers of the payment or e-money institution who comply with requirements of PIEMIA (for details see § 47 of PIEMIA or the relevant section below);
  • whose financial situation is sufficiently secure to ensure regular and reliable operation of the payment or e-money institution, and in the case of a legal person if such financial statements exist, they allow for a correct assessment to be made of its financial situation;
  • who is able to ensure that the payment or e-money institution is able to meet the prudential requirements provided for in PIEMIA, in the case of a legal person above all the requirement that the consolidation group, which part the payment or e-money institution will form, has a structure which enables exercise of efficient supervision, exchange of information and cooperation between the financial supervision authorities;
  • with regard to whom there is no justified reason to believe that the acquisition is related to money laundering or terrorist financing including attempted or increases such risks
  • Information on Qualifying Holding Owners to be Submitted to the FSA with the Application

    The following information on persons who own qualifying holdings in the applicant is to be submitted to the FSA when applying for an activity licence of a payment or e-money institution:

  • the list of shares and information on the type of shares and number of votes owned (other information may also be requested if necessary);
  • a curriculum vitae of qualifying holding owners (for natural persons) which contains, inter alia, the name, residence, education, work and service experience and personal identification code or date of birth in the absence of a personal identification code;
  • a list of shareholders or members of qualifying holding owners (for legal persons) and information on the number of shares held by and number of votes of each shareholder or member;
  • the name, seat, registry code, authenticated copy of a registration certificate and a copy of the articles of association, if they exist, of qualifying holding owners (for legal persons) or of the (legal) person administering the pool of assets;
  • information on members of the management board and supervisory board of qualifying holding owners (for legal persons), including, for each person, the name and surname, personal identification code or date of birth in the absence of a personal identification code, education, work and service experience, and documents which prove trustworthiness, experience, competence and impeccable reputation of such persons;
  • a confirmation that persons becoming managers of the payment or e-money institution as a result of designation by the qualifying holding owner have not been punished for an economic offence, official misconduct, offence against property or offence against public trust or financing and support of act of terrorism or activities directed at it, or the information concerning the punishment has been expunged from the punishment register;
  • a description of business activities of qualifying holding owners;
  • a confirmation that in the case of the managers no such circumstances have existed or exist which in accordance with law preclude them from being managers of a payment or e-money institution;
  • the last three annual reports of the qualifying holding owner, if they exist. If more than nine months have passed since the end of the previous financial year, an audited interim report for the first six months of the financial year are to be submitted. The sworn auditor's report is to be added to the reports if preparation of the report is prescribed by legislation;
  • ratings required for assessing financial situation of qualifying holding owners (for natural persons) and companies connected with them and reports intended for the public, if possible; and credit ratings issued to the qualifying holding owner and the consolidation group (for legal persons);
  • if the qualifying holding owner is a company belonging to a consolidation group, a description of the structure of the group, data relating to the sizes of the holdings of the companies belonging to the group, and the last three annual reports of the consolidation group together with sworn auditor's reports;
  • documents certifying the financial status of the person during the last three years (for natural persons);
  • information and documents concerning the sources of monetary or non-monetary resources for which a qualifying holding has been acquired;
  • the circumstances relating to the acquisition of holding pursuant to §§ 9, 10 and 72-1 of the Securities Market Act;
  • the size of the qualifying holding owned by the person after acquisition of the holding and the circumstances relating to the holding pursuant to §§ 9, 10 and 72-1 of the Securities Market Act;
  • if a payment or e-money institution becomes a controlled company, a business plan and other circumstances related to gaining and exercising control
  • The information and documents submitted to the FSA are to be in Estonian. However, with the consent of the FSA, the aforementioned information and documents may be submitted in another language.

    The FSA, within fifty working days as of the beginning of the term of proceedings (§ 41(2) of PIEMIA), may request in writing additional information and documents in order to specify or verify the information and documents mentioned above.

    The term of the proceedings will be suspended for the period between the first submission of the request by the FSA for additional information and documents and receipt from the qualifying holding owner of the requested information, but the suspension will not exceed twenty working days.

    The FSA, by its precept, has the right to prohibit or restrict in each specific case the exercise of voting rights or other rights enabling control in a payment or e-money institution by a person who has a qualifying holding in the payment or e-money institution or who controls the payment or e-money institution if any of the following circumstances exist:

  • the qualifying holding owner does not comply with the requirements for persons having qualifying holding (for details, see the relevant section above or § 38 of PIEMIA);
  • the qualifying holding owner fails to submit required information or documents to the FSA;
  • the information or documents submitted to the FSA do not comply with the requirements of relevant legislation or are incorrect, misleading or incomplete, or based on the submitted information and documents the FSA cannot exclude reasonable doubt about the qualifying holding being compliant with the requirements;
  • the payment or e-money institution is a company controlled by a person residing or located in a third country and sufficient supervision is not exercised over the person in the country of residence or location of the person or the financial supervision authority of the third country has no legal basis or possibility to cooperate with the FSA
  • Compliance with the precepts of the FSA is also mandatory for the payment or e-money institution, the person maintaining its share register or another person who organises the exercise of voting rights.

    2.2.4.12. Requirements for Managers and Employees

    Managers of payment and e-money institutions must have appropriate education, experience and professional qualifications as well as an impeccable business reputation.

    The management board of a payment or e-money institution is to consist of at least two members.

    The following may not be elected or appointed managers of payment or e-money institutions:

  • persons whose earlier activities have resulted in the bankruptcy, compulsory liquidation or revocation of the activity licence of a company;
  • bankrupts or persons who are subject to a prohibition on business or from whom the right to engage in economic activity has been taken away pursuant to law;
  • persons whose earlier activities as a manager of a company have shown that they are not capable of organising the management of a company such that the interests of the shareholders, members, creditors and clients of the company are sufficiently protected;
  • persons who have been punished for an economic offence, official misconduct, offence against property or offence against public trust or financing and support of act of terrorism or activities directed at it, and whose corresponding information concerning the punishment has not been expunged from the punishment register;
  • persons whose earlier activities have shown that they are not suitable to manage a company for other good reasons
  • Managers and employees of a payment or e-money institution are required to act with prudence and competence expected of them and according to requirements for their positions and interests of the payment or e-money institution and its clients.

    Managers and employees of a payment or e-money institution are required to give priority to economic interests of the payment or e-money institution and its clients over their own personal economic interests. In addition to the above, managers and employees of a payment or e-money institution are required to ensure the continuous existence of financial resources necessary for the economic activities, provide services lawfully with due professionalism, precision and care and provide clients with necessary information on payment services.

    Managers of a payment or e-money institution are required to guarantee that the organisational structure of the payment or e-money institution is transparent, the areas of responsibility are clearly delineated and procedures for the establishment, measurement, management, constant monitoring and reporting of risks have been established and that such procedures are sufficient and proportional taking into account the nature, extent and level of complexity of the operation of the payment or e-money institution.

    Managers of a payment or e-money institution are required to regularly review the regulations and other rules of procedure established on the basis of PIEMIA, evaluate their efficiency and take appropriate measures to eliminate any deficiencies.

    A person to be elected or appointed manager of a payment or e-money institution is required to present the following information and documents to the payment or e-money institution:

  • name and surname, personal identification code or date of birth in the absence of the latter, place of residence, educational background, a complete list of places of employment and positions and, in the case of members of the management board, a description of their areas of responsibility, and documents certifying the managers' trustworthiness and conformity to the requirements of PIEMIA;
  • information on companies in which in which the holding of the manager exceeds 20 per cent with details on the amount of share capital, the areas of activity and size of the holding of the manager;
  • a confirmation that no circumstances exist which would preclude the management of a payment or e-money institution
  • The payment or e-money institution is required to submit the above-mentioned information to the Financial Supervision Authority.

    A payment or e-money institution is required to inform the FSA of the intention to elect or appoint a manager and of their resignation or the initiation of their removal before the expiry of their term of office at least ten days before making the corresponding decision or immediately after the receipt of the corresponding application.

    The FSA has the right to issue a precept to demand the removal of a manager of a payment or e-money institution if:

  • the person does not conform to the requirements for managers set out in PIEMIA;
  • the person has submitted misleading or inaccurate information or falsified documents in connection with their election or appointment;
  • the activities of the person in managing the payment or e-money institution have shown that they are not capable of sound and prudent management of the payment or e-money institution or of organising the management of the payment or e-money institution such that interests of clients and creditors are sufficiently protected
  • If a payment or e-money institution fails to comply with a precept requiring the removal of a manager in full or within the prescribed term, the FSA has the right to demand the removal of the manager of the payment or e-money institution by a court or revoke the activity licence of the payment or e-money institution.

    2.2.4.13. Safekeeping Requirements

    A payment or e-money institution is to establish the principles for the safekeeping and protection of the assets of clients by internal rules.

    A payment or e-money institution is to invest its assets in liquid assets such that execution of the payment orders or satisfaction of other justified claims of clients is ensured at all times.

    A payment or e-money institution is required to apply measures which ensure the possibility to calculate own funds and limitations on investment at all times with sufficient precision.

    The Minister of Finance may, by a regulation, establish more specific requirements for the safekeeping of assets, limitations on investments, procedure for and specifications of reporting.

    Payment Institutions

    A payment institution which, in addition to the provision of payment services, is engaged in other activities not related to the provision of payment services is required to:

  • keep the assets of a client entrusted to the payment institution in connection with the provision of payment services separate from its own assets and the assets related to the areas of activity which are not related to the provision of payment services;
  • deposit the funds of a client in a separate account with a credit institution or invest the funds in liquid low-risk instruments if the payment institution has not transferred the funds related to the provision of payment services to the payee or another provider of payment services by the end of the working day following the date of receipt of the funds
  • Instead of the above-mentioned obligation, the assets of a client entrusted to a payment institution in connection with the provision of payment services may be covered by an insurance contract or an equivalent guarantee contract by an insurer or credit institution, which does not belong to the same consolidation group as the payment institution, to the extent equal to the amount which would have been segregated in the absence of the insurance contract or equivalent guarantee contract if the payment institution is unable to meet its financial liabilities to the clients related to the provision of payment services.

    The requirements for safekeeping of assets apply to the amount known or estimated on the basis of historical data for the cover and execution of future payment transactions. At the request of the FSA, a payment institution is required to be able to justify the amount estimated on the basis of historical data.

    Based on a written application, the FSA has the right to exempt a payment institution from the obligation to comply with the safekeeping requirements with regard to clients whose claims against the payment institution do not exceed 600 euros.

    The FSA may publish instructions which explain the principles for safekeeping and investment of clients' funds.

    E-money Institutions

    An e-money institution is required to keep the funds which have been received upon issue of e-money and which are equal to the amount of financial liabilities related to the e-money held by the e-money holder:

  • separate from its own assets and assets related to the areas of activity which are not related to the provision of e-money services;
  • in a separate account with a credit institution or invest the funds in liquid low-risk instruments, i.e. certain debt securities for which the specific risk capital charge is no higher than 1.6 per cent, and units or shares of Undertakings for Collective Investment in Transferable Securities (UCITS) the assets of which are invested only in the above-mentioned debt instruments (§ 80(4) of PIEMIA)
  • The FSA has the right to decide on the basis of an evaluation of security, maturity, value or other risk element of the assets which instruments will not be deemed to be liquid low-risk assets.

    Instead of the above-mentioned obligation, a client's funds transferred to the possession of an e-money institution may be covered by an insurance contract or an equivalent guarantee contract by an insurer or credit institution, which does not belong to the same consolidation group as the e-money institution, to the extent equal to the amount which would have been segregated in the absence of the insurance contract or equivalent guarantee contract if the e-money institution is unable to meet its financial liabilities to the clients related to the issue of e-money.

    If an e-money institution provides payment services which are not related to the issue of e-money, the requirements for the safekeeping of assets by payment institutions will apply to the e-money institution in connection with such activities.

    The requirements for the safekeeping of assets by e-money institutions will be applied not later than as of the fifth working day after the date of issue of e-money unless otherwise provided by law.

    2.2.4.14. The Review of Applications for Activity Licences

    If an applicant has failed to submit all the information and documents specified in § 15 of PIEMIA, or if such information or documents are inaccurate, misleading or incomplete or have not been prepared in accordance with the requirements, the Financial Supervision Authority has the right to demand elimination of the deficiencies by the applicant.

    The Financial Supervision Authority may demand the submission of additional information and documents if it is not convinced on the basis of the supplied information and documents as to whether the applicant for an activity licence has adequate facilities for the provision of payment services or e-money services or whether it meets the requirements for payment institutions or e-money institutions prescribed by PIEMIA or legislation issued on its basis or if other circumstances relating to the applicant need to be verified.

    In order to verify the information submitted by an applicant, the FSA may perform on-site inspections, order an assessment or special audit, receive information from state agencies and local government authorities, consult state databases, obtain oral explanations from the applicant's managers and auditors, their representatives and, where necessary, third parties concerning the content of documents and facts which are relevant in making a decision on the issue of an activity licence.

    The additional information and documents requested by the FSA must be submitted to the FSA within a reasonable term determined by the FSA.

    The FSA may refuse to review an application for activity licence if the applicant has failed to eliminate the deficiencies within the prescribed term or has not submitted the information or documents requested by the FSA by the end of the term. Upon refusal to review an application, the FSA is obliged to return the submitted documents.

    Upon processing of an application for an activity licence, the FSA cooperates with the financial supervision authority of the respective EEA state if:

  • the applicant is a parent undertaking or subsidiary of a payment institution, e-money institution, management company, investment fund, investment firm, credit institution or insurer founded in an EEA state or other person subject to financial supervision;
  • the subsidiary of the parent undertaking of the applicant is a payment institution, e-money institution, management company, investment fund, investment firm, credit institution or insurer founded in an EEA state or another person subject to financial supervision;
  • the applicant and a payment institution, e-money institution, management company, investment fund, investment firm, credit institution or insurer founded in an EEA state or another person subject to financial supervision are companies controlled by one and the same person
  • 2.2.4.15. Decision on the Issue of an Activity Licence

    The FSA makes a decision to issue or refuse to issue an activity licence within three months after the receipt of all the necessary documents and information which comply with the requirements, but not later than within six months after the receipt of the application for the activity licence.

    Upon the issue of an activity licence, the FSA may:

  • establish more favourable secondary conditions to the applicant which, if it is justified, permit the applicant to derogate from the circumstances on the basis of which the activity licence is obtained;
  • extend the above-mentioned term for the applicant to bring itself into conformity with the requirements on the basis of which the activity licence is issued
  • If it is evident from the submitted documents and information that the risks related to the services planned in the business plan of the applicant are not sufficiently covered and the organisational structure and management structure of the applicant are not sufficient for operating as a payment institution or e-money institution with continuity and its internal procedures and internal control do not ensure sufficient risk management, the FSA may, in addition to the measures mentioned above, establish secondary conditions to the applicant upon the issue of an activity licence in order to protect the interests of the clients, which:

  • restrict the provision of payment services or e-money services or relevant ancillary services;
  • require the foundation of a separate subsidiary for the provision of non-payment services which are provided at the same time as payment services
  • A decision regarding an activity licence contains at least the following information:

  • the name and registry code of the person with regard to whom the decision is made;
  • the type or types of services with regard to which the decision is made;
  • the date on which the decision is made and the date on which it enters into force
  • The FSA is obliged to deliver a decision to issue or refuse to issue an activity licence to the applicant immediately.

    2.2.4.16. Bases for Refusal to Issue Activity Licence

    The FSA has the right to refuse to issue an activity licence to an applicant if:

  • the applicant does not meet the requirements for payment institutions or e-money institutions of PIEMIA or legislation issued on its basis;
  • the resources for full payment of the share capital of a company being founded are not proved;
  • the applicant does not have the necessary funds or experience to operate as a payment institution or e-money institution with continuity;
  • the minimum amount of own funds of the applicant, which is calculated taking account of the obligations planned in the business plan, does not comply with the requirements established by legislation regarding payment institutions or e-money institutions;
  • the managers, auditor or shareholders of the applicant do not meet the requirements provided for in PIEMIA or legislation established on its basis;
  • close links between the applicant and another person prevent sufficient supervision over the applicant, or the requirements arising from legislation or the implementation of legislation of the other state where the person with whom the applicant has close links is established prevent sufficient supervision over the applicant;
  • the information submitted by the applicant indicates that the applicant mainly plans to operate in another EEA state;
  • the internal rules are not sufficiently accurate or unambiguous for regulation of the activities of the payment institution or e-money institution;
  • the applicant or its manager has been punished for an economic offence, official misconduct, offence against property or offence against public trust or financing and support of act of terrorism or activities directed at it, or the corresponding information concerning the punishment has not been expunged from the punishment register
  • Among other matters taken into consideration are:

  • the level of the organisational and technical administration of the activities of the applicant;
  • the educational background of the persons connected with the management of the applicant, their work experience, business connections, trustworthiness and reputation;
  • the adequacy and sufficiency of the business plan;
  • the activities, financial situation, reputation and experience of the applicant, its parent company and persons belonging to the same consolidation group as the applicant
  • 2.2.4.17. Termination of Validity of Activity Licence

    The validity of an activity licence terminates if:

  • a decision to dissolve the payment institution or e-money institution is made;
  • the activity licence is revoked;
  • payment institutions or e-money institutions are merged, in the case of an institution being acquired;
  • a new payment institution or e-money institution is founded by merger, in the case of institutions that are merging;
  • the payment institution or e-money institution is declared bankrupt
  • 2.2.4.18. Revocation of Activity Licence

    The FSA may revoke an activity licence if:

  • the payment institution or e-money institution fails to commence activities within twelve months as of the issue of the activity licence or if an act by the founders of the payment institution or e-money institution indicates that the payment institution or e-money institution will be unable to commence activities within the specified term or the activities of the payment institution or e-money institution are suspended for more than six consecutive months;
  • the payment institution or e-money institution has submitted false information upon application for the activity licence which was of significant importance in the decision to issue the activity licence, and also in other cases where false information has been submitted to the FSA by or for the payment institution or e-money institution;
  • the payment institution or e-money institution does not meet the requirements in force with regard to the issue of activity licences;
  • it becomes evident that the managers, auditor or shareholders of the applicant do not meet requirements of PIEMIA or other relevant legislation;
  • the payment institution or e-money institution has repeatedly or significantly violated the provisions of legislation regulating their activities;
  • the payment institution or e-money institution or its manager has been punished for an economic offence, official misconduct, offence against property or offence against public trust or financing and support of act of terrorism or activities directed at it, or the corresponding information concerning the punishment has not been expunged from the punishment register;
  • the payment institution or e-money institution fails to comply with secondary conditions established by the FSA;
  • the payment institution or e-money institution has published significantly incorrect or misleading information or advertising concerning its activities or managers;
  • the payment institution or e-money institution is unable to perform the obligations it has assumed or if, for any other reason, its activities significantly damage the interests of clients, currency circulation, functioning of the money markets or stability of the payment system;
  • the amount of own funds of the payment institution or e-money institution does not meet the requirements provided for in PIEMIA or legislation established on its basis;
  • the payment institution or e-money institution belongs to a consolidation group the structure of which prevents the receipt of information necessary for supervision on a consolidated basis, or if a company which belongs to the same consolidation group as the payment institution or e-money institution operates on the basis of legislation of a foreign state, which prevents the exercise of sufficient supervision;
  • close links between the payment institution or e-money institution and other persons prevent the exercise of sufficient supervision;
  • the payment institution or e-money institution has committed money laundering or financed or supported an act of terrorism or violates the procedure for preventing money laundering and terrorist financing established by legislation;
  • it becomes evident that the payment institution or e-money institution has chosen Estonia as the place for application for the activity licence and registration in order to evade compliance with stricter requirements established for payment institutions or e-money institutions in EEA state where the payment institution or e-money institution mainly operates;
  • according to the information submitted to the FSA by the financial supervision authority of EEA state or a third country, the payment institution or e-money institution has violated the conditions provided for in the legislation of the EEA state or the third country or established by the financial supervision authority of the EEA state or the third country;
  • the payment institution or e-money institution has failed to implement a precept of the FSA within the term or to the extent prescribed
  • Prior to deciding on the revocation of an activity licence, the FSA may issue a precept to the payment institution or e-money institution and set a term for elimination of the deficiencies which are the reasons for the revocation.

    An activity licence may also be revoked on the basis of an application of a payment institution or e-money institution if it no longer wishes to provide the services regulated by PIEMIA.

    The FSA may refuse to revoke an activity licence following the application, if there is good reason to believe that revocation of the activity licence may damage the legitimate interests of clients or other creditors of the payment institution or e-money institution. An application for the revocation is reviewed and a decision is made by the FSA within two months from receipt.

    The decision on revocation of an activity licence is delivered to the addressee of the decision immediately.

    Decisions of the FSA on the issue, amendment or revocation of an activity licence and authorisations to establish a branch in a third country or to establish a branch or provide cross-border services in Estonia are published on the FSA’s website not later than on the working day following the day the decision enters into force.

    2.2.5. Application for Exemption

    In order to receive an authorisation as an exempt payment or e-money institution , a company being founded or an operating company (the applicant) is required to submit to the Financial Supervision Authority a written application together with the information and documents (the application), which prove that the relevant conditions are met.

    The application must also contain a business plan for at least three years , which must include a description of the character of the planned business activities, organisational structure, internal control system and management structure of the applicant, a description of the rights, obligations and liability related to the provision of planned services and also a description, forecast and analysis of the following factors:

  • the amount of revenue and expenditure by area of activity;
  • obligations related to the provision of payment services or e-money services;
  • the size of the assets and share capital of the applicant;
  • the level of the technical administration of the activities of the applicant;
  • strategy and market share in which the applicant proposes to engage in activities;
  • the planned activities, provided services and offered products, the potential agents or distributors, and clients and competitors;
  • plans regarding annual balance sheets and financial indicators which, inter alia, set out revenue, expenditure, profit and cash flows, and the presumptions which constitute the basis thereof;
  • general principles and strategy of risk management;
  • investment policy
  • In order to verify the justification of an application, the Financial Supervision Authority may demand additional information and documents, perform on-site inspections, consult state databases and obtain oral explanations from the managers and auditors of the applicant, their representatives and, if necessary, third parties.

    If, based on the submitted application, it is evident that the risks related to the services planned in the business plan are not sufficiently covered or the internal procedures and internal control of the company do not ensure sufficient risk management, the Financial Supervision Authority may establish obligatory secondary conditions to the applicant upon issue of an authorisation in order to protect the interests of the clients of the applicant, and the Financial Supervision Authority may also determine which services may be provided by the applicant.

    2.2.5.1. FSA Exemption Decision Timescale

    The Financial Supervision Authority makes a decision to grant or refuse an authorisation within one month after the receipt of all the necessary information and documents, but not later than within three months after the receipt of the application.

    The Financial Supervision Authority has the right to refuse to grant an authorisation if:

  • the information and documents submitted upon application do not prove compliance with the required conditions;
  • misleading information or documents or incorrect information or falsified documents have been submitted upon the application for authorisation
  • The Financial Supervision Authority is obliged to deliver a decision regarding the granting or refusal of an authorisation or the revocation of an authorisation to the applicant immediately.

    The Financial Supervision Authority will publish a decision to grant, amend or revoke an authorisation on its website not later than on the working day following the day the decision is made. The Financial Supervision Authority will additionally publish the decision to revoke an authorisation in at least one national daily newspaper.

    2.2.5.2. After the Grant of Exemption Authorisation

    The Financial Supervision Authority may, by its precept, demand that the activities of a company exercising the right of exemption be brought into compliance with the provisions of PIEMIA or revoke an authorisation if:

  • it becomes evident that the information and documents submitted upon application do not prove compliance with the required conditions or that misleading information or documents or incorrect information or falsified documents have been submitted upon the application for authorisation;
  • the company has repeatedly or significantly violated the provisions of legislation regulating its activities;
  • the company has not complied with the secondary conditions established by the Financial Supervision Authority;
  • violation of the requirements provided for in the Money Laundering and Terrorist Financing Prevention Act becomes evident
  • A company exercising the right of exemption is required to bring its activities into compliance with the provisions of PIEMIA not later than by the due date specified by the Financial Supervision Authority or terminate the provision of payment services or e-money services.

    A company holding an authorisation is obliged to notify the Financial Supervision Authority of significant changes in the circumstances which were the basis for the issue of the authorisation immediately upon becoming aware of them.

    If the conditions which were the basis for granting the authorisation are no longer met, the company must, at the request of the Financial Supervision Authority, submit an application for an activity licence for payment institutions or e-money institutions within 30 days or terminate the provision of the services. If the company continues to provide payment services or e-money services without the activity licence for payment institutions or e-money institutions, the Financial Supervision Authority may file a petition with the court for the compulsory dissolution of the company.

    2.2.6. Obligation to Notify the Financial Supervision Authority

    A payment or e-money institution is required to notify the FSA immediately of any changes to information or circumstances which constituted the basis for issue of the activity licence of the payment or e-money institution and to submit the following information and documents:

  • the business name or address of the seat of the payment or e-money institution or, in the case of changes in details, a new business name, address of the seat and new details;
  • upon changes in the articles of association, the amendments to and the amended text of the articles of association;
  • upon changes in the procedure or rules determined by the internal rules, the amended internal rules;
  • upon a change of managers, information about the managers (see the relevant section above or § 15(1) 14) of PIEMIA);
  • upon a change of auditors, information about the auditors (see the relevant section above or § 15(1) 16) of PIEMIA);
  • circumstances which affect or may significantly affect the financial situation of the payment or e-money institution;
  • other information prescribed by PIEMIA
  • The management board of a payment or e-money institution is to notify the FSA of a general meeting or a meeting of the supervisory board at least two weeks in advance. Notice of a special general meeting is to be given at least one week in advance, if possible.

    2.2.7. Use of Agents

    An agent is a natural or legal person who is a representative of a payment institution acting on the basis of an authorisation and who may provide the payment services. Such activity may be an ancillary activity of an agent.

    A payment institution which intends to provide its services through an agent is to submit the following information and documents to the FSA:

  • the name of the agent or names of the persons connected with the management of the agent;
  • the address of the agent;
  • a description of internal control measures applied by the agent in order to comply with requirements arising from the Money Laundering and Terrorist Financing Prevention Act;
  • information certifying the trustworthiness of the agent or the persons connected with the management of the agent
  • The FSA may demand the submission of additional information and documents in order to protect interests and rights of clients of the payment institution if it is not convinced on the basis of the information and documents supplied as to whether the agent has adequate facilities for the provision of services or whether it meets the requirements for an agent of a payment institution or if other circumstances relating to the agent need to be verified.

    Only an agent put on the list of agents is permitted to operate as an agent, and a payment institution is only permitted to use the services of an agent, if their names appear on this list.

    The list is displayed on the website of the Financial Supervision Authority.

    An agent is entered in and deleted from the list by the Financial Supervision Authority.

    The FSA may issue to a payment or e-money institution a percept requiring withdrawal of the right to provide services granted to an agent or distributor if the legitimate interests of clients of the payment or e-money institution are violated or there is a danger of such violation.

    2.2.7.1. Requirements for an Agent of a Payment Institution

    Agents who are natural persons and members of the management board of agents who are companies are required to have impeccable professional and business reputation.

    The following are prohibited from operating in the capacity of an agent:

  • persons whose activities have resulted in the bankruptcy or compulsory liquidation of the company or the revocation of the activity licence;
  • persons who are subjected to a prohibition on business;
  • persons whose activities have shown that they are not capable of organising the management of a company such that the interests of the shareholders, members, creditors and clients of the company are sufficiently protected;
  • persons who have been punished for an economic offence, official misconduct, offence against property or offence against public trust or financing and support of act of terrorism or activities directed at it, and whose corresponding information concerning the punishment has not been expunged from the punishment register
  • 2.2.8. Operation of a Payment or E-money Institution in a Foreign State

    A payment or e-money institution founded in Estonia and holding an activity licence may provide the services in a foreign state by establishing branches or providing cross-border services, including through an agent or distributor.

    Upon provision of services in a foreign state, a payment or e-money institution is obliged to comply with requirements of PIEMIA, legislation issued on its basis and legislation of the foreign state.

    2.2.8.1. Setting up a Branch in a Third Country

    A payment or e-money institution which wishes to found a branch in a third country is required to apply for a respective authorisation (authorisation for foundation of a branch ) from the Financial Supervision Authority.

    In order to apply for an authorisation for the foundation of a branch in a third country, a payment institution or e-money institution is to submit to the FSA a written application and the following information and documents:

  • the name of the third country in which the branch is to be founded;
  • the address of the seat of the branch in the third country;
  • a business plan for the activities of the branch in the third country, which complies with requirements of PIEMIA;
  • information on the managers of the branch (for details see the Application for Activity Licence section above)
  • The information and documents mentioned above are to be submitted in Estonian. At the request of the FSA, the information and documents are to be submitted together with a translation made by a sworn translator or certified by a notary into the official language or one of the official languages of the third country where the payment or e-money institution wishes to set up a branch (§ 25(3) of PIEMIA).

    Processing of Application and Decision on the Issue of Authorisation

    The processing of applications for an authorisation for the foundation of a branch and verification of the submitted information and the financial situation, organisational structure and technical systems of the applicant and existence of sufficient resources for the foundation of a branch will be carried out in accordance with the same procedure as that applied to the processing of applications for activity licences.

    The FSA makes a decision to grant or refuse an authorisation for the foundation of a branch within two months after the receipt of all the necessary information and documents, but not later than within three months after the receipt of the respective application.

    A decision of the FSA to grant or refuse an authorisation for the foundation of a branch will be communicated to the payment institution or e-money institution without delay.

    Bases for Refusal to Grant Authorisation for Foundation of Branch

    The FSA may refuse an authorisation for the foundation of a branch if:

  • the managers of the branch do not meet the requirements for managers of payment or e-money institutions;
  • the information or documents submitted upon application for an authorisation for the foundation of a branch do not meet the requirements of PIEMIA or legislation established on its basis, or are inaccurate, misleading or incomplete;
  • the financial situation, organisational structure and other resources of the payment or e-money institution are insufficient for the provision of services specified in the business plan in third countries;
  • the foundation of the branch in a third country or implementation of the business plan submitted by the payment or e-money institution may damage the payment or e-money institution, the interests of the shareholders of the payment or e-money institution, the financial situation of the payment or e-money institution or adversely affect the reliability of its activities in Estonia, in another EEA State or in a third country;
  • a financial supervision authority of a third country has no legal basis or possibilities for cooperation with the FSA due to which the FSA cannot exercise sufficient supervision over the branch founded in the third country
  • Revocation of Authorisation for Foundation of Branch

    The FSA may revoke an authorisation for the foundation of a branch in a third county if:

  • the payment or e-money institution has submitted false information upon application for the authorisation for foundation of a branch which was of significant importance in the decision to grant the authorisation, and also in other cases where false information has been submitted to the FSA by or for the payment institution or e-money institution;
  • the payment or e-money institution has significantly violated the requirements of legislation of the relevant third country and it may damage the interests of clients of the payment or e-money institution;
  • the payment or e-money institution or its branch does not comply with the requirements in force with regard to the issue of authorisations for the foundation of a branch;
  • the payment or e-money institution fails to submit reports on its branch as required;
  • the manager of the payment or e-money institution or its branch has been punished for an economic offence, official misconduct, offence against property or offence against public trust or financing and support of act of terrorism or activities directed at it, or the information concerning the punishment has not been expunged from the punishment register;
  • the payment or e-money institution has failed to implement a precept of the FSA within the term or to the extent prescribed;
  • the risks arising from the activities of the branch are significantly greater than risks arising from the activities of the payment institution or e-money institution;
  • the activity licence of the payment institution or e-money institution has been revoked;
  • the circumstances which form the basis for refusal of authorisation become evident (see the subsection above)
  • The FSA will inform the payment or e-money institution and the financial supervision authority of a third country of its decision to revoke an authorisation for the foundation of a branch without delay.

    After becoming aware of revocation of an authorisation for the foundation of a branch, the payment or e-money institution must terminate the provision of services through the branch founded in the third country not later than by the due date specified by the FSA.

    2.2.8.2. Setting up a Branch in an EEA State

    A payment or e-money institution which wishes to set up a branch in another EEA State is obliged to inform the FSA of its intention and submit the following information and documents:

  • the name of the EEA State in which the branch is to be opened;
  • the names of the managers of the branch;
  • the address of the seat of the branch in the EEA State;
  • the business plan of the branch containing information on all the services intended to be provided in the EEA State and describing the organisational structure of the branch and the fact whether the branch intends to use agents and if an agent exists, the personal data of the agent
  • The information and documents mentioned above are to be submitted in Estonian. At the request of the FSA, the information and documents are to be submitted together with a translation made by a sworn translator or certified by a notary into the official language or one of the official languages of the EEA State where the payment institution or e-money institution wishes to found a branch.

    If a payment or e-money institution wishes to use an agent founded in another EEA State, the use of an agent is deemed equal to foundation of a branch and the provisions regulating the foundation and activities of branches apply.

    Decision on the Issue of Authorisation

    The FSA makes a decision to forward or refuse to forward the information and documents to the financial supervision authority of the EEA State within one month after the receipt of all the required information and documents. The FSA will inform the payment institution or e-money institution of its decision without delay.

    The payment or e-money institution is obliged to inform the FSA of changes in the relevant information or documents, if possible, at least one month before the entry into force of the changes or immediately after it.

    Bases for Refusal to Review the Application

    The FSA may refuse to review submitted information and documents if:

  • the information or documents submitted for forwarding do not meet the requirements of PIEMIA or are incomplete;
  • the information or documents required by the FSA have not been submitted within the prescribed term
  • Bases for Refusal to Proceed

    The FSA may make a decision to refuse to forward the information and documents submitted by the applicant if:

  • the financial situation, organisational structure or other resources of the payment or e-money institution are insufficient for the provision of services specified in the action plan in the EEA State;
  • the foundation of the branch or implementation of the action plan submitted by the payment or e-money institution may damage the interests of its clients, the financial situation of the payment or e-money institution or adversely affect the reliability of its activities;
  • the information or documents submitted for forwarding are incorrect, misleading or incomplete
  • The FSA may prohibit, by a precept, provision of services by a payment institution or e-money institution through a branch founded in another EEA State if:

  • the same bases as for the refusal to forward information and documents become evident;
  • the financial supervision authority of the EEA State has informed the FSA that the payment or e-money institution has committed a violation of the conditions provided for in the legislation of the EEA State or established by the financial supervision authority of the EEA State
  • The FSA will deliver the precept to the payment or e-money institution without delay. The payment or e-money institution is required to terminate the provision of its services through the branch founded in the EEA State by the due date specified by the FSA.

    2.2.8.3. Provision of Cross-border Services

    A payment or e-money institution which intends to provide cross-border services in a foreign state is to inform the FSA accordingly and submit the following information and documents:

  • the name of the state where it intends to provide cross-border services;
  • a description of the planned cross-border services containing information on the provision of the services and intended use of agents and if an agent exists, personal data of the agent
  • The information and documents are to be submitted in Estonian. At the request of the FSA, the information and documents are to be submitted together with a translation made by a sworn translator or certified by a notary into the official language or one of the official languages of the foreign state where the payment institution or e-money institution wishes to provide cross-border services.

    Decision on the Issue of Authorisation

    The FSA makes a decision to forward or refuse to forward the information and documents to the financial supervision authority of the EEA State within one month after receipt of all the required information and documents. The FSA will immediately inform the payment or e-money institution of its decision.

    The payment or e-money institution is obliged to inform the FSA of changes in the relevant information or documents, if possible, at least one month before they enter into force or immediately after it.

    Bases for Refusal to Review the Application

    The FSA may refuse to review the information and documents if these:

  • do not meet the requirements provided for in PIEMIA or are incomplete;
  • additional information or documents requested by the FSA have not been submitted within the prescribed term
  • Bases for Refusal to Proceed

    The FSA may make a decision to refuse to forward the information and documents of an applicant if:

  • the information or documents submitted do not meet the requirements provided for in PIEMIA or are inaccurate, misleading or incomplete;
  • the financial situation, organisational structure or other resources of the payment or e-money institution are insufficient for the provision of cross-border services;
  • the provision of cross-border services may damage the interests of clients of the payment or e-money institution, its financial situation or adversely affect the reliability of its activities
  • The FSA may prohibit, by a precept, provision of cross-border services by a payment or e-money institution if:

  • the same bases as for the refusal to forward information and documents become evident;
  • the financial supervision authority of the foreign state has informed the FSA that the payment or e-money institution has committed a violation of the conditions provided for in the legislation of the foreign state or established by the financial supervision authority of the foreign state
  • The FSA will deliver the precept to the payment or e-money institution without delay. The payment or e-money institution is required to terminate the provision of cross-border services in the foreign state by the due date specified by the Financial Supervision Authority.

    2.2.9. Operation of a Foreign Payment Institution or E-money Institution in Estonia

    A person who, according to the legislation of the state where the person is founded (the home state) may provide payment and / or e-money services, may provide the same service in Estonia on the basis of an activity licence issued in the home state by establishing branches or providing cross-border services in Estonia, including through an agent.

    Upon provision of payment or e-money services in Estonia, a person of a foreign state is to comply with requirements established with regard to its activities in PIEMIA and on its basis and other requirements for operation in Estonia arising from legislation.

    2.2.9.1. Branch of a Payment or E-money Institution of a Third Country and Provision of Cross-border Services

    In order to set up a branch or provide cross-border services in Estonia, a payment or e-money institution of a third country is required to apply for an authorisation from the Financial Supervision Authority.

    Upon application for an authorisation, a written application and the following information and documents are to be submitted to the FSA:

  • the name and address of the payment institution or e-money institution;
  • information on the managers of the payment or e-money institution and, in the case of setting up a branch, on the managers of the branch;
  • information and documents relating to shareholders who have qualifying holdings in the payment or e-money institution;
  • the scope of the activity licence issued to the payment institution or e-money institution and information concerning the agency which issued the activity licence;
  • in the case of foundation of a branch, the business name and address of the branch;
  • an official certificate concerning the existence of the company in its home country (extract from a commercial register or a copy of a registration certificate);
  • an authorisation document certifying the authority of the director of the branch or a copy of a resolution appointing the director;
  • a copy of the articles of association or partnership agreement of the company, authenticated according to the laws of the home country, if submission of the articles of association or partnership agreement to a register is also required in the home country of the company;
  • information on the planned principal activity of the branch;
  • data on the telecommunications of the company and the branch (telephone and fax numbers, e-mail and Internet home page address, etc.);
  • the last two annual reports, if they exist;
  • the business plan complying with PIEMIA requirements and setting out all services to be provided by the payment or e-money institution in Estonia;
  • the personal data of the agent, if the agent exists
  • In addition to the information specified above, a payment or e-money institution of a third country is to submit the following to the FSA:

  • the permission of the financial supervision authority of the home state to set up a branch or provide cross-border services in Estonia;
  • the confirmation of the financial supervision authority of the home state to the effect that the payment institution or e-money institution holds a valid activity licence in its home state and that it pursues its activities in a correct manner and in accordance with good practices;
  • information on the financial situation of the payment institution or e-money institution, including the size of own funds and the description of the consumer protection scheme applied with regard to the clients of the payment institution or e-money institution in the home state
  • The information and documents in a foreign language are to be submitted together with a translation into Estonian made by a sworn translator or certified by a notary. However, with the consent of the Financial Supervision Authority, the information and documents may be submitted in another language.

    Processing of Application for Authorisation and Revocation of Authorisation

    The processing of applications for authorisation and verification of information and the grant and revocation of authorisations will be carried out according to the same rules which apply to the processing of applications for activity licence described above (for details see §§ 17–19 of PIEMIA).

    In addition, the FSA may refuse to grant or revoke an authorisation if the financial supervision authority of a third country does not guarantee adequate supervision of the applicant or the financial supervision authority of a third country has no legal basis or possibilities for cooperation with the FSA.

    The FSA may refuse to revoke an authorisation if the clients of the payment or e-money institution have claims against the branch or the payment or e-money institution of a third country or the revocation of the authorisation damages the payment or e-money institution or the interests of its shareholder or clients.

    Amendment of Authorisation

    A payment or e-money institution of a third country which wishes to provide services in Estonia which are not specified in the business plan submitted upon application for authorisation is to submit an application for the amendment of the authorisation to the Financial Supervision Authority.

    In order to amend an authorisation, a payment or e-money institution of a third country is to submit to the FSA the following information and documents:

  • the name and address of the payment or e-money institution;
  • information on the managers of the payment or e-money institution and, in the case of a branch, on the managers of the branch;
  • information and documents relating to shareholders who have qualifying holdings in the payment or e-money institution;
  • the scope of the activity licence issued to the payment institution or e-money institution and information concerning the agency which issued the activity licence;
  • in the case of a branch, the business name and address of the branch;
  • the business plan complying with PIEMIA requirements and setting out all services provided by the payment or e-money institution in Estonia
  • The processing of applications for the amendment of authorisations will be carried out according to the same rules which apply to the processing of applications for activity licence described above (for details see §§ 17–19 of PIEMIA).

    2.2.9.2. Branch of Payment or E-money Institution of an EEA State in Estonia

    A payment or e-money institution of an EEA State which wishes to set up a branch in Estonia is to inform the financial supervision authority of the EEA State about its intention and submit to the authority the following information and documents:

  • the action plan of the branch containing information on all the services intended to be provided in Estonia and describe the organisational structure of the branch and the fact whether the branch intends to use agents and if an agent exists, the personal data of the agent;
  • the business name and address of the branch;
  • the names of managers of the branch
  • The information and documents in a foreign language are to be submitted together with a translation into Estonian made by a sworn translator or certified by a notary. However, with the consent of the Financial Supervision Authority, the information and documents may be submitted in another language.

    The FSA will immediately inform the financial supervision authority of the EEA State of receipt of the information and documents. The FSA may make, within one month after receipt of the aforementioned information and documents, a decision which determines the requirements which the payment institution or e-money institution is required to comply with in Estonia and according to which the payment or e-money institution will be providing its services. The FSA will immediately inform the financial supervision authority of the EEA State of its decision.

    A payment or e-money institution of an EEA State may set up a branch and commence provision of services after the above-mentioned decision is made or one month after the date on which the information and documents were received by the FSA.

    The FSA is to be informed of changes in the relevant information and documents at least one month in advance, if possible. Within one month as of becoming aware of the changes, the FSA may amend the relevant decision or make the aforementioned decision unless it has been made earlier.

    2.2.9.3. Provision of Cross-border Services in Estonia by a Payment or E-money Institution of an EEA State

    A payment or e-money institution of an EEA State which wishes to provide cross-border services in Estonia is to inform the Financial Supervision Authority about its intention through the financial supervision authority of the EEA State. An action plan is to be submitted to the FSA containing information about all the services to be provided in Estonia.

    The information and documents in a foreign language are to be submitted together with a translation into Estonian made by a sworn translator or certified by a notary. However, with the consent of the FSA, the aforementioned information and documents may be submitted in another language.

    After the FSA has received the action plan, the payment or e-money institution of an EEA State may commence the provision of cross-border services in Estonia.

    The FSA will inform the financial supervision authority of the EEA State of receipt of the action plan without delay. The FSA may make, within one month after receipt of the action plan, a decision in which it will determine requirements according to which the payment or e-money institution of the EEA State will be providing its services. The FSA will inform the payment or e-money institution of its decision without delay.

    It is required that the FSA be informed of changes in the information contained in the action plan at least one month in advance, if possible. Within one month as of becoming aware of the changes, the FSA may amend its decision or make the aforementioned decision unless it has been made earlier.

    A payment or e-money institution which provides services in Estonia and whose activity licence has been suspended or revoked by a foreign financial supervision authority may not continue to operate or provide cross-border services in Estonia.

    2.2.10. Outsourcing of Activities Related to Payment or E-money Services

    For the better performance of its duties, a payment or e-money institution has the right to transfer certain activities or duties related to the provision of payment or e-money services to third parties (activity transfer ). In such an event a payment or e-money institution is obliged to notify the FSA.

    Important duties and activities may not be outsourced in such manner which may damage or decrease the capability of the payment or e-money institution to conduct effective internal control or the exercise of sufficient supervision over the payment or e-money institution.

    Important duties or activities are activities the failure to perform or inadequate performance of which would significantly impair the compliance of the payment or e-money institution with the requirements of PIEMIA, the requirements of legislation issued on its basis or with the conditions and obligations of its activity licence, or its financial performance, reliability, or the soundness or the continuity of its services.

    A payment or e-money institution is to establish activity transfer procedure by internal rules and the transfer of important duties is to meet at least the following conditions:

  • the transfer will not result in the delegation by the managers of the payment or e-money institution of its responsibility;
  • it will not damage the interests of clients of the payment or e-money institution and the relationships with clients and obligations to the clients must not be altered due to such transfer;
  • the transfer is not contrary to the conditions which the payment or e-money institution must meet in order to be granted an activity licence and to remain in conformity with it;
  • the transfer will not remove or modify any other conditions based on which the activity licence was granted to the payment or e-money institution
  • Upon the transfer of important duties or any other activities related to the services provided by a payment or e-money institution, including upon the use of agents or distributors, the payment or e-money institution must remain fully responsible for the due performance of the transferred duties and the compliance of the activities with the requirements of PIEMIA.

    A payment or e-money institution is expected to exercise due skill, care and diligence when entering into, performing or terminating any contracts for transfer of important duties and activities related to the services.

    A payment or e-money institution has the right to terminate the contract for activity transfer where necessary giving reasonable advance notice, without damaging the continuity and quality of the provision of services to clients or their legitimate interests.

    The FSA may issue a precept requiring termination of the transfer of activities or duties related to services to a certain person or termination of all contracts for the transfer of activities or duties entered into by the payment or e-money institution with third parties if:

  • the third party lacks the qualifications needed for the performance of the activities or duties of the payment or e-money institution;
  • the legitimate interests of clients of the payment or e-money institution are violated or there is a danger of such violation;
  • the financial supervision authority of a third country which exercises supervision over a person of a third country has no legal basis or possibilities for cooperation with the FSA;
  • a third party to which the activities or duties of the payment or e-money institution are transferred does not comply with the requirements for the performance of the activities or duties transferred to them;
  • other relevant conditions are violated
  • If a financial institution has outsourced an activity to a third party for the purpose of better performance of the obligations related to its economic or professional activities, it is deemed that the third party knows all requirements related to the prevention of money laundering and terrorist financing. The financial institution which outsourced its activities is liable for infringement of the requirements.

    The outsourcing of an activity is permitted only if :

  • it does not harm the justified interests of the financial institution or the person participating in the transaction;
  • it does not impede the activities of the financial institution or performance of the obligations under MLTFPA;
  • it does not impede exercising state supervision over the financial institution;
  • the third party to whom the activities are outsourced has the required knowledge and skills and it is able to fulfil the requirements of MLTFPA;
  • the financial institution has the right and opportunity to check performance of the requirements of MLTFPA by the third party;
  • it is ensured that the documents and records collected for fulfilment of the requirements of MLTFPA are properly kept
  • 2.2.11. Requirements for the Organisation of Accounting by a Payment or E-money Institution

    Accounting and reporting are to be organised in accordance with requirements and relevant rules provided for in PIEMIA, the Accounting Actand other legislation and articles of association and accounting policies and procedures of the payment or e-money institution.

    Accounting must provide truthful information relating to the business activities and the financial situation of the payment institution or e-money institution.

    2.2.12. Reporting Requirements

    A payment or e-money institution is to prepare reports and submit them to the FSA according to the procedure provided for in PIEMIA or legislation issued on its basis.

    A payment or e-money institution is to submit to the FSA the following:

  • the annual report;
  • a copy of the sworn auditor’s report;
  • the proposal for and the resolution on the distribution of profits for the financial year, and
  • an extract of the minutes of the general meeting concerning the approval or refusal to approve the annual report within two weeks after the general meeting of shareholders
  • An exempt payment or e-money institution is to submit to the FSA an overview on the number and total amount of payment transactions concluded or the volume of e-money services and liabilities related to the e-money services during a financial year within one month after the end of the financial year.

    The formats of reports, the methods of preparation and submission procedure are established by a regulation of Estonia's Finance Minister.

    The period for the regular reports to be submitted to the FSA for the supervision purposes is one quarter. A payment or e-money institution is to submit the regular report to the FSA within twenty days after the end of the reporting period. If the last date of submission of the report falls on a public holiday, the report may be submitted no later than on the next working day.

    In addition to the reports mentioned above, the FSA has the right to request specific or regular reports and information necessary for the exercise of supervision.

    Eesti Pank has the right to request additional specific or regular reports from the above-mentioned persons for the performance of duties arising from Eesti Pank Act. The formats of reports, methods of preparation and the procedure for submission of reports are established by Eesti Pank.

    According to § 82-1(3) of PIEMIA, if a person discovers an error in the information submitted to the FSA for supervision purposes or the accounting policies of the previous accounting periods have changed, such a person will be required to make the necessary corrections and re-submit the report to the FSA.

    A person who submitted a report for supervision purposes is required to preserve the documents which are the source of the information used in the preparation of the report for at least five years.

    2.2.12.1. Information Disclosure

    The annual report is to be available at the seat of a payment or e-money institution, in all of their branches and on the website. If a payment or e-money institution does not have its own website, it will be obliged to submit the report subject to disclosure to the FSA for its disclosure on the website of the FSA.

    A branch of a foreign payment or e-money institution is to disclose the annual report which has been prepared according to the legislation of the country of the seat of the payment or e-money institution and translated into Estonian.

    The annual report is to be disclosed within six months after the end of the financial year.

    Together with the annual report a payment or e-money institution is required to submit to the FSA information concerning persons who, as at the end of the financial year, have a qualifying holding in the payment or e-money institution setting out the size of holding owned by the person and related circumstances (for details see §§ 9, 10 and 72-1 of the Securities Market Act).

    The list of information subject to additional disclosure, the formats of reports, methods of preparation and the terms for the disclosure of reports of payment and e-money institutions may be established by a regulation of the Minister of Finance.

    According to § 107 of PIEMIA, refusal or failure to submit on time reports, documents, explanations or other information necessary for supervision, or submission of incorrect or insufficient information or violation of the obligation to disclose information or submission of information in a manner which does not permit exercise of supervision is punishable by a fine of up to 300 fine units. The same act, if committed by a legal person , is punishable by a fine of up to 32,000 euros.

    2.2.13. Audit Requirements

    It is required that annual accounts of a payment, e-money or an exempt institution be audited.

    In the course of auditing a payment or e-money institution, an auditor will be auditing the following areas before submitting its opinion to the payment or e-money institution and the FSA:

  • the compliance of the results of valuation of assets with the actual value of the assets;
  • the compliance with the requirements established with regard to own funds;
  • the sufficiency and efficiency of the internal control measures;
  • the security of the information systems
  • In addition, the payment institution is required to submit to the FSA a special report of the auditor concerning the payment services, the ancillary services and other activities not related to the provision of payment services (§ 5(2) of PIEMIA), in particular the payment volume, amount and fees. The report is to be submitted to the FSA together with the annual report.

    2.2.13.1. Appointment of Auditor

    Only a trustworthy person with adequate expertise and experience may be appointed auditor of a payment or e-money institution.

    The auditor of a payment institution or e-money institution may be appointed to conduct a single audit or for a specific term of up to five years. It is prohibited to re-appoint the same auditor appointed for five years for another five-year term running.

    A payment or e-money institution is required to inform the FSA of its intention to appoint an auditor , and of their resignation or the initiation of their removal before the expiry of their term of office at least ten days before making the corresponding decision or immediately after the receipt of the corresponding application.

    An auditor may be appointed by a court of the seat of the payment or e-money institution on the basis of a petition of the FSA if:

  • the general meeting has not appointed an auditor;
  • the auditor appointed by the general meeting refuses to conduct an audit;
  • in the opinion of the FSA, the auditor is no longer trustworthy
  • The authority of a court-appointed auditor will continue until appointment of a new auditor by the general meeting.

    2.2.14. Requirements for Prevention of Money Laundering and Terrorist Financing
    2.2.14.1. Obligation to Apply Due Diligence Measures

    In economic or professional activities financial institutions are obliged to pay special attention to the activities of a person participating in a transaction or of a customer and to circumstances that refer to money laundering or terrorist financing or the connection of which with money laundering or terrorist financing is probable, including to complex, high-value and unusual transactions which do not have any reasonable economic purpose.

    Customer due diligence is one of the main tools for ensuring the implementation of legislation aimed at preventing money laundering and terrorist financing and at applying sound business practices. Customer due diligence comprises a set of activities and practices arising from the organisational and functional structure of a financial institution and described in internal procedures approved by its directing bodies and the implementation of which is subject to control systems established and applied by internal control rules.

    Customer due diligence is aimed at applying the Know-Your-Customer principle , under which a customer must be identified and the appropriateness of transactions must be assessed based on the customer’s principal business and prior pattern of payments. In addition, customer due diligence serves to identify unusual circumstances in the operations of a customer or circumstances whereby an employee of the obligated person has reason to suspect money laundering or terrorist financing.

    Customer due diligence must ensure the application of adequate risk management measures in order to ensure constant monitoring of customers and their transactions and the gathering and analysis of relevant information. Upon applying the customer due diligence measures, a financial institution may follow the principles compatible with its business strategy and, based on prior risk analysis and depending on the nature of the customer's business relationships, apply customer due diligence to a different extent.

    Financial institutions are to take due diligence measures at least :

  • upon establishment of a business relationship;
  • upon carrying out or mediating, on an occasional basis, transactions the value of which exceeds 15 000 euros or an equal amount in another currency, regardless of whether the financial obligation is performed in the transaction in a single payment or in several linked payments, unless otherwise provided by law;
  • upon suspicion of money laundering or terrorist financing, regardless of any derogations, exceptions or limits provided by law;
  • when the documents or data gathered earlier while identifying and verifying a person or while updating the respective data prove to be deficient or there is doubt about the veracity of the documents or data
  • Due Diligence Measures

    Financial institutions are to take the following due diligence measures before establishment of any business relationship or carrying out any transaction , unless otherwise provided by MLTFPA:

  • identification of the customer or the person participating in the transaction on the basis of documents and data submitted by him or her and verification of the submitted information on the basis of information obtained from a reliable and independent source;
  • identification and verification of the representative of the natural person or of the legal person and the right of representation;
  • identification of the beneficial owner, including gathering information about the ownership and control structure of the legal person, trust, civil law partnership or other contractual legal arrangement on the basis of information provided in pre-contractual negotiations or obtained from another reliable and independent source;
  • obtaining information on the purpose and nature of the business relationship and transaction
  • Financial institutions are required to conduct the monitoring of the business relationship, including the monitoring of transactions carried out during the business relationship, regular verification of data used for identification, updating relevant documents, data or information and, if necessary, identification of the source and origin of funds used in the transaction

    Financial institutions are obliged to take any and all due diligence measures mentioned above, but may choose the appropriate scope of taking of the due diligence measures based on the nature of the business relationship or transaction or the risk level of the person participating in the transaction or professional operation, the person using a professional service or the customer.

    In their economic or professional activities financial institutions are to pay special attention to business relations and transactions if the place of residence or seat of the customer or the person participating in transaction or the person using the professional service or the seat of the provider of the payment service of the beneficiary is in a third country or in a territory where sufficient measures for preventing money laundering and terrorist financing have not been taken or if the country or territory is not engaged in international cooperation for prevention of money laundering and terrorist financing or if it is a low tax rate territory.

    If a financial obligation is performed in a transaction in several linked payments and the total amount of these payments is unknown, the person must be identified and verified as soon as it becomes evident that the amount exceeds 15 000 euros.

    Upon opening of an account with a financial institution or upon the first use of another service by a person with whom a financial institution has no business relationship, the person participating in the transaction or using the service is to be identified while being physically present.

    A financial institution is prohibited from establishing a business relationship or carrying out a transaction in excess of 15 000 euros if a person participating in the transaction or professional operation, a person using professional services or a customer, regardless of the respective request, does not submit the documents or relevant information required for complying with the due diligence measures or if on the basis of the documents submitted the financial institution has reasonable doubt that the situation may constitute money laundering or terrorist financing.

    A financial institution is also obliged to open an account and keep the account only in the name of the account holder. A financial institution is prohibited from concluding a contract or making a decision on opening of an anonymous account.

    A financial institution may exceptionally, at the request of a person participating in a transaction, open an account before the full taking of due diligence measures on the condition that the account is debited after the full taking of the required due diligence measures and the first payment relating to the transaction is made through an account of the same person, which has been opened with a credit institution that operates in an EEA state or in a country where requirements equal to those provided for in MLTFPA are in force.

    The identification requiring physical presence is not mandatory if:

  • the person who wishes to establish a business relationship with a financial institution is a credit institution, insurer, management company, an investment fund established as a legal person or an investment firm who has been granted an authorisation or another equal licence for the provision of a financial service in an EEA state or a third country, which is subject to requirements equal to those provided for in MLTFPA and the adherence thereto is subject to state supervision;
  • a credit institution or a financial institution establishes a correspondent relationship, or
  • a person who wishes to establish a business relationship with a financial institution has been identified and verified by another credit or financial institution, and upon identifying the person, the financial institution relies on written information and documents which it has received from that other credit institution or financial institution
  • A financial institution that is supervised by the Financial Supervision Authority may, upon opening of an account or if another service is used for the first time by a natural person with whom the financial institution does not have a business relationship, identify the person participating in the transaction or using the service without being present in the same place on the basis of a document issued by the Republic of Estonia for digital identification if:

  • the payment transaction relating to the transaction or provision of the service comprises the transfer of money within Estonia and the total amount per calendar month does not exceed 2000 euros until the taking of the above-mentioned due diligence measures, and
  • until the taking of the due diligence measures, the financial institution will not provide third parties with authorisation or authentication services with regard to this person
  • Upon provision of currency exchange services , a provider of currency exchange services is to identify and verify all persons participating in the transaction if the amounts exchanged in cash either in a single transaction or linked transactions exceed 6400 euros or an equal amount in another currency.

    Upon provision and mediation of a service, a provider of payment services is to identify all customers who make or receive money transfers through the provider of payment services.

    Financial institutions are obliged to take due diligence measures in an agency, branch or subsidiary where they have a majority shareholding and which is located in a third country and to keep relevant records for no less than five years after termination of the business relationship.

    If the risk level of a customer or a person participating in a transaction is low, a financial institution may apply simplified due diligence measures , but is not allowed to skip customer due diligence entirely. If the risk level arising from a customer or a person participating in a transaction is high, enhanced due diligence measures must be applied.

    Simplified Due Diligence Measures

    Financial institutions may take simplified due diligence measures if a person participating in a transaction carried out in economic or professional activities or a customer is:

  • a legal person governed by public law founded in Estonia;
  • a governmental authority or another authority performing public functions in Estonia or an EEA state;
  • an authority of the European Community;
  • a company of an EEA state or a third country, which is subject to requirements equal to those provided for in MLTFPA and whose securities are traded in a regulated securities market in one or several EEA states;
  • a credit or financial institution, a credit or financial institution located in an EEA state or in a third country, which in the country of location is subject to requirements equal to those provided for in MLTFPA and the performance of which is subject to state supervision
  • An electronic money institution may take simplified due diligence measures if an electronic money device does not allow for reloading and the amount saved in one electronic money device does not exceed 250 euros.

    Financial institutions may take simplified due diligence measures in a transaction if all of the following conditions have been fulfilled:

  • a written contract has been concluded with a customer for an indefinite period;
  • a payment is made through the account of a customer or a person participating in a transaction, which has been opened with a credit institution or a branch of a foreign credit institution registered in the Estonian commercial register or with a credit institution which has been registered or has its place of business in an EEA state or in a country where requirements equal to those provided for in MLTFPA are in force;
  • the financial institution has established by rules of internal procedure beforehand that the annual total value of performance of financial obligations arising from transactions of such type does not exceed the maximum limit of 15 000 euros ;
  • the financial institution registers at least the following data with regard to a customer:
  • the name and the representative’s name;
  • the personal identification code or, upon absence of a personal identification code, the date and place of birth;
  • the name and number of the document used upon identification and verification of persons, and its date of issue and the name of the agency which issued the document;
  • the name of the document used upon identification and verification of the right of representation, and its date of issue and the name of the issuer
  • The criteria of the low risk of money laundering or terrorist financing with regard to certain persons or transactions in the event of which simplified due diligence measures may be taken is established by a regulationof Estonia's Finance Minister.

    Enhanced Due Diligence Measures

    If the nature of a situation involves a high risk of money laundering or terrorist financing, a financial institution is to take enhanced due diligence measures.

    Financial institutions are to take the enhanced due diligence measures if:

  • a person participating in a transaction performed in economic or professional activities, a person participating in a professional operation, a person using a professional service or a customer has been identified and verified without being present at the same place as the person or customer;
  • upon identification or verification of a person suspicion arises regarding the truthfulness of the data or authenticity of the documents submitted or regarding the identification of the beneficial owner or beneficial owners;
  • a person participating in a transaction performed in economic or professional activities, a person participating in a professional operation, a person using a professional service or a customer is a politically exposed person or their family member or close associate
  • In the events mentioned above, a financial institution, in addition to standard due diligence measures, is to take at least one of the following enhanced due diligence measures:

  • identification and verification of a person on the basis of additional documents, data or information, which originates from a reliable and independent source or from a credit institution or a branch of a credit institution registered in the Estonian commercial register or from a credit institution, which has been registered or has its place of business in an EEA state or in a country where requirements equal to Estonia's MLTFPA are in force, and if in such credit institution the person has been identified while being present at the same place as the person;
  • taking additional measures for the purpose of verifying the authenticity of documents and data contained in those documents, among other things, demanding that they be notarised or officially authenticated or confirmation of the correctness of the data by a credit institution meeting the above-mentioned conditions, which issued the document;
  • making the first payment relating to a transaction through an account opened in the name of a person or customer participating in the transaction with a credit institution which has its place of business in an EEA state or in a country where requirements equal to those provided for in MLTFPA are in force
  • Financial institutions are responsible for the proper taking of due diligence measures.

    2.2.14.2. Obligation to Appoint a Compliance Officer

    The management board of a financial institution or the head of a branch of a foreign financial institution registered in the Estonian commercial register is obliged to appoint a person to act as the contact person for the Financial Intelligence Unit (a compliance officer ).

    Only a person who has the education, professional suitability, abilities, personal characteristics and experience required for performance of duties of a compliance officer and impeccable reputation may be appointed as a compliance officer. Before the appointment of a compliance officer and during performance of the compliance officer’s duties, the Financial Intelligence Unit (FIU) has the right to receive information from the compliance officer, their employer and state databases for the purpose of verifying the compliance officer’s background and suitability. If a structural unit performs the duties of a compliance officer, requirements for a compliance officer apply to each employee of the structural unit.

    An employee or a structural unit may perform the functions of the compliance officer. If a structural unit performs the duties of the compliance officer, the head of the respective structural unit will be responsible for the performance of the given duties. The competent supervision authority is to be notified of the appointment of a compliance officer.

    The organisational structure of financial institutions is to be suitable for the performance of MLTFPA requirements and ensure direct subordination of the compliance officer to the management board of a financial institution.

    The management board of a financial institution or the head of the branch of a foreign financial institution registered in the Estonian commercial register is to ensure that the compliance officer has the competence, means and access to relevant information required for the performance of his / her functions in all structural units of the financial institution.

    The functions of a compliance officer are as follows:

  • organisation of the collection and analysis of information concerning unusual transactions or transactions suspected of money laundering or terrorist financing in the activities of the financial institution;
  • notification of the FIU in the event of suspicion of money laundering or terrorist financing;
  • periodic submission of written statements on implementation of the rules of procedure to the management board of the financial institution or the head of the branch of the foreign financial institution registered in the Estonian commercial register;
  • performance of other obligations, which are related to the fulfilment of MLTFPA requirements by the financial institution
  • The compliance officer has the right to:

  • make proposals to the management board of the financial institution or the head of the branch of a foreign financial institution registered in the Estonian commercial register for amending or modifying the rules of procedure containing requirements for the prevention of money laundering and terrorist financing, or for organising AML training;
  • demand that the structural units of the financial institution eliminate within a reasonable term the deficiencies detected in the implementation of the requirements for the prevention of money laundering and terrorist financing
  • If unusual circumstances or circumstances whereby an employee of the obligated person suspects money laundering or terrorist financing become evident in relationships with a customer, the compliance officer appointed by the executive / management board must be immediately informed about that and the compliance officer will decide the immediate forwarding of the information to the FIU and the need to postpone or refuse to make the transaction. In a situation that entails a high risk of money laundering or terrorist financing, an employee of a financial institution may decide to postpone the transaction and thereafter inform the compliance officer of the situation.

    2.2.14.3. Obligation to Notify the Financial Intelligence Unit

    If, upon performance of economic activities or provision of services, a financial institution identifies an activity or circumstances which might be an indication of money laundering or terrorist financing or an attempt of that or in the event of which the financial institution has reason to suspect or knows that it is money laundering or terrorist financing, the financial institution must immediately, but not later than within two working days from identifying the act or circumstances or from the rise of the suspicion, notify the FIU.

    The obligation to notify FIU also applies in the event of the circumstances:

  • of refusal to establish a business relationship or carry out a transaction by the financial institution;
  • giving up the establishment of a business relationship or carrying out a transaction on the initiative of the person participating in the transaction or professional operation, the person using a professional service or the customer, provided that the giving up is related to the taking of due diligence measures by the financial institution;
  • of termination of a business relationship in the cases where a person participating in a transaction carried out in economic or professional activities or a customer does not submit documents and relevant information required for performing due diligence obligations
  • A financial institution must immediately, but not later than within two working days of executing the transaction, notify the FIU of any currency exchange transaction exceeding 32 000 euros in cash , unless the financial institution has a business relationship with the person participating in the transaction.

    The information is to be transmitted to the Financial Intelligence Unit of the EEA state in whose territory the financial institution is situated.

    A notification is to be communicated orally, in writing or in a format which can be reproduced in writing. If a notification was communicated orally, it is to be repeated the next working day in writing or in a format which can be reproduced in writing.

    The data used for identifying and verifying a person or, where necessary, copies of relevant documents may be appended to a notification.

    The format of notification to be transmitted to the FIU and preparation instructions are established by a regulation of the Minister of Finance.

    No customer or party participating in a transaction (including its representative or other related parties) with respect to whom suspicion is being communicated to the FIU may be notified of this.

    2.2.14.4. Correspondent Banking Relationships of Financial Institutions

    A financial institution is to take enhanced due diligence measures upon opening of a correspondent account with a credit institution of a third country and during the period of validity of the respective contract with a regular assessment of the following:

  • based on public information, the nature of the economic activities and the trustworthiness and reputation of the credit institution of the third country and the effectiveness of supervision exercised over the credit institution;
  • the control systems of the credit institution of the third country for prevention of money laundering and terrorist financing
  • Prior consent of the management board of the financial institution or the person authorised by the management board is required for opening of a correspondent account to a credit institution or a financial institution of a third country or for opening of a correspondent account with a third country credit institution or financial institution or for signing the corresponding contract.

    Financial institutions are prohibited from opening or holding a correspondent account with a credit institution, which meets at least one of the following conditions:

  • the actual place of management or business of the credit institution is located outside of its country of location and the credit institution is not part of the consolidation group or group of undertakings of a credit or financial institution that is subject to sufficient supervision;
  • according to international standards or the circumstances mentioned above, which are to be used as a basis for assessment, deficiencies become evident in the trustworthiness of the executives of the credit institution and in assessment of measures for prevention of money laundering and terrorist financing
  • 2.2.14.5. Obligation to Conduct Regular AML Training

    The management board of a legal person constituting a financial institution or the head of a branch of a financial institution must ensure the provision of regular training in the performance of duties related to the prevention of money laundering and terrorism financing for employees whose duties include establishment of business relationships or carrying out transactions. The training, among other things, is to give information about modern methods of money laundering and terrorist financing and related risks.

    2.2.14.6. Record Keeping

    A financial institution is to keep the original counterparts or copies of documents serving as basis for identification and verification of natural and legal persons, and of documents serving as the basis for establishment of a business relationship, for no less than five years after termination of the business relationship.

    A financial institution is to keep on any data medium the documents prepared with regard to a transaction and the documents and data serving as the basis for the notification obligations for no less than five years after carrying out the transaction or performance of the notification obligation.

    A financial institution is to keep the above-mentioned documents and data in a manner which allows for a full and immediate reply to enquiries received from the Financial Intelligence Unit (FIU) or other investigative bodies or a court.

    If a financial institution makes, for the purposes of identifying a person, a query to a database that is part of the state information system the use of which is obligatory for the financial institution under the legislation in force , the record keeping obligation is deemed complied with if the information about making the electronic query to the corresponding register can be reproduced over a period of five years after the end of the business relationship. If a financial institution has identified a person on the basis of a document issued by the Republic of Estonia for digital identification, the information of the document used for digital identification, including the user’s facial image and signature image, is to be kept in a form that can be reproduced for a term of five years after the termination of the business relationship.

    A financial institution is also to register and record the following:

  • information about the circumstances of refusal to establish a business relationship or carry out a transaction by the financial institution;
  • the circumstances of giving up the establishment of a business relationship or carrying out a transaction on the initiative of the person participating in the transaction or professional operation, the person using a professional service or the customer, provided that the giving up is related to the taking of due diligence measures by the financial institution;
  • the circumstances of termination of a business relationship based on the refusal by the person participating in a transaction carried out in economic or professional activities or a customer to submit documents and relevant information required to perform the due diligence measures;
  • the information serving as the basis for the notification obligation
  • For more details, see the Money Laundering and Terrorist Financing Prevention Actand Advisory Guidelines of the Financial Supervision Authority on Measures for the Prevention of Money Laundering and Terrorist Financing in Credit Institutions and Financial Institutions.

    The FSA Guidelines provide credit and financial institutions with advisory clarifying instructions for the application of requirements of MLTFPA. The Guidelines cover the requirements for assessment and management of the risk of money laundering and terrorist financing and the relevant rules of procedure, including establishment of business relationships, surveillance of transactions, internal audit rules for auditing customer due diligence and actions required in the event of suspicion of money laundering (performance of the reporting obligation).

    2.2.15. Applicable Fees
    2.2.15.1. Processing Fees

    Processing fee is a mandatory payment in the amount established by the FSA Act to be made by an applicant or person applying for review of an application or performance of an act by the FSA based on the FSA Act.

    The payer of the processing fee is a natural or legal person or branch of a foreign company which applies for the review of an application or performance of an act by the FSA.

    A processing fee of 1000 euros is to be paid upon application for an authorisation as a payment or e-money institution.

    A processing fee of 1000 euros is to be paid for authorisation as a branch of a payment or e-money institution registered in a third country or for the provision of cross-border services in Estonia by a payment or e-money institution registered in a third country.

    A processing fee of 300 euros is to be paid upon application for authorisation as an exempt payment or e-money institution.

    A processing fee of 1000 euros is to be paid upon application for an additional authorisation by a payment or e-money institution.

    Payment of the Processing Fee

    Processing fees are paid before submission of applications and performance of acts.

    Processing fees are paid into the account of the FSA. The following payment details have been taken from FSA's website:

  • for domestic transfers: account number 162175048 with the Bank of Estonia;
  • for international transfers:
  • Deutsche Bank AG, Frankfurt (swift BIC: DEUTDEFF)

    Beneficiary: Eesti Pank (Bank of Estonia), Tallinn (swift BIC: EPBEEE2X)

    IBAN DE73 5007 0010 0949 7991 00

    Reference (information to beneficiary): for further credit to Estonian Financial Supervision Authority

    Upon payment of a processing fee, a document certifying the payment of the processing fee must set out the name of the act for the performance of which the processing fee is paid or refer to the provision of the FSA Act on the basis of which the fee for the act is paid. The name of the person for whom the processing fee is paid must also be indicated on the document certifying payment of the fee for the act.

    Refund of the Processing Fee

    A person that has paid a processing fee has the right to apply for a refund within two years as of the date on which the fee is paid.

    The FSA will make a decision concerning the application within twenty calendar days from the date of receipt.

    For application of the refund of a processing fee, a written application together with the document in proof of payment of the processing fee is to be submitted to the FSA.

    The FSA will refund the processing fee within ten calendar days as of the entry into force of the decision to that effect.

    A processing fee which has already been paid will be refunded in part or in whole if:

  • the fee paid exceeds the prescribed amount;
  • the submitted application is not reviewed;
  • the processing fee was paid by a person which is exempt from the processing fee;
  • a person which paid the processing fee foregoes the act or submission of the application prior to addressing the FSA
  • 2.2.15.2. Supervision Fee

    The supervision fee consists of the capital share and the share calculated on the basis of assets.

    Payment and e-money institutions are to pay the capital share of the supervision fee and its share calculated on the basis of assets , except in certain cases mentioned below in the section on the payment of the supervision fee. An exempt payment or e-money institution is to pay a supervision fee only in the amount of the share calculated on the basis of assets.

    Estonian branches of foreign companies who operate in the area of activity of payment or e-money institutions are to pay a supervision fee only in the amount of the share calculated on the basis of assets, except in certain cases mentioned below in the section on the payment of the supervision fee.

    The obligation to pay a supervision fee (the financing obligation) arises for payment and e-money institutions or Estonian branches of foreign companies as of the date of entry into force of the decision of the Supervision Authority or date of performance of the act which grants the right to operate in the corresponding area of activity.

    The financing obligation of a payment or e-money institution or an Estonian branch of a foreign company expires upon the expiry of the corresponding right to operate.

    Upon the expiry of a financing obligation, the supervision fee will not be refunded.

    A supervision subject which operates in several areas of activity is to pay the supervision fee only as one supervision subject, i.e. a company operating in the area of activity of credit institutions is to pay a supervision fee as a credit institution and a company operating as an e-money institution and not being a credit institution is to pay a supervision fee as an e-money institution.

    Rate of the Supervision Fee

    The capital share of the supervision fee is an amount equal to one per cent of the highest amount of minimum share capital required pursuant to legislation in order to operate in the area of activity specified in the activity licence in the case of payment and e-money institution.

    The share of the supervision fee calculated on the basis of assets is an amount equal to:

  • in the case of a payment institution or an Estonian branch of a foreign payment institution, 0.05 to 0.5 per cent of the assets of the payment institution or the corresponding Estonian branch;
  • in the case of an e-money institution or an Estonian branch of a foreign e-money institution, 0.05 to 0.5 per cent of the assets of the institution or Estonian branch
  • For this purpose, assets are taken to be thr total assets indicated on the unconsolidated balance sheet as provided by legislation.

    Establishment of the Rate of Share of the Supervision Fee Calculated on Basis of Assets

    The rate of the share of the supervision fee calculated on the basis of assets is established for a calendar year as a percentage within the limits specified above. The rate is established by a regulation of the Minister of Finance within fifteen days after the approval of budget of the Supervision Authority by the supervisory board.

    The rate of the share of the supervision fee calculated on the basis of assets is the same for all persons and Estonian branches of foreign companies operating in the same area of activity.

    The rate of the share of the supervision fee calculated on the basis of assets is applied to calculation of the advance payment and final payment of the supervision fee.

    Calculation of the Advance Payment of the Supervision Fee

    In the case of a payment or e-money institution, the advance payment of the share of the supervision fee calculated on the basis of assets is to be calculated on the basis of the arithmetic mean of the assets of the person or the Estonian branch of a corresponding foreign subject of supervision, calculated according to the data on its balance sheet submitted to the Supervision Authority as at 31 December of the preceding year and 31 March and 30 June of the current year.

    Calculation of Final Amount of the Supervision Fee

    In the case of a payment or e-money institution, the final payment of the share of the supervision fee calculated on the basis of assets is to be calculated on the basis of the arithmetic mean of the assets of the person or the Estonian branch of a corresponding foreign subject of supervision, calculated according to the data on its balance sheet submitted to the FSA as at 31 March , 30 June , 30 September and 31 December of the preceding year.

    The Payment of the Supervision Fee

    Payment of the supervision fee will be requested in a corresponding precept sent by the FSA.

    The supervision fee is to be paid as an advance payment and final payment. The size of the final payment of the supervision fee will be the final amount of the supervision fee to be paid during a particular budgetary year of the FSA (the budgetary year) for that year (under § 36 of the FSA Act, the budgetary year of the FSA begins on 1 January and ends on 31 December).

    If an advance payment of the supervision fee exceeds the final payment, the FSA will refund the overpaid amount of the supervision fee by the due date, which is 1 September of the budgetary year.

    If an advance payment of the supervision fee is less than the final payment, a final payment in the amount of the difference between the final payment and the advance payment is to be made by the due date, which is 1 September of the budgetary year.

    If a financing obligation arises during the first half of a calendar year, the final payment of the supervision fee is to be made only in the amount of the capital share.

    If a financing obligation arises for a branch of foreign payment or e-money institution during the first half of a calendar year, the final payment of the supervision fee is to be made in an amount equal to half of the capital share of the supervision fee payable by the payment or e-money institution.

    If a financing obligation arises during the second half of a calendar year, the final payment of the supervision fee is to be made only in the amount of half of the capital share.

    If a financing obligation arises for a branch of foreign payment or e-money institution during the second half of a calendar year, the final payment of the supervision fee is to be made in an amount equal to a quarter of the capital share of the supervision fee payable by the payment or e-money institution.

    Supervision fees are paid to the account of the FSA.

    Term for the Payment of the Supervision Fee

    Any advance payment of the share of the supervision fee calculated on the basis of assets and the capital share of the supervision fee which is payable for a budgetary year is to be made by 31 December of the preceding year.

    The final payment of the share of the supervision fee calculated on the basis of assets is to be made by 1 September of the budgetary year.

    If a financing obligation arises during the current year, the capital share of the supervision fee is to be paid within 30 days after the obligation has arisen.

    If a person required to pay a supervision fee fails to pay it within the prescribed term, the FSA has the right, in order to ensure receipt of the supervision fee, to issue a precept for compulsory execution pursuant to the procedure provided in the Code of Enforcement Procedure.

    3. Company Formation

    3.1. Legal Framework

    Company formation in Estonia is primarily regulated by Estonian Commercial Code.

    3.2. Requirements for Legal Form

    According to § 2(1) of Estonian Commercial Code, a company is a general partnership, limited partnership, private limited company, public limited company or commercial association.

    § 5(1) of PIEMIA provides that, a payment institution may operate only as a public limited company if it provides any of the payment services specified in § 3(1) of PIEMIA (see also the relevant section above), except for clause 6), which is money remittance services.

    According to § 7(1) of PIEMIA, an e-money institution is a public or private limited company the permanent activity of which is the issue of e-money in its name.

    Thus, the choice of legal form is between a public and private limited company depending on the type and scope of intended activities.

    The Primary Features of the Two Forms of Business

    Form of Business

    Min. Required Start-up Capital (€)

    Min. Required Number of Founders

    Financial Liability

    Management

    Private limited company

    2,500 ; none if share capital is ≤ 25,000

    at least 1

    Partners are not personally liable for the company’s obligations

    The obligatory management body of the private limited company is the management board; a supervisory board is mandatory only if specified in the articles of association.

    Public limited company

    25,000

    at least 1

    Shareholders are not personally liable for the company’s obligations

    The supreme management body of the public limited company is the general meeting of shareholders; a public limited company must have a management board and supervisory board

    3.3. Requirements for a Company’s Business Name

    According to § 7 of the Estonian Commercial Code, a business name is defined as the name entered in the commercial register under which an undertaking operates.

    A company may have only one business name.

    A business name of a private limited company is to contain the appendage “osauhing” (private limited company) and of a public limited company - the appendage “aktsiaselts” (public limited company). Instead of the appendages a private limited company may use the abbreviation “OU” and a public limited company the abbreviation “AS” in its business name.

    The appendages and abbreviations may only be used at the beginning or end of the business name.

    A business name of a company is to be clearly distinguishable from other business names entered in the commercial register in Estonia.

    A proposed company name may be checked on the Name Enquiry pageof the online information system of the Commercial Register.

    The following restrictions apply to a business name:

  • A business name must not be misleading with regard to the legal form, area of activity or scope of activity of the undertaking;
  • A business name must not be contrary to good morals;
  • A sign or combination of signs which consists of letters, words or numerals and is protected as a trade mark in Estonia must not be used in a business name without the consent of the owner of the trade mark certified by a notary, unless the undertaking is engaged in an area of activity in respect of which the trade mark is not protected;
  • The Government of the Republic of Estonia may establish restrictions on the use of the word “Eesti” (Estonia) in a business name in all expressions and foreign language equivalents, except in the business name of the branch of a foreign company;
  • The names of state and local government bodies and agencies must not be used in a business name;
  • The words “riigi” (state), “linna” (city) and “valla” (rural municipality), and other words which refer to the participation of a local government may be used in the business name of a company only if the state or local government holds more than one-half of the shares of the company;
  • A business name is to be written in the Estonian-Latin alphabet
  • Besides, § 8 of PIEMIA provides that only payment institutions may use the word "makseasutus" (payment institution) or its derivatives or foreign language equivalents in their business names and only e-money institutions may use the word combination "e-raha asutus" (electronic money institution) or its derivatives or foreign language equivalents in their business names.

    The business name of the branch of a foreign company is to consist of the business name of the company and the words “Eesti filiaal” (Estonian branch).

    Business Name Verification

    The Registrar of companies will verify that the business name is in conformity with the requirements of law. If the business name is not in conformity with the requirements of law, the registrar will propose that a new business name be chosen within the term designated by the registrar.

    3.3.1. Requirements for the Use of a Business Name in Commercial Documents

    Commercial documents of an undertaking and its website are to indicate the business name , registered office and commercial registry code of the undertaking.

    The commercial documents of the branch of a foreign undertaking and its website are to include the above-mentioned information regarding both the undertaking and its branch, if it is relevant. In addition, the commercial documents of the branch and its website are to indicate the legal form of the foreign undertaking and the register where the undertaking is registered.

    3.4. Requirement for the Activity Licence

    While preparing registration application one planned principal activity, which will be the main source of revenue expected in the first financial year, is to be chosen. A company is allowed to engage in other activities as well.

    According to § 16(1) of General Part of the Economic Activities Code Act, in the cases provided by law an undertaking must have an activity licence prior to commencement of economic activities in an area of activity (authorisation obligation ).

    An activity licence is an administrative act addressed to an undertaking or a contract under public law entered into with an undertaking, regardless of the name thereof, without which it is prohibited for the undertaking to commence economic activities and which proves compliance with certain economic activity requirements in a certain area of activity or determines the secondary conditions for pursuing economic activities.

    An undertaking may commence economic activities subject to the authorisation obligation from the issue of an activity licence, from the fulfilment of the conditions set out on the activity licence or from the date set out on the activity licence, whichever is later.

    In order to obtain an activity licence, an undertaking submits an application (application for activity licence ) to an economic administrative authority, which is authorised by law to adjudicate applications for activity licences.

    An activity licence is required if a company intends to operate in the following fields of activity:

  • payment and e-money services ;
  • trust and company services;
  • currency exchange services ;
  • services of alternative means of payment ;
  • pawn-broking services;
  • buying-in or wholesale of precious metals, precious metal articles or precious stones
  • The Financial Supervision Authority is the economic administrative authority for companies wishing to provide payment and / or e-money services (for details on authorisation as a payment or e-money institution, see the relevant sections above).

    The Financial Intelligence Unit grants activity licences for the other types of activities.

    3.5. Requirements for Place of Business

    A company must have an Estonian address. It is not allowed to register P.O. box as an address.

    Moreover, § 46 of PIEMIA requires that the seat and the principal place of business of a payment institution or e-money institution entered in the commercial register in Estonia be in Estonia.

    3.6. General Information on Registering a Company

    There are two ways of registering a company in Estonia:

  • electronically via the e-Commercial Register’s Company Registration Portal; or
  • through a notary
  • A private limited company may be registered in either way: electronically through the Portal or through a notary.

    A public limited company may only be registered through a notary.

    3.6.1. Electronic Registration via the Company Registration Portal

    Company Registration Portal is an environment which enables submitting documents to the Commercial Register electronically, without the need to use a notary’s services. The portal allows submitting applications for registering a new company, amending registry data, liquidating a company and deleting a company from the registry.

    Company Registration Portal enables registering a private limited company, sole proprietor, limited partnership, general partnership and non-profit associations online.

    In order to log in to the Company Registration Portal and perform the registration procedure, one needs an Estonian, Portuguese, Belgian, Finnish or Lithuanian ID card, Estonian or Lithuanian mobile ID, or Estonian e-Residency card and the digital signature software. Every e-Resident can log into the Company Registration Portal and use the portal.

    A company can be electronically registered in the Commercial Register only if all persons related to the company (board members, founders, members of the supervisory board etc.) are able to sign the initial entry application and establishment documents digitally.

    When registering a private limited company electronically, one is to:

  • enter data concerning the founding members and the company to be established;
  • enter the business name;
  • design a template for articles of association;
  • pay the state fee; and
  • make a share capital contribution, if desired
  • The Portal enables one to pay share capital during registration. It is to be transferred via a single transfer through the links to banks available in the Portal to the depository account of the Registrar or the account opened at a credit institution operating in a contracting state of the European Economic Area or at a branch of a foreign credit institution opened in an EEA state, using a previously completed payment order. A normal business bank account for the company can be opened after the company has been registered.

    If the contribution is made as a deposit to the account of the registrar, the company can apply no later than within one year following its entry into the register for the return of the contribution to its account with a credit institution. The contribution will be returned within five working days after submission of a relevant application.

    The Company Registration Portal enables establishing a company without immediately making the share capital contribution as well.

    The submission of registration application via the Company Registration Portal consists of five steps :

  • preparation
  • signing
  • payment of share capital
  • payment of the state fee, and
  • submission
  • A submitted application will be reviewed within one working day and notification about registration will be sent by email.

    For more information, see the detailed guide to electronic registration of a company.

    3.6.2. Registering a Company through a Notary

    As it was mentioned above, a public limited company has to be registered through a notary. Electronic registration is not yet possible.

    A notary will also have to be used for registering a company if:

  • the contribution of the company’s share capital is not monetary but rather a monetarily appraisable thing or proprietary right to be transferred to the private limited company (such as equipment, software etc.);
  • the founders of the company cannot digitally sign documents
  • If one goes along this route, the first step to take is to make the contribution of share capital and pay the state fee. Then, a notary will provide assistance with the preparation of required documents and submit the application pack to the Commercial Register.

    An application pack consists of:

  • notarised memorandum of association;
  • articles of association;
  • registration application certified by a notary;
  • an excerpt from the minutes of the meeting containing the resolution (notarised if the minutes of the meeting are notarised);
  • information on communications devices;
  • bank certificate regarding deposit of share capital;
  • certificate regarding payment of the state fee;
  • specimen signatures certified by a notary
  • Certification by a notary may be substituted by the certification of signatures on the application by an official of a foreign state who has the right to attest the identity of the undersigned. A document attested in a foreign state is to be legalised or authenticated by a certificate (apostille), unless otherwise provided by an international agreement.

    A person entitled to sign a registration application may authorise another person to sign it. Such an authorisation is to be certified by a notary.

    When applying for an entry into the Commercial Register, an undertaking is to specify its planned principal activity and keep the register informed of any changes to the principal activity. For the purpose of notifying the Commercial Register of areas of activity and specifying areas of activity in annual reports, the Estonian Classification of Economic Activities(EMTAK) is used.

    The notary will prepare the necessary documents. The notary’s office has all sample documents and templates necessary for setting up a company.

    Documents in a foreign language are to be submitted to the Registrar together with translations into Estonian certified by a sworn translator or a notary or translations into Estonian where a notary certified the authenticity of a translator's signature.

    The Registrar may also demand supplementary documents from the company if these are necessary to determine the facts which are the basis for an entry.

    A registration application certified by a notary will be submitted together with the documents necessary for making an entry into the Register through the electronic information system of notaries E-notary through the notary who has attested the application.

    Registering a company through a notary normally takes 2-3 days.

    Contact information of notaries can be found onthe relevant pageof the website of the Chamber of Notaries of the Republic of Estonia.

    3.6.3. Registration Application Review Timeframe

    § 53 (1) of the Commercial Code provides that an application for entry is to be reviewed within five working days after receipt of the application.

    If the applicant has been given time for eliminating deficiencies by an order and the applicant has eliminated all the deficiencies, then the application for entry will be reviewed once again within the period of five days. The court may, on the existence of circumstances requiring special investigation, extend the term for review by up to three months.

    In expedited procedure , an application for entry is reviewed no later than during the next working day after the date of receipt of the application.

    3.6.4. The Entry into the Commercial Register

    The Commercial Register of sole proprietors and companies located in Estonia is maintained by the registration department of the Tartu County Court (the Registrar).

    If the registration application process is completed successfully, the Registrar of the Commercial Register will enter the new company into the Commercial Register.

    The Registrar will make an entry no later than on the fifth working day after a ruling on the entry has been signed. The Registrar will promptly notify the applicant of making or refusal to make the entry but no later than within ten working days after making the entry in the Register or making the decision to refuse the application for an entry.

    The Registrar will not make an entry in the Register if the application or documents appended to it do not comply with the law or are submitted prior to the term permitted or after the term prescribed by law.

    The Registrar may not refuse to make an entry if all documents required by law are submitted and comply with legal requirements.

    After a ruling on entry is made, the Registrar will enter the text of the entry on the registry card. The text of the entry will be signed by the person enforcing the ruling and by the person competent to decide on making the entry. From this moment the entry into the Commercial Register comes into force (§ 34(1) of Estonian Commercial Code).

    A copy of the ruling on entry will be given or sent to the undertaking with regard to whom the ruling is made within ten working days.

    Once on the Commercial Register, the company will be given a non-recurrent registry code.

    3.7. Establishing a Private Limited Company (OÜ)

    The private limited company (osaühing or OÜ in Estonian) is the most common form of business in Estonia.

    Under § 135 of the Estonian Commercial Code, a private limited company is a company which has share capital divided into private limited company shares.

    A shareholder is not personally liable for the obligations of the private limited company. A private limited company will be liable for performance of its obligations with all of its assets.

    A private limited company may be founded by one or several persons. A founder may be a natural person or a legal person.

    3.7.1. Application for Entry into the Commercial Register

    In order to enter a private limited company into the Commercial Register, the management board is to submit an application to the Commercial Register containing the following information:

  • the business name of the private limited company;
  • the registered office and address of the private limited company;
  • the amount of share capital / the foundation without making the contribution;
  • the date of conclusion of the memorandum of association;
  • the names and personal identification codes of the members of the management board;
  • the members of the management board entitled to represent the private limited company in a manner different from that provided for in subsection § 181(1) of the Commercial Code;
  • the beginning and end of the financial year of the private limited company
  • The following documents are to be appended to the application (§ 144 (1) of CC):

  • the memorandum of association;
  • the articles of association;
  • a bank notice concerning the payment of share capital if pursuant to the memorandum of association the contributions are to be made before the entry of the private limited company into the Commercial Register;
  • names, personal identification codes or registry codes and addresses of shareholders, and the nominal value of the share of each shareholder;
  • the names and personal identification codes of the members of the supervisory board, and of auditors, if the company has auditors and, in the case of expedited procedure, their digitally signed consent regarding assumption of the position of a member of the supervisory board or an auditor;
  • consent of all members of the management board to becoming a member of the management board, which is certified by a notary, and a certification that no circumstances arise, which pursuant to law preclude being a member of the management board;
  • the information on the planned principal activity;
  • upon payment of a non-monetary contribution, if pursuant to the memorandum of association the contributions are to be made before the entry of the private limited company in the commercial register:
  • the agreement for transfer of the contribution to the private limited company;
  • the certification of the management board regarding the fact that the contribution has been transferred to the private limited company and its value covers the nominal value of the share, and
  • a sworn auditor's report concerning the verification of the valuation of the sufficiency of the value of the non-monetary contribution, if the share capital of a private limited company is at least 25,000 euros and the value of a non-monetary contribution exceeds 1/10 of the share capital or if all non-monetary contributions of such private limited company collectively form more than one-half of the share capital
  • data on telecommunications of the private limited company (telephone and fax numbers, e-mail and Internet home page address, etc.);
  • other documents provided by law
  • If the non-monetary contribution is an immovable or a movable subject to registration, an extract from the land register or the register in which the movable is registered is to be appended to the application.

    A private limited company will not be entered into the Commercial Register if the application for entry into the Register is submitted later than one year after the date of conclusion of the memorandum of association or receipt of the foundation number , i.e. the number of the notarial act of the foundation transaction for the company being founded, or if the foundation transaction is not notarised, the number issued to the founders by the internet-based information system of the Commercial Register.

    3.7.1.1. Requirements for the Memorandum of Association

    In order to found a private limited company, the founders are to conclude a memorandum of association.

    The memorandum of association is to contain the following:

  • the business name, registered office and address of the private limited company being founded;
  • the names and residences or registered offices of the founders;
  • the proposed amount of share capital;
  • the nominal value and number of shares, and their division among the founders;
  • the amount to be paid for shares and the procedure, time and place of payment;
  • if a share is paid for by a non-monetary contribution, the item of the non-monetary contribution and its valuation method;
  • the information on the members of the management board and, if a supervisory board is formed, on its members;
  • the information on procurators or auditors, if appointed;
  • the projected costs of foundation and the procedure for payment thereof
  • Upon conclusion of a memorandum of association, the founders are to approve the articles of association of the private limited company as an annex to the memorandum of association.

    The memorandum of association and the articles of association are to be notarised and signed by all founders.

    If the private limited company has one founder, the memorandum of association is substituted by a notarised foundation resolution signed by the founder.

    3.7.1.2. Requirements for the Articles of Association

    The articles of association of a private limited company are to contain the following:

  • the business name and registered office of the private limited company;
  • the amount of share capital which may be specified as a specific amount or as a minimum and maximum capital such that the minimum capital is to be at least one-quarter of the maximum capital;
  • the procedure for payment for shares;
  • the specific rights attaching to a share, or of a shareholder, whereas in case the specific rights attaching to a share are envisaged and various classes of shares are issued the articles of association are to specify the designation of the various classes of shares and the specific rights attaching to the class of shares;
  • if a share is paid for by a non-monetary contribution, the valuation method of the non-monetary contribution;
  • the formation and amount of legal reserve;
  • if there is a management board and supervisory board, the number of members thereof, which may be expressed as a specific number or a maximum and minimum number, and if necessary, also the specifications for the right of representation of the members of the management board
  • The articles of association may also prescribe other terms and conditions which are not in conflict with the law.

    All founders are required to sign the articles of association approved by the memorandum of association. The articles of association which are amended after entry into the Commercial Register are to be signed by at least one member of the management board or, if members of the management board are only authorised to represent the private limited company jointly, by all the members of the management board authorised to represent the private limited company jointly.

    3.7.1.3. Requirements for Personal Data

    If it is required by law that a personal identification code be provided in a document to be submitted to the Registrar, the Estonian personal identification code is to be submitted to the Registrar and, in the absence thereof, a foreign personal identification code or other code substituting for the personal identification code and the day, month and year of birth of the person are to be submitted to the Registrar.

    The name of the local government in which a natural person lives is to be submitted to the Registrar. It will be entered into the Register as their residence.

    The name of the local government in which the registered office of a legal person is located is to be submitted to the Registrar. It will be entered into the Register as the registered office of the legal person.

    Specific data concerning the address of a person’s residence or registered office (street number, apartment number, street name or name of the farm, settlement, local government and county, postal code) is to be submitted to the Registrar as the person’s address. If the person is a subject of the population register, the person's residence data entered into the population register will be entered into the Register. In the case of a foreign country, also the state, province or other administrative unit if it exists, and the name of the country is to be specified in the data of the residence or registered office.

    3.7.1.4. Requirements for Share Capital

    Share capital is to be denominated in euro and be equal to at least 2,500 euros.

    Capital requirements for companies which intend to apply for an activity licence to provide payment or e-money services are shown in the relevant section of the Getting Authorised chapter above.

    The minimum nominal value of a share is to be one euro. If the nominal value of a share is greater than one euro, the nominal value must be a multiple of one euro.

    If the planned share capital of a private limited company is not larger than 25,000 euros and founders are natural persons, the memorandum of association may prescribe that the founders are not required to pay for the share upon the foundation of the private limited company. This may be helpful if the company is not going to apply for the activity licence immediately after it has been entered into the Commercial Register.

    A shareholder is required to make a contribution corresponding to the nominal value of the shareholder’s share.

    The monetary contribution will have to be deposited with a single transfer into the court’s deposit account or an e-start-up account opened at a bank in the process of registering the company through the Company Registration Portal electronically by sending an instruction to the bank through the e-start-up account application. The start-up account will be used for making a contribution to the company's share capital and requesting electronic balance confirmation about the amount of share capital received in the start-up account.

    Until the complete payment of the contributions by all the shareholders, the private limited company will not be allowed to increase or decrease the share capital, or make any disbursements to the shareholders. The prohibition on disbursements does not apply to salaries and other remuneration paid to the shareholder.

    It is not allowed to issue a certificate for a share.

    If so decided by shareholders, shares of a private limited company may be entered into the Estonian Central Register of Securities.

    3.7.1.5. Requirements for the Management Board

    The management board is a managing body of a private limited company which represents and manages the private limited company.

    The management board may have one member (manager) or several members. A member of the management board need not be a shareholder. A member of the management board must be a natural person with active legal capacity.

    If there is the supervisory board in the private limited company, a member of the supervisory board is not allowed to be a member of the management board. The articles of association may prescribe other persons who may not be members of the management board.

    Without the consent of shareholders or, if the supervisory board exists, without the consent of the supervisory board, a member of the management board may not be:

  • a sole proprietor in the area of activity of the private limited company;
  • a partner of a general partnership or a general partner of a limited partnership which operates in the same area of activity as the private limited company;
  • a member of a managing body of a company which operates in the same area of activity as the private limited company, except if the companies belong to one group
  • Requirements for managers of a payment or e-money institution are shown in the relevant section of the Getting Authorised chapter above.

    The management board is to keep a list of shareholders which sets out the names, addresses, personal identification codes or registry codes and the nominal value of their shares. If shares have been entered into the Estonian Central Register of Securities, the list of shareholders will be maintained by the registrar of the Estonian Central Register of Securities. In such a case, the management board of a private limited company will have to ensure timely submission of correct information provided by law to the person maintaining the list of the shareholders.

    Upon entry of shares in the Estonian Central Register of Securities, the management board of the private limited company will have to submit a notice from the registrar of the Estonian Central Register of Securities concerning registration of the shares to the Registrar of the Commercial Register.

    The management board is to organise the accounting of the private limited company.

    Election and Removal of Members of Management Board

    The members of the management board are to be elected and removed by the shareholders. If a private limited company has the supervisory board, members of the management board are to be elected and removed by the supervisory board.

    In order to elect a member of the management board, his or her consent is required.

    A member of the management board is elected for an unspecified term unless the articles of association prescribe a specific term.

    3.7.2. Costs of Establishing a Private Limited Company

    To establish a private limited company, a state fee of 145 euros will have to be paid. The state fee can later be recognized as a business expense as the costs of establishing the private limited company.

    If a private limited company is formed through a notary, notary fees will have to be added. The precise amount will depend on the size of share capital and the number of founders. VAT will be added to all of the notary fees.

    3.8. Setting up a Public Limited Company (AS)

    Estonian Commercial Code defines a public limited company as a company which has share capital divided into public limited company shares.

    A shareholder is not personally liable for obligations of the public limited company.

    A public limited company may be founded by one or several persons (natural or legal).

    3.8.1. Application for Entry into the Commercial Register

    In order to enter a public limited company into the Commercial Register, the management board is to submit an application, which is to contain the following information:

  • the business name of the public limited company;
  • the registered office and address of the public limited company;
  • the amount of share capital;
  • the number of shares without nominal value, if any;
  • the date of approval of the articles of association;
  • the names and personal identification codes of the members of the management board;
  • the members of the management board entitled to represent the public limited company in a manner different from that provided for in subsection § 307(1) of the Commercial Code;
  • the beginning and end of the financial year;
  • other information provided by law
  • The application is to be signed by all members of the management board.

    The following are to be appended to the application:

  • the memorandum of association;
  • the articles of association;
  • bank notice concerning the payment of share capital;
  • upon payment of a non-monetary contribution, the agreement for transfer of the contribution to the public limited company, the documents certifying the value of the contribution, except in the case of non-monetary contribution in the form of securities admitted for trading on a regulated securities market, except for holding units of investment funds and derivative contracts;
  • reference to the date of publication of the official journal Ametlikud Teadaanded containing the notice concerning the making of non-monetary contribution, if the non-monetary contribution was made in the form of securities admitted for trading on a regulated securities market before submitting an application for entry of the public limited company into the Commercial Register;
  • the names and personal identification codes of the members of the supervisory board and the names and personal identification codes of the auditors;
  • the information on the planned principal activity;
  • data on the telecommunications of the public limited company (telephone and fax numbers, e-mail and Internet home page address, etc.);
  • a notice from the registrar of the Estonian Central Register of Securities concerning registration of the shares;
  • other documents provided by law
  • Transfer of a non-monetary contribution to the public limited company must be certified by the members of the management board by their signatures. If the non-monetary contribution is an immovable or a movable subject to registration, an extract from the land register or the register in which the movable is registered is to be appended to the application.

    The shareholders are to pay for shares in full before submission of an application for entry of the public limited company into the Commercial Register unless the memorandum of association prescribes an earlier due date.

    A public limited company will not be entered into the Commercial Register if the application for entry into the Commercial Register is submitted after one year has passed since the conclusion of the memorandum of association or passing of the foundation resolution.

    The founders of a public limited company, the members of the management board and supervisory board are solidary liable for damage caused to the public limited company by submission of inaccurate or incomplete information, incorrect valuation of contribution or foundation expenses, or breach of other obligations upon the foundation of the public limited company, unless a founder or a member of the management board or supervisory board proves that he or she was not aware nor should have been aware of the circumstances which caused the damage.

    3.8.1.1. Requirements for the Memorandum of Association

    In order to found a public limited company, the founders are to conclude a memorandum of association.

    The memorandum of association is to contain the following information:

  • the business name, registered office and address of the public limited company being founded;
  • the names and residences or registered offices of the founders;
  • the proposed amount of share capital;
  • the number of shares and the division of shares among the founders, and, in case of shares with nominal value, the nominal value thereof, and, upon issue of more than one class of shares, their denotation and the rights attaching to the shares;
  • the amount to be paid for shares and the procedure, time and place of payment;
  • if a share is paid for by a non-monetary contribution, the item of the non-monetary contribution and its valuation method;
  • information on the members of the management board and supervisory board, and the auditor;
  • information on procurators, if appointed;
  • the projected costs of foundation and the procedure for payment thereof
  • By conclusion of the memorandum of association, the founders are also to approve the articles of association of the public limited company as an annex to the memorandum of association.

    The memorandum of association and the articles of association approved thereby are to be notarised and signed by all founders.

    If the public limited company has one founder, the memorandum of association is substituted by a notarised foundation resolution signed by the founder.

    3.8.1.2. Requirements for the Articles of Association

    The articles of association of a public limited company are to contain the following information:

  • the business name and registered office of the Company;
  • the amount of share capital which may be specified as a specific amount or as a minimum and maximum capital such that the minimum capital is at least one-quarter of the maximum capital;
  • in case of shares with nominal value, the nominal values of the shares;
  • in case of shares without nominal value, the number of the shares, which may be specified as certain number or minimum and maximum number;
  • upon issue of more than one class of shares, the denotation of the different classes of the shares and the rights attaching to the shares, and, in case of the shares with nominal value, the nominal value of each class of the shares;
  • the procedure for calling the general meeting and for adoption of resolutions;
  • the number of members in the management board and supervisory board, which may be expressed as a specific number or a maximum and minimum number, and if necessary, also the specifications for the right of representation of the members of the management board;
  • if a share is paid for by a non-monetary contribution, the valuation method of the non-monetary contribution;
  • the amount of legal reserve;
  • other obligatory terms and conditions provided by law
  • All founders are to sign the articles of association approved by the memorandum of association.

    3.8.1.3. Requirements for Share Capital

    Share capital of a public limited company is to be at least 25,000 euros denominated in euro.

    Capital requirements for companies which intend to apply for an activity licence to provide payment or e-money services are shown in the relevant section of the Getting Authorised chapter above.

    A share may be issued as share with nominal value or share without nominal value. The simultaneous issue and use of shares with nominal value and without nominal value is prohibited.

    A share of a public limited company is indivisible.

    An equal part of the share capital is to conform to all shares without nominal value. The part of the share capital corresponding to one share without nominal value (book value of the share) is to be established by dividing the share capital by the number of shares (§ 222-1 (2) of Commercial Code).

    The minimum nominal value or book value of a share is to be ten cents. If the nominal value of a share is greater than ten cents, the nominal value is to be a multiple of ten cents.

    The issue price of a share may not be less than the nominal value or book value of the share. The issue price of a share is to be paid in full by the subscriber upon issue of the share.

    A public limited company may not itself or through a third person acting at its expense subscribe for its own shares.

    A contribution may be monetary or non-monetary. A share is to be paid for in money unless the articles of association prescribe payment by a non-monetary contribution. The sum to be paid for a share may not be set off against salary, fees or other such payments by the public limited company being founded or against other claims against the public limited company being founded.

    Upon foundation, monetary contributions are to be paid into a bank account opened by the founders in the name of the public limited company being founded (§ 247 of the Commercial Code).

    A non-monetary contribution may be in the form of a thing which is monetarily appraisable and transferable to the public limited company or a proprietary right which may be the object of a claim. A non-monetary contribution may not be a service or work provided for the public limited company or the activities of the founders in the foundation of the public limited company.

    If at the time of entry into the Commercial Register of the public limited company, the value of a non-monetary contribution is lower than the nominal value or book value and the premium of the share received out of the contribution, the public limited company may demand payment by the shareholder of the contribution in money to the extent to which the value of the contribution was lower than the nominal value or book value and the premium. The limitation period of the claim is five years after the entry into the Commercial Register of a public limited company.

    Each share grants a separate vote unless otherwise provided by law. Shares with equal nominal values grant an equal number of votes. If a public limited company has shares with different nominal values, the difference in votes granted by them will correspond to the difference in nominal values. Shares without nominal value also grant an equal number of votes.

    A public limited company may issue non-voting shares which grant the preferential right to receive dividends and to participate in the distribution of the remaining assets of the public limited company upon dissolution (preferred shares). The owner of a preferred share has all the rights of a shareholder with the exception of the right to vote. The articles of association may prescribe that a preferred share grants the right to vote in the adoption of certain resolutions (restricted voting right).

    The sum of the nominal values or book values of preferred shares may not be greater than one-third of the share capital.

    3.8.2. Requirements for Corporate Governance

    The corporate governance structure of a public limited company is to comprise three levels:

  • the shareholders’ general meeting;
  • the supervisory board and
  • the management board
  • 3.8.2.1. General Meeting

    Shareholders exercise their rights in a public limited company at the general meeting of shareholders.

    § 290-1(1) of the Estonian Commercial Code allows a shareholder to participate in the general meeting and exercise their rights using electronic means without physically attending the general meeting and without appointing a representative if it is possible to do so in a technically secure manner (the electronic participation). However, this right only applies to public limited companies admitted for trading on a regulated securities market (listed public limited companies) and must be provided for in the articles of association of the company.

    A general meeting is competent to:

  • amend the articles of association;
  • increase and reduce share capital;
  • issue convertible bonds;
  • elect and remove members of the supervisory board;
  • elect an auditor;
  • designate a special audit;
  • approve the annual report and distribute profit;
  • decide on dissolution, merger, division or transformation of the public limited company;
  • decide on conclusion and terms and conditions of transactions with the members of the supervisory board, decide on the conduct of legal disputes with the members of the management board or supervisory board, and appointment of the representative of the public limited company in such transactions and disputes;
  • decide on other matters placed in the competence of the general meeting by law
  • An annual general meeting is to meet at least once a year to approve the annual report among other things on the agenda.

    3.8.2.2. Supervisory Board

    The supervisory board plans the activities of the public limited company, organises the management of the public limited company and supervises the activities of the management board.

    The supervisory board is to have three members unless the articles of association prescribe a greater number of members. A member of the supervisory board must be a natural person with active legal capacity.

    A member of the supervisory board need not be a shareholder. A member of the management board, a procurator, auditor, or a member of the management board of a subsidiary of the public limited company is not allowed to be a member of the supervisory board. The articles of association may prescribe other persons who cannot be members of the supervisory board.

    Members of the supervisory board are elected and removed by the general meeting. In order to elect a member of the supervisory board, his or her written consent is required.

    The law or the articles of association may provide that not more than half of the members of the supervisory board are elected or appointed and removed in a manner other than that mentioned above.

    A member of the supervisory board is elected for a term of five years unless the articles of association prescribe a shorter term of authority.

    Members of the supervisory board elect a chairman from among themselves, who organises the activities of the supervisory board. The Registrar of the Commercial Register is to be notified of the election of the chairman of the supervisory board within five days. For notification, the relevant resolution of the supervisory board is to be submitted.

    Without a resolution of the general meeting, a member of the supervisory board may not be:

  • a sole proprietor in the area of activity of the public limited company;
  • a partner of a general partnership or a general partner of a limited partnership which operates in the same area of activity as the public limited company;
  • a member of a managing body of a company which operates in the same area of activity as the public limited company, except if the companies belong to one group
  • A person with respect to whom a court has imposed a prohibition on acting as a member of the supervisory board or a prohibition to engage in enterprise, a person who is prohibited from operating within the same area of activity as the public limited company, or a person who is prohibited to act as a member of the supervisory board on the basis of law or a court decision may not be a member of the supervisory board.

    3.8.2.3. Management Board

    The management board is a managing body of the public limited company which represents and manages the public limited company.

    The management board, in managing, adheres to lawful orders of the supervisory board. Transactions which are beyond the scope of everyday economic activities may only be concluded by the management board with the consent of the supervisory board.

    § 306 (3) of the Commercial Code requires that the management board present an overview of the economic activities and economic situation of the public limited company to the supervisory board at least once every four months.

    The management board organises the accounting and internal audit of the public limited company.

    A member of the management board need not be a shareholder. The management board may have one member (manager) or several members.

    A member of the management board must be a natural person with active legal capacity.

    A member of the supervisory board may not be a member of the management board. The articles of association may prescribe other persons who are not allowed to be members of the management board.

    Members of the management board are elected by the supervisory board. In order to elect a member of the management board, his or her consent is required.

    A member of the management board is elected for a term of three years unless the articles of association prescribe another term. The articles of association may not prescribe a term of office longer than five years for the members of the management board. Extension of the term of office of a member of the management board may not be decided earlier than one year before the planned date of expiry of the term of office, and not for a period longer than the maximum term of office prescribed by the articles of association.

    If the management board has more than two members, the members of the management board are to elect a chairman of the management board from among themselves, who will organise activities of the management board. The articles of association may grant the right to appoint the chairman of the management board to the supervisory board.

    Without the consent of the supervisory board, a member of the management board may not be:

  • a sole proprietor in the area of activity of the public limited company;
  • partner of a general partnership or a general partner of a limited partnership which operates in the same area of activity as the public limited company;
  • a member of a managing body of a company which operates in the same area of activity as the public limited company, except if the companies belong to one group
  • A person with respect to whom a court has imposed a prohibition on acting as a member of the management board or a prohibition to engage in enterprise, a person who is prohibited from operating within the same area of activity as the public limited company, or a person who is prohibited to act as a member of the management board on the basis of law or a court decision may not be a member of the management board.

    3.8.3. Appointment of Auditor

    Auditors of a public limited company are appointed by the general meeting. The general meeting decides on the number of auditors and specifies the procedure for the remuneration.

    An auditor may be appointed to conduct a single audit or for a specified term.

    A written consent of a proposed auditor is required for the appointment.

    Once auditors have been appointed, the management board is required to submit a list of auditors to the Commercial Register together with their names and personal identification codes, and the legal basis for their activities as auditors.

    3.8.4. Costs of Establishing a Public Limited Company

    To establish a public limited company, a state fee of 140 euros will be charged. The state fee can later be recognized as a business expense as the costs of establishing the public limited company.

    The notary fee for establishing a public limited company depends on the number of founders and the amount of share capital.

    3.9. After Foundation of a Company

    3.9.1. Opening of a Bank Account

    A bank account can only be opened once a company receives the Commercial Register number , which is issued upon entering the company into the Commercial Register.

    The following documents will be required to open a current account at an Estonian bank:

  • the registry card of the company (it can be printed out at the bank);
  • personal identification document (passport, driver’s licence or ID card) of the representative(s) of the company (all members of the management board have to be present if members of the management board represent the company jointly);
  • a notarised power of attorney (if the company is represented by a person other than a member of the company’s management board)
  • For example, at Swedbank the opening of an account is free of charge and takes about 30 minutes with a consultation. Advance booking of a consultation is required.

    3.9.2. Application for an Activity Licence

    According to § 16(1) of General Part of the Economic Activities Code Act, in the cases provided by law an undertaking must have an activity licence prior to commencement of economic activities in an area of activity (authorisation obligation ).

    An activity licence is an administrative act addressed to an undertaking or a contract under public law entered into with an undertaking, regardless of the name thereof, without which it is prohibited for the undertaking to commence economic activities and which proves compliance with certain economic activity requirements in a certain area of activity or determines the secondary conditions for pursuing economic activities.

    An undertaking may commence economic activities subject to the authorisation obligation from the issue of an activity licence, from the fulfilment of the conditions set out on the activity licence or from the date set out on the activity licence, whichever is later.

    In order to obtain an activity licence, an undertaking has to submit an application (application for activity licence ) to an economic administrative authority, which is authorised by law to adjudicate applications for activity licences.

    In particular, an activity licence is required if the company intends to operate in the following fields of activity:

  • payment and e-money services ;
  • trust and company services;
  • currency exchange services ;
  • services of alternative means of payment ;
  • pawn-broking services;
  • buying-in or wholesale of precious metals, precious metal articles or precious stones
  • The Financial Supervision Authority is the economic administrative authority for companies wishing to provide payment and / or e-money services (for details on authorisation as a payment or e-money institution, see the relevant sections above).

    The Financial Intelligence Unit grants activity licences for the other types of activities.

    3.9.3. Registration as a VAT Payer

    Registration as a VAT payer is either obligatory or voluntary.

    The prerequisite for the registration as a VAT payer is the fact that the person is engaged in business or is about to commence business in Estonia.

    An obligation to register a company with the Estonian Tax and Customs Boardas a VAT payer (the registration obligation ) arises as of the date on which the company’s taxable supply, except the transfer of fixed assets and distance selling to a person of Estonia, exceeds 16,000 euros as calculated from the beginning of a calendar year.

    The registration obligation does not arise if all the taxable supply of the person is supply taxable at 0% value added tax rate.

    A company is required to submit an application for registration as a taxable person to the Estonian Tax and Customs Boardwithin three working days as of the date on which the registration obligation arises. An application for registration as a person liable to value added tax may be submitted through the information system of the Commercial Register in a digitally signed format. It is also possible to apply to a notary for the preparation of an application who will submit it through the information system of the e-notary.

    The tax authority will register the company as a taxable person by entering the relevant data into the register of taxable persons as on the date on which the registration obligation arose, within five working days as of the receipt of the application.

    In order to be registered, a company has to furnish proof of the fact that it is engaged in business in Estonia or is about to commence business in Estonia. If the proof is insufficient, the tax authority has the right to request additional proof or collect such proof on its own initiative. The tax authority will decide on the registration within five working days as of the receipt of the proof. The tax authority will not register a company if it is neither engaged in business nor about to commence business (§ 20(4-1) of the VAT Act).

    The tax authority will notify the company about the decision on registration no later than on the working day following the date on which the decision is made.

    If the tax authority has information indicating that the registration obligation has arisen for a person but the person has not submitted a registration application on time, the tax authority will register the person on its own initiative as on the date on which the registration obligation arose. The tax authority will notify the person of the decision to register the person within three working days as of the date on which the decision is made (§ 20(10) of the VAT Act).

    As of the date of registration as a VAT payer, a company will be obliged, among other obligations, to :

  • add the amount of value added tax to the taxable value of goods transferred or services provided;
  • calculate the amount of value added tax due which is to be paid into the state budget by the twentieth day of the month (generally a calendar month) following the taxable period;
  • preserve documents, maintain records and issue invoices in accordance with the requirements;
  • submit VAT returns (Form KMD) to the tax authority by the twentieth day of the month following the taxable period, which is one calendar month
  • Cash transfer and other money transmission transactions , issue and administration of non-cash means of payment , such as electronic payment instruments and electronic money are exempt from VAT under § 16(2-1) of the VAT Act.

    3.9.4. Registration of Employment

    Under § 25-2(1), a person providing work is required to register persons employed by them in the employment register with the Tax and Customs Board.

    The employment register is a sub-register of the register of taxable persons which is maintained to ensure the performance of functions imposed by law on the Tax and Customs Board, the Labour Inspectorate, the Estonian Unemployment Insurance Fund, the Health Insurance Fund, the Social Security Board and the Police and Border Guard Board.

    Data regarding the following types of employment and natural persons through whose employment a tax liability is created in Estonia is to be entered in the employment register, in particular:

  • persons employed under the employment contract;
  • persons providing service under the law of obligations, except for a self-employed person;
  • members of a management or controlling body of a legal person
  • A person providing work is required to register in the employment register the commencement , suspension and termination and type of employment of a person.

    The commencement of employment is to be registered at the latest by the moment of the commencement of employment of a person performing work.

    The suspension and termination of employment is to be registered within ten days as of the date of the suspension or termination of employment.

    The following data is to be provided for the employment register:

  • employee’s given name and surname and the personal identification code;
  • in the absence of the personal identification code the date of birth in the case of employment with the duration of up to five days;
  • registry code or personal identification code and the name of a person providing work;
  • date of commencement of the employment;
  • type of employment;
  • initial and final dates of and the reason for the suspension of employment;
  • initial and final dates of the termination of employment
  • Additional data, such as the official title and the address of the place of employment, will be required if a third-country national or a person with unspecified citizenship is concerned who is residing in Estonia under a temporary residence permit granting the admission to employment , or if a third-country national or a person with unspecified citizenship is concerned who is staying in Estonia with a visa or on the basis of a visa waiver and who has the right to work in Estonia.

    Employment can be registered:

  • via the e-Tax Board by entering the data manually or by uploading the file;
  • via X-Road by means of machine-to-machine interface, delivering the employment data contained in the personnel management programmes of a company or agency; or
  • by visiting an Estonian Tax and Customs Board office
  • A person providing work has the right to register the commencement of employment in a simplified procedure. For that purpose, the person providing work is to submit the personal identification code and the date of commencement of employment of a person performing work and his or her registry code or personal identification code by phone or by a short message onto the phone number published on the web page of the tax authority. Other data shown above is to be entered into the employment register by a person providing work within seven calendar days as of the registration in the simplified procedure.

    Format of the SMS messageis as follows: “employer’s code(space)employee’s code(space)date of commencement of the employment” and the SMS has to be sent at the phone number 1811. Example: 12345(space)23456789012(space)01.07.2014.

    3.9.5. Registration of Shares

    According to § 2(1) of the Estonian Central Registry of Securities Act, shares of public limited companies registered in Estonia are to be entered into the Estonian Central Register of Securitiesmaintained by the Estonian Central Securities Depository (Estonian CSD).

    The registration of shares of a private limited company in the Estonian Central Register of Securities is optional. If a private limited company registers its shares, it will free itself from carrying out the notarial procedures related to shares and ensure its owners a neutral and safe record keeping of the shares.

    The shares of a company may be entered into the register only in the full amount of the share capital.

    The following information is to be entered into the register:

  • issuers, securities issued thereby and the holders of the securities (share registers, lists of shareholders, etc.);
  • holders of securities and securities held thereby (securities accounts);
  • acquisitions, transfers and pledges of securities
  • The following information is to be entered into the register with regard to an issuer and the securities issued thereby:

  • the name, seat and, if possible, registry code of the issuer;
  • the type, nominal value if applicable (including currency) and number of the securities;
  • the names, addresses and personal identification codes or registry codes of the holders of the securities and, in the absence of a personal identification code, their date of birth, and the number of respective securities registered in the securities account opened in the name of each person included in the list of holders of the securities;
  • information concerning pledges of securities
  • In order to initiate the registration process:

  • All owners must have a securities account at the Estonian Central Register of Securities (the number has 11 digits; the first two numbers are 99), which is opened through a bank;
  • All necessary documents must be submitted to the Estonian CSD
  • Documents to be Submitted to the Estonian CSD

    The registrar will register securities on the basis of a written applicationof the issuer.

    The following documents are to be appended to the application:

  • a list of the holders of the securities to be registered (the share register, list of shareholders, etc.);
  • upon registration of the shares of a founded company, a transcript of the registry card from the commercial register or a notarised transcript of the registration certificate; upon registration of the shares of a company being founded, a notarised transcript of the memorandum of association or foundation resolution. The applicant is to append the documents certifying his or her authority to the aforementioned documents;
  • upon registration of a public offer prospectus of securities (prospectus), a document proving the existence of a registration number granted by the Financial Supervision Authority, and the prospectus;
  • information concerning the representative of the issuer acting as a paying agent who is authorised to make payments in the name of the issuer to the holders of securities on securities issued by the issuer;
  • upon first registration of shares, the decision of the shareholders to enter the shares in the register;
  • other information and documents prescribed by the procedure for maintenance of the register
  • When applying for the registration of shares divided into different types (e.g. common or preference share, A and B shares), a separate application is to be submitted for each different type of shares.

    The foundation articles may be submitted either electronically or on paper. If electronically, the foundation articles are to be sent to This email address is being protected from spambots. You need JavaScript enabled to view it.as an MS Word document. If on paper, the foundation articles are to be submitted either as a copy issued by the Commercial Register or as a hard copy signed by a member of the board (all pages must be signed).

    If specimen signature of a board member is required, it is to be submitted in a notarised form or as a copy of the submission made to the Commercial Register. All later applications of the public limited company, which are the basis for carrying out register procedures, must be signed by the same person whose specimen signature has been submitted to the Estonian CSD. NB! The specimen signature is not required in case the member of the board sings the application on the spot at the Estonian CSD at Tartu mnt 2, Tallinn.

    List of shareholders is to contain the following information about the shareholder:

  • the name of the shareholder;
  • the shareholder’s personal identification code or registry code;
  • the number of shares the shareholder owns;
  • the shareholder’s securities account number in the Estonian Central Register of Securities;
  • the shareholder’s number of pledged shares in case the shareholder’s shares are pledged
  • The list of shareholders must be submitted on paper with each page confirmed with a board member’s signature. If the number of shareholders is greater than 25, the list of shareholders must also be submitted electronically as an MS Excel file.

    According to § 8 (2) of the Estonian Central Register of Securities Act, an issuer is not required to submit information provided for in the Act if such information is available to the registrar from the Commercial Register through a computer network.

    Documents which are submitted to the registrar and on the basis of which register entries are made, and documents issued from the register, except conditions of issue and public offer prospectuses, are to be in Estonian. An entry may be based on a document which is not in Estonian if the registrar and the person submitting the document agree thereon beforehand. Unless otherwise previously agreed by the registrar and the person submitting a document in a foreign language, the document is to be submitted together with a certified translation into Estonian. The registrar has the right to issue documents and other information in other languages if this is agreed upon with the person to whom the documents or information are issued.

    The documents may be submitted to the Estonian CSD:

  • by mail
  • by e-mail signed with a digital signature
  • on the spot at the Estonian Central Securities Depository
  • After the documents have been submitted, the Estonian CSD will check whether they conform to the requirements. The registrar has the right to establish additional requirements for documents to be submitted and to demand submission of additional documents to supplement those mentioned above.

    Securities are registered within five working days after all information and documents necessary for the registration of the securities have been submitted to the registrar.

    An expedited registration , i.e. same or next day after submitting, is also possible, however the processing fee will be triple.

    After the shares are entered into the central register, they will have a unique, internationally acknowledged identification code (ISIN-code), which differentiates all securities belonging to the same emission group from others.

    3.9.1.1. Service Charges

    The registrar charges fees for the registry services according to the price listapproved by the Minister of Finance.

    The prices do not include VAT.

    Thus, for the processing of an application for the registration of shares , a company will be charged 30€+VAT per application.

    The expedited processing will be charged at 100€+VAT / per application

    Maintenance fee for electronic administration of securities in the central register is paid to ensure the continuous constant maintenance of data in the register and data reproduction to entitled persons and authorities according to the Estonian CSD price listclause 1.1.2 once a quarter.

    The transfer fee must be paid for each transfer made to the securities account.

    All fees must be paid on the basis of an invoice from the Estonian CSD after the registration of shares. All payable fees are presented jointly on the invoice. The invoice shows the bank requisites necessary for payment.

    3.9.1.2. Obligations of Registered Companies

    After the shares of a company have been registered in the Estonian Central Register of Securities, the issuer is required to notify the ECSD as the keeper of the register of all circumstances concerning amendments to rights and obligations related to issued securities. The circumstances to be notified are as follows:

  • Increase / reduction of nominal value;
  • Changes in share capital;
  • Merger, reorganisation;
  • Fund issue;
  • Changes in issue terms;
  • Payments from shares;
  • The adoption of a liquidation resolution by the issuer or initiation of bankruptcy proceedings with regard to the issuer;
  • Change of management;
  • Change of company's name;
  • Change of company's contact details
  • 3.10. Accounting and Reporting

    All companies and branches of foreign companies operating in Estonia are subject to accounting requirements.

    Legal requirements for accounting and reporting in Estonia are set forth in the following documents:

  • Accounting Actof the Republic of Estonia, and
  • Guidelines of the Accounting Standards Board
  • The Accounting Act creates the legal bases and establishes general requirements for organising accounting and financial reporting in accordance with internationally recognised principles.

    Guidelines of the Accounting Standards Board are prepared on the basis of the international financial reporting standards and are meant to explain and specify the Accounting Act. If a guideline is in conflict with the Act, the provisions of the Act apply. The guidelines of the Accounting Standards Board are published in the Riigi Teataja.

    3.10.1. General Requirements for the Organisation of Accounting

    Accounting entities, in particular legal persons in private law registered in Estonia, are required to organise their accounting and financial reporting in accordance with the Accounting Act.

    The accounting policies and presentation formats used in accounting are to be in accordance with the requirements and basic principles provided for in the Accounting Act and with at least one of the following two accounting frameworks:

  • accounting principles generally accepted in Estonia (Estonian GAAP );
  • international financial reporting standards (IFRS ) approved by the European Commission
  • The accounting policies and presentation formats used in the preparation of financial statements by a credit institution, financial holding company, mixed financial holding company, investment firm, insurance company or by a company, whose securities are admitted for trading on a regulated securities market of Estonia or another EEA State must be in accordance with the IFRS.

    An accounting entity is required to establish accounting policies and procedures which establish the charting of accounts together with a description of the contents of the accounts and which regulate, among other things:

  • the documentation and recording of business transactions;
  • the flow and preservation of source documents;
  • the maintenance of accounting journals and ledgers;
  • the presenting of revenue and expenditure under Income Statement items;
  • physical inventory of assets and liabilities;
  • the accounting policy and presentation format used by the accounting entity;
  • the procedure for preparing financial statements;
  • usage of accounting software, and
  • the circumstances relating to the organisation of accounting and the implementation of related internal audit measures
  • The management board of a public / private limited company is responsible for the organisation of accounting in the company (§ 183 and § 306(4) of the Commercial Code).

    According to general requirements for the organisation of accounting set out in § 4 of the Accounting Act, an accounting entity is required:

  • to organise its accounts in such a way as to ensure the provision of up-to-date, relevant, objective and comparable information concerning the financial position, financial performance and cash flows of the accounting entity;
  • to document all its business transactions;
  • on the basis of source documents or summary documents prepared on the basis thereof, to post and record all its business transactions in accounting ledgers and journals;
  • to prepare and submit annual reports and other financial statements pursuant to the procedure provided for in the Accounting Act and other legislation;
  • to preserve accounting documents
  • The Accounting Act requires that accounts of companies be maintained on an accrual basis.

    3.10.1.1. Documenting and Recording Business Transactions

    An accounting entity is required to document and record all its business transactions in journals and ledgers within a reasonable period of time following a business transaction such that the submission of reports prescribed by legislation within the specified term is ensured.

    Business transactions are to be recorded on a double-entry basis.

    An accounting entity is to prepare a chart of accounts for recording business transactions and adjusting entries.

    All accounting entries must be supported by source documents certifying the corresponding business transactions or by summary documents prepared on the basis of source documents.

    An accounting entry must contain the following information:

  • the date of the business transaction;
  • the number of the accounting entry;
  • the accounts debited and credited and the corresponding amounts;
  • a short description of the business transaction;
  • the name and number of the source (summary) document
  • Accounting journals and ledgers may be prepared:

  • as hand-written or printed documents;
  • on data media enabling written reproduction if the authenticity of the information preserved thereon is ensured
  • The accounting journals and ledgers must enable extracts to be made of recorded business transactions in chronological order.

    An accounting entity is required to preserve accounting source documents for seven years as of the end of the financial year during which the source document was recorded in the accounts.

    Accounting ledgers, journals, contracts, financial statements, reports and other business documents which are necessary for reconstructing business transactions during audits must be preserved by the accounting entity for seven years as of the end of the corresponding financial year.

    Accounting rules and procedures are to be preserved for seven years after the amendment or replacement.

    An accounting entity is also required to preserve in electronic form the accounting journals and ledgers which are created electronically.

    3.10.2. General Reporting Requirements

    The financial year in Estonia is twelve months.

    The financial year of an accounting entity is deemed to be a calendar year , unless otherwise provided for in the articles of association of the accounting entity or any other document regulating the relevant activities.

    At the end of each financial year, an accounting entity is required to prepare an annual report which consists of the annual accounts and the management report.

    The preparation of an annual report entails the following steps:

  • preparation of the annual accounts;
  • preparation of the management report;
  • approval of the annual report
  • The submission of an annual report entails the following steps:

  • auditing;
  • in the case of a company, preparation of the profit distribution proposal or proposal on covering of loss for the financial year;
  • submission of the annual report for approval
  • For the reporting obligations of payment and e-money institutions, see § 82(2) of PIEMIA or the relevant section of the Getting Authorised chapter above.

    3.10.2.1. The Annual Accounts

    According to § 15(2) of the Accounting Act, the annual accounts are to comprise the main statements (balance sheet, income statement, cash flow statement and statement of changes in owners' equity) and notes on the accounts.

    Annual accounts are to be prepared in Estonian and in the currency officially applicable in Estonia (Euro), and the degree of precision used for the figures is to be indicated (for example, in thousands of currency units).

    An accounting entity is required to disclose the following information in the notes on the accounts:

  • which of the accounting standards (Estonian GAAP or IFRS) was taken as the basis for preparation of the annual accounts;
  • the material accounting policies used in the preparation of the annual accounts;
  • explanations concerning the material items in the main statements and the changes in such items during the accounting period;
  • remuneration and other significant benefits (calculated on an accrual basis) calculated by the accounting entity during the accounting year to the executive and senior management;
  • total amount of remuneration calculated to employees during the accounting year and average number of employees by the types of employment (see § 25-1(4) of the Taxation Act);
  • an overview of the funds allocated to the accounting entity directly or indirectly from the state budget or a local government budget during the accounting year not on arm's length basis, including the received state aid, and the use thereof;
  • other important circumstances for the provision of relevant and truthfully submitted financial information regarding the accounting entity with respect to the financial position and performance and cash flows of the accounting entity
  • The notes on the annual accounts are to be in compliance with the Estonian GAAP or IFRS.

    3.10.2.2. Audit Requirements

    An auditor’s report must be appended to the annual report, if a company is required to undergo an audit.

    An audit of the annual accounts is compulsory for all public limited companies.

    According to § 91(1) of the Auditors Activities Act, an audit of the annual accounts is compulsory for accounting entities, in whose annual accounts at least two of the indicators of the financial year exceed the following conditions:

  • sales revenue or income - 4,000,000 euros;
  • total assets as of the balance sheet date - 2,000,000 euros;
  • average number of employees - 60 people
  • An audit of the annual accounts is compulsory for accounting entities, in whose annual accounts at least one of the indicators of the financial year exceeds the following conditions:

  • sales revenue or income - 12,000,000 euros;
  • total assets as of the balance sheet date - 6,000,000 euros;
  • average number of employees - 180 people
  • According to § 50(3) of the Auditors Activities Act, the objective of the provider of an auditing service in an audit is to express an opinion in a sworn auditor’s report in a generalised affirmative format to the prescribed user on the basis of the collected evidence.

    A review of the annual accounts is compulsory for an accounting entity, in whose annual accounts at least two of the indicators of the financial year exceed the following conditions:

  • sales revenue or income - 1,600,000 euros;
  • total assets as of the balance sheet date 800,000 euros;
  • average number of employees 24 people
  • A review of the annual report is compulsory for an accounting entity, in whose annual accounts at least one of the indicators of the financial year exceeds the following conditions:

  • sales revenue or income - 4,800,000 euros;
  • total assets as of the balance sheet date - 2,400,000 euros;
  • average number of employees - 72 people
  • A compulsory review may be replaced by an audit.

    According to § 51(3) of the Auditors Activities Act, the objective of the provider of an auditing service in a review is to provide a review summary in a sworn auditor’s report in a generalised negative format to the prescribed user on the basis of the collected evidence.

    3.10.2.3. The Management Report

    A management report is to provide an overview of:

  • the activities of the accounting entity;
  • circumstances which are material to the assessment of the financial position and business activities of the accounting entity;
  • significant events which have occurred during the financial year, and
  • the likely future developments
  • A management report is to contain the information concerning the existence of branches of the accounting entity registered in a foreign state.

    The management report is to show, inter alia:

  • the main areas of activity, product and service groups;
  • the most significant investments made during the financial year and planned in the immediate future;
  • significant projects in the field of research and development and the related expenditure in the accounting year and the following years;
  • significant events which have occurred during the period of preparation of the annual accounts and which are not presented in the annual accounts but which have or may have a material effect on economic performance for the following financial years
  • In addition, an accounting entity whose annual reports are audited or must be audited pursuant to law are to describe in the management report:

  • general (macroeconomic) development of the activities environment of the accounting entity and the impact of such development on its financial performance;
  • whether the operating activities of the accounting entity take place on a seasonal basis, or whether their business activities are cyclical;
  • significant environmental and social impacts resulting from the activities of the accounting entity;
  • financial instruments, financial risk management objectives and policies and risks related to changes in foreign exchange rates, interest rates and stock exchange rates which have occurred during the financial year or during the period of preparation of the report;
  • the main financial ratios concerning the financial year and the preceding financial year, and the methods for calculating the ratios
  • An accounting entity which is being founded is required to prepare an opening balance sheet showing its assets, liabilities and owners' equity before the commencement of business activities.

    A company is required to file the annual report with the Commercial Register within six months of the end of the financial year.

    The report can be filed electronically via the e-Commercial Register Company Registration Portal. The e-reporting environment of the Company Registration Portal is a solution established for electronic submitting of annual reports. The reporting environment allows preparing the main reports and the notes, adding notes and documents, digitally signing the annual report or printing and signing it on paper, and also allows the sworn auditor to prepare the sworn auditor’s conclusion and to certify it electronically.

    3.11. Taxation of a Company

    Companies doing business in Estonia are responsible for paying taxes in accordance with the tax legislation in force in Estonia.

    3.11.1. Legal Framework

    Estonian tax law is harmonized with EU legislation and based on the continental European law model.

    The tax system in Estonia consists of state taxes provided for in and imposed by Acts concerning taxes and local taxes imposed by a rural municipality or city council in its administrative territory pursuant to law.

    The legal framework for corporate taxation includes the following major legal acts:

  • Taxation Act;
  • Income Tax Act;
  • Social Tax Act;
  • Value-Added Tax Act;
  • Local Taxes Act;
  • Other acts concerning specific taxes
  • The following information is provided in an act concerning a tax:

  • the name of the tax;
  • the object of taxation;
  • the tax rate;
  • the taxpayers;
  • the recipient of or place of receipt of the tax;
  • the due date or term for payment of the tax, and the period of taxation in the case of periodic taxes;
  • the procedure for calculation and payment of the tax and supplementary obligations accompanying the tax;
  • tax incentives that are available
  • The tax authority for state taxes is the Tax and Customs Board.

    Local taxes are imposed by a rural municipality or city council regulation in compliance with the conditions provided by the Local Taxes Act.

    The tax authorities for local taxes are rural municipality and city governments or other rural municipality or city administrative agencies as provided in a tax regulation.

    3.11.2. Taxable Persons

    Under § 6(1) of the Taxation Act, the following are taxable persons :

  • taxpayers;
  • withholding agents;
  • other persons responsible for the tax liability of a taxpayer or withholding agent pursuant to law or a contract
  • A taxpayer is a natural or legal person, or a state, rural municipality or city agency, who is required to pay tax under the conditions and pursuant to the procedure provided by law and to perform other monetary and non-monetary obligations imposed on the person in connection with the tax liability.

    A withholding agent is a natural or legal person, or a state, rural municipality or city agency, who is required to withhold the amount of tax payable by other person and transfer such amount to the designated bank account under the conditions and pursuant to the procedure provided by law and to perform other monetary and non-monetary obligations imposed on the person in connection with the obligation to withhold.

    As a withholding agent, a company is obliged to withhold from the employee´s gross income personal income tax, social tax. the mandatory funded pension payment and unemployment insurance premium (for more information see the relevant subsections below).

    3.11.2.1. Resident and Non-resident Taxpayers

    For the purpose of taxation, Estonian taxpayers are classified as resident and non-resident legal entities and individuals.

    A legal entity is treated as resident in Estonia if it is founded under Estonian laws. An Estonian branch of a foreign company is treated as a permanent establishment of a non-resident entity.

    An individual is treated as resident in Estonia if they have a permanent place of residence in Estonia, are present in the country for 183 days or more during any 12-month period.

    Non-resident taxpayers include foreign entities and individuals, or their permanent establishments in Estonia.

    Taxpayers that are based in Estonia and are registered in the Estonian Commercial Register (subsidiaries, branches etc.) will be automatically recorded into the taxpayers register that is held by Estonian Tax and Customs Authorities. A separate registration is required for VAT purposes.

    3.11.2.2. Financial Claims and Obligations

    According to § 31(1) of the Taxation Act, the following financial claims and obligations may arise from an act concerning a tax or from the Taxation Act:

  • the obligation of a taxpayer to pay tax (tax liability);
  • the obligation of a withholding agent to withhold tax and to pay the withheld amount of tax (obligation to withhold);
  • the right of a person to be refunded amounts of tax paid which exceed the amounts of tax prescribed by law or other excess payments pursuant to § 33 of this Act (claim for refund);
  • the obligation of a third party to pay the tax arrears of a taxpayer or withholding agent (tax liability of third party);
  • the obligation of a taxable person to pay interest or a penalty payment or to reimburse the costs of substitutive enforcement (accessory obligation)
  • The claims and obligations mentioned above arise upon the fulfilment of conditions provided by law, unless it is provided by law that an administrative act of a tax authority is required for an obligation to arise.

    3.11.3. Corporate Taxes

    The following are the major corporate taxes in Estonia:

  • Income tax
  • Value-added tax
  • Social tax
  • Unemployment insurance premium
  • Other taxes include customs tax and excise duties, environmental charges, taxes payable in the case of cross-border operations and some others.

    Which taxes and at which rate have to be paid by a company depends on the company's specific characteristics.

    3.11.3.1. Income Tax

    There are two kinds of income tax – personal income tax and corporate income tax (income tax of a legal person is also paid by all employers who have non-resident permanent places of activity and offer fringe benefits).

    Besides paying corporate income tax, a company is required as an employer to withhold and pay employees’ income tax to the Tax and Customs Board.

    A special feature of corporate income tax in Estonia is the fact that only dividends are taxed. Earnings are not taxed as long as they are reinvested in the company.

    Income tax must be paid on distributed earnings, expenses and payments not related to enterprise and on gifts, donations, costs of entertaining guests and fringe benefits granted to employees. Also subject to income tax are reduction of corporate capital, repurchases of shares and disbursement of liquidation proceeds exceeding the monetary and non-monetary contributions to the company’s equity.

    The corporate income tax rate in 2016 is 20/80. The taxation period is a calendar month and the income tax declaration must be submitted to the Tax and Customs Board by the 10th of the subsequent month. Income tax return can be submitted electronically at e-Tax and Customs Board/e-Customs or by contacting the Tax and Customs Board’s regional tax centre.

    Personal income earned by employees is also subject to income tax and employers are obliged to withhold and pay income tax on gross wages earned, extra payments, bonus pay, holiday pays and other payments that are regarded as wages.

    The natural person income tax rate in 2016 is 20%. The tax-free minimum is 170 euros a month of which no deduction of income tax is made. If an employee has filed an application to the person making the payments (the employer) concerning the implementation of tax-free income, the amount of tax-free income permitted per month can be deducted when calculating the amount of income tax to be withheld.

    3.11.3.2. Value-added Tax

    Value-added tax (VAT) is levied on goods and services sold in the course of business, import of goods from non-EU countries and acquisition of goods from European Union countries. Value-added tax is paid by the end consumer.

    If the taxable annual turnover of a company exceeds 16 000 euros , the company is required to register with the Tax and Customs Board as a VAT payer (for details on registration as a VAT payer, see the relevant section above). If turnover is below that limit, registration is not obligatory.

    A VAT payer is required to:

  • add VAT to the sales price when selling goods or providing service;
  • keep accounting for value-added tax;
  • calculate and pay the VAT amount;
  • retain documents related to transactions and to present invoices in conformity to the requirements
  • Companies have the right to deduct from taxable supply VAT paid upon acquiring a good or service used for taxable supply (input VAT).

    The general VAT rate is 20% of the taxable value of a good or service.

    A tax rate of 9% applies to some goods and services – for instance books (including textbooks and workbooks), periodicals, accommodation services, and medicines, health and hygiene products specified by the Ministry of Social Affairs, and medical equipment for use of disabled persons.

    A 0% VAT rate is in effect for a number of goods, including exported goods, and consultation services provided to VAT payers in another EU member state as well as for watercraft and aircraft used in international traffic. A 0% VAT rate also applies to services provided outside Estonia, a number of services related to water and air transport and carriage of goods.

    The supply of a number of goods and services is tax-free. Among them are:

  • goods and services of a social nature such as postal services, health services, pre-school, basic, vocational, secondary and higher education;
  • insurance services, including reinsurance and insurance mediation;
  • leasing or letting of immovables;
  • valid postal payment means of the Republic of Estonia if sold at their nominal value;
  • securities, except securities or holdings, which grant the holders thereof the right of ownership of the immovables or parts thereof;
  • lottery tickets and the organisation of gambling, except the organisation of commercial lotteries and the organisation of such games of skill the only possible prize of which is the possibility to participate again in the same game;
  • investment gold, services relating to the transfer of investment gold;
  • goods, upon the acquisition of which there was no right for deduction of input value added tax, unless the goods were acquired before the registration of the acquirer as a taxable person or if, at the time of acquisition of the goods, the input value added tax had been deducted in part;
  • financial services (§ 16(2-1) of the VAT Act), including:
  • deposit transactions for the receipt of deposits and other repayable funds from the public;
  • borrowing and lending operations, including consumer credit, mortgage credit and other transactions for financing business transactions;
  • leasing transactions;
  • settlement, cash transfer and other money transmission transactions;
  • issue and administration of non-cash means of payment, such as electronic payment instruments, electronic money, traveller’s cheques and bills of exchange;
  • guarantees and commitments and other transactions creating binding obligations to persons;
  • transactions for their own account or for the account of clients in traded securities and in foreign exchange and other money market instruments, including transactions in cheques, exchange instruments, certificates of deposit and other such instruments;
  • transactions and acts related to the issue, sales and purchase of securities;
  • money broking;
  • management of investment funds and some others
  • The full list of VAT exemptions is set out in the VAT Act.

    According to point 3) of § 16(3) of the VAT Act, a taxable person is required to add value added tax to the taxable value of the financial services listed in § 16(2-1) of the Act (exempt financial services), except in cases where the service is provided to a taxable person or taxable person with limited liability of another Member State, if the person has, during the same taxable period or earlier, notified the Estonian Tax and Customs Board thereof in writing before the supply is effected.

    The taxation period for VAT is a calendar month. VAT payers are required to file a value-added tax return and pay VAT to the Tax and Customs Board by the 20th day of the month subsequent to the taxation period. The value-added tax return may be filed by using the electronic Tax and Customs Board or contacting the Tax and Customs Board’s regional tax centre. Companies that have been VAT payers for at least 12 months will be required to submit the VAT return electronically.

    3.11.3.3. Social Tax

    Revenue from social tax is used to fund pension insurance and state health care. Social tax is to be paid by an entrepreneur (employer) for an employee.

    The social tax rate is 33% of the employee’s gross earnings.

    The taxation period is a calendar month and by the 10th of the subsequent month the employer will have to declare and pay social tax to the Tax and Customs Board. A declaration can be submitted electronically at e-Tax and Customs Board or by contacting the Tax and Customs Board’s regional tax centre.

    An employer is required to pay social tax on wages as well as on fringe benefits.

    Special Cases of Social Tax

    In some special cases, social tax is paid by the Estonian state – for instance, for various persons who receive caregiver support and families with many children. Social tax is paid by the state for employees, whose loss of capacity for work has been assessed as 40% or more.

    An employer who employs an employee with decreased working ability (who is established as having partial or no working ability or at least 40% permanent incapacity for work) can apply for a social tax incentive from the Unemployment Insurance Fund.

    The state will continue to pay social tax for an employee with decreased working ability via the fund pursuant to the monthly rate (390 euros in 2016).

    An employer pays social tax for an employee with decreased working ability on the amount of remuneration that exceeds the monthly rate which forms the basis for the calculation of the social tax paid by the fund. If the actual remuneration of the employee is lower than the monthly rate (e.g. they are employed part-time), the fund will still pay the social tax calculated on the monthly rate.

    The state pays social tax if the employer is a company, non-profit association, foundation or sole proprietor and the employee is working for the employer under an employment contract.

    The state does not pay social tax for those with decreased working ability who receive remuneration under a contract for services, authorisation agreement or any other contract under the law of obligations.

    3.11.3.4. Mandatory Funded Pension Payment

    Everyone who is making payments taxable with social tax, i.e. all employers operating in Estonia, are obliged to withhold the mandatory funded pension contributions of 2% from gross salaries of their employees.

    The mandatory funded pension contributions must be withheld from the payments made to the persons who have joined the funded pension system and who were born after 1 January 1983 (subscribing to the funded pension is mandatory for the persons who were born in 1983 and later, while persons who were born between the years 1942 and 1982 had the option to voluntarily subscribe to the funded pension system till 31 October 2010). The employer is required to check whether their employees have joined the pension system.

    The right and obligation to pay the payment arises on 1 January of the year following the year when a person becomes 18 years old.

    Employers are obliged to declare the mandatory funded pension contributions to the Tax Board.

    A tax return on the withheld contribution must be submitted by the 10th date of the following month, and by the same date, the contribution must be transferred to the bank account of the Tax Board. The contributions are governed by the provisions of the Taxation Act, i.e. the Tax Board manages the contributions similarly to state taxes.

    The withholding agent is obliged to issue a certificate regarding the withheld contributions to a person, to whom the amounts constituting the object of the contribution were paid, at the request of such person by 1 February of the year following the respective calendar year. If a person leaves employment, the certificate must be given to him or her together with the final settlement.

    The contribution is withheld on:

  • salaries paid and other payments in money made to an employee;
  • payments made to a person of a management or control body of a legal person;
  • payments made to a natural person on the basis of a contracting agreement, authorisation agreement or other contract under the law of obligations, concluded for provision of a service, save the payments made to a registered natural person on the basis of law
  • Contributions are not withheld on:

  • fringe benefits;
  • monetary payments made to an employee, which do not constitute the object of the social tax (compensation for business trip expenses and daily allowances, compensation for use of a personal car, amounts paid to residents of foreign states by a resident of Estonia through a permanent establishment that is located abroad)
  • 3.11.3.5. Unemployment Insurance Premium

    The aim of the unemployment insurance premium is to insure employees against unemployment, collective termination of employment contracts or the insolvency of the employer.

    Unemployment insurance must be paid to the employee on the basis of wages and other remuneration paid to natural persons on the basis of contract. The payment obligation is distributed between the insured partythe employee (employee’s unemployment insurance premium) and the employer (employer’s unemployment insurance premium). Old age pensioners and members of the company’s management or supervisory body are not required to pay unemployment insurance premiums. An employer must pay unemployment insurance for all employees.

    The employer will be required to calculate and pay unemployment insurance premiums at a rate of 0.8% (employer’s unemployment insurance premium) of the employee’s gross earnings. In addition, the employer will be required to withhold and pay the employee’s unemployment insurance premium at a rate of 1.6% of gross earnings.

    The employer is required to calculate, declare, withhold and pay the premiums on disbursements made in a given calendar month. The deadline for payment and filing a return to the Tax and Customs Board is the 10th of the subsequent month. The return can be filed electronically at e-Tax and Customs Board or by contacting the Tax and Customs Board’s regional tax centre.

    The Tax and Customs Board verifies payment of the unemployment insurance premium, and if necessary, determines the amount of the premium subject to payment or refund, and collects unpaid premiums.

    3.11.3.6. Local Taxes

    In addition to state taxes, each local government has the right to establish local taxes.

    The local government determines the tax rate and mainly deals with tax collection as well. Among taxes that may be imposed by local governments are, for instance, advertisement tax.