Estonia

GDP (US$ Billion)

25.97 (2017)

World Ranking 103/192

GDP Per Capita (US$)

19,840 (2017)

World Ranking 43/192

Economic Structure

(in terms of GDP composition, 2017)

Services
(60.40%)
Industry
(24.00%)
Agriculture
(2.00%)

External Trade (% of GDP)

154.1 (2016)

Currency (Period Average)

Euro

0.89 per US$ (2017)

Political System

Unitary multiparty republic

Overview

Estonia's political environment is characterised by consensus among major political parties towards liberal economic policy, conservative fiscal management and European Union (EU) convergence. This has helped to substantially mitigate policy risks through recession, preventing any major breakdown in leadership. Real GDP growth is expected to ease between 2019 and 2021, albeit remaining above the eurozone average. Post-2021, the economy will return to a more sustainable and stable rate of expansion. This, in turn, will ease supply-side constraints that have emerged over the past few years, namely labour shortages and capacity constraints.

Sources: World Bank, Fitch Solutions

Major Economic/Political Events and Upcoming Elections

March 2017

The first of about 800 British troops arrived in Estonia as part of a major NATO mission in the Baltic States.

February 2018

The Estonian government approved the spatial planning for the proposed Rail Balitca works in Estonia: A high-speed rail line which transects and connects three Baltic states (Estonia, Latvia, Lithuania). The rail link is proposed to run between Tallinn to Vilnius, via Riga.

February 2019

The government of Estonia cleared the Rail Infrastructure Fund Action Plan for 2019-2024, which calls for investments worth EUR431 million (USD490.3 million).

March 2019

The proposed high-speed rail-link tunnel between Finland and Estonia received EUR15 billion in funding. The 100km tunnel is proposed to run between Helsinki (Finland) and Tallinn (Estonia), under the Gulf of Finland.

Sources: BBC country profile – Timeline, Fitch Solutions

Major Economic Indicators

 

Graph: Estonia real GDP and inflation
 
Graph: Estonia real GDP and inflation
 
Graph: Estonia GDP by sector (2017)
 
Graph: Estonia GDP by sector (2017)
 
Graph: Estonia unemployment rate
 
Graph: Estonia unemployment rate
 
Graph: Estonia current account balance
 
Graph: Estonia current account balance
 

e = estimate, f = forecast

Sources: IMF, World Bank

Date last reviewed: March 16, 2019

External Trade

Merchandise Trade

Graph: Estonia merchandise trade
 
Graph: Estonia merchandise trade
 
 

Sources: WTO, Fitch Solutions

Date last reviewed: March 16, 2019

Graph: Estonia major export commodities (2018)
 
Graph: Estonia major export commodities (2018)
 
Graph: Estonia major export markets (2018)
 
Graph: Estonia major export markets (2018)
 
Graph: Estonia major import commodities (2018)
 
Graph: Estonia major import commodities (2018)
 
Graph: Estonia major import markets (2018)
 
Graph: Estonia major import markets (2018)
 

Sources: Trade Map, Fitch Solutions

Date last reviewed: March 16, 2019

Trade in Services

 

Graph: Estonia trade in services
 
Graph: Estonia trade in services
 
 

e = estimate

Sources: WTO, Fitch Solutions

Date last reviewed: March 16, 2019

Trade Policies
  • Estonia joined the World Trade Organization (WTO) in November 1999, further joining the EU in May 2004.

  • Estonia applies the EU's Common External Tariff, which means goods manufactured and imported from within the EU are not subject to customs charges. The average tariff rate for EU states is just 1.5%, which is among the lowest globally. The duties for non-European countries are also relatively low, especially for manufactured goods (4.2% on average). However, textile, clothing items (high duties and quota system) and food-processing industry sectors (average duties of 17.3% and numerous tariff quotas) still see protective measures. Most of the country's major trade partners are within the EU, hence risks are less pronounced.

  • The EU has imposed various anti-dumping measures on a wide range of products, predominantly in the areas of textiles, parts, steel, iron, and machinery on goods coming from China and a few other Asian nations to protect domestic industries.

  • On November 13, 2016, the European Commission (EC) imposed a provisional anti-dumping duty on imports of some primary and semi-processed metals from China. The rate of duty is between 43.5% and 81.1% of the net free-at-union-frontier price before duty depending on the company. In the same vein, the rate of duty for similar goods from Belarus is 12.5% of the net, free-at-union-frontier price before duty.

  • In 2016, the EC also introduced an import licensing regime for steel products exceeding 2.5 tonnes. The regulation will be active until May 15, 2020.

  • In March 2016, the EC imposed a definitive countervailing duty (8.7% or 9%) on imports consisting largely of textiles products originating in India.

  • In Q215, the EC issued regulations on trade restrictions on cattle, beef, watermelons and prepared tomatoes with Turkey. This will help to protect domestic agriculture and regional farming businesses.

  • On January 1, 2017, the EU imposed additional import duties on certain fruit and vegetables if the quantity of the subject goods exceeds the trigger volume level within the specified application period.

  • On November 15, 2017, the EC allocated a total value of EUR62 million (USD74.4 million) for funding promotional campaigns of EU agricultural products implemented in the internal market for the year 2018. The budget consists of various promotional topics of EU goods in the internal market with an additional focus on the promotion of fruit, vegetables and sheep or goat meat.

Sources: WTO - Trade Policy Review, Fitch Solutions

Trade Agreement

Multinational Trade Agreements

Active

  1. The EU Common Market: The transfer of capital, goods, services and labour between member nations enjoy free movement. The common market extends to the 28 member nations of the EU, namely: Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.

  2. European Economic Area-European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland): While it enhances trade flows between these countries and the EU, only Switzerland is a fairly major trading partner.

  3. EU-Turkey: The customs union within the EU provides tariff-free access to the European market for Turkey, benefitting both exporters and importers.

  4. EU-Japan Economic Partnership Agreement: In July 2018, the EU and Japan signed a trade deal that promises to eliminate 99% of tariffs that cost businesses in the EU and Japan nearly EUR1 billion annually. According to the EC, the EU-Japan Economic Partnership Agreement (EPA) will create a trade zone covering 600 million people and nearly a third of global GDP. The result of four years of negotiation, the EPA was finalised in late 2017 and came into force on February 1, 2019 after the EU Parliament ratified the agreement in December 2018. The total trade volume of goods and services between the EU and Japan is an estimated EUR86 billion. The key parts of the agreement will cut duties on a wide range of agricultural products and it seeks to open up services markets, particularly financial services, e-commerce, telecommunications and transport. Japan is the EU's second biggest trading partner in Asia after China. EU exports to Japan are dominated by motor vehicles, machinery, pharmaceuticals, optical and medical instruments, and electrical machinery.

  5. EU-SADC EPA (Botswana, Lesotho, Mozambique, Namibia, South Africa and Swaziland): An agreement between EU and SADC delegations was reached in 2016 and is fully operational for SADC members following the ratification of the agreement by Mozambique. The remaining six member of SADC no included in the deal (the Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, Zambia and Zimbabwe) are seeking economic partnership agreements with the EU as part of other trading blocs – such as with East or Central African communities.

Provisionally Active

The Comprehensive Economic and Trade Agreement (CETA): The CETA is an agreement between the EU and Canada. CETA was signed in October 2016 and ratified by the Canadian House of Commons and EU Parliament in February 2017. However, the agreement has not been ratified by every European state and has only provisionally entered into force. CETA is expected to strengthen trade ties between the two regions, having come into effect in 2016. Some 98% of trade between Canada and the EU will be duty free under CETA. The agreement is expected to boost trade between partners by more than 20%. CETA also opens up government procurement. Canadian companies will be able to bid on opportunities at all levels of the EU government procurement market and vice versa. CETA means that Canadian provinces, territories and municipalities are opening their procurement to foreign entities for the first time, albeit with some limitations regarding energy utilities and public transport.

Ratification Pending

  1. EU-Central America Association Agreement (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Belize and the Dominican Republic): An agreement between the parties was reached in 2012 and is awaiting ratification (29 of the 34 parties have ratified the agreement as of October 2018). The agreement has been provisionally applied since 2013.

  2. EU-Singapore Free Trade Agreement (FTA) (EUSFTA): On February 13, 2019, the European Parliament passed the agreement which would see the creation of the EUSFTA. However, before the agreement is implemented, all the states involved will need to ratify the agreement through their individual legislatures; in this case, the FTA may become provisionally active along the lines of states which have already ratified the agreement.

Under Negotiation

  1. EU-Australia: The EU, Australia's second largest trade partner, has launched negotiations for a comprehensive trade agreement with Australia. Bilateral trade in goods between the two partners has risen steadily in recent years, reaching almost EUR48 billion in 2017, and bilateral trade in services added an additional EUR27 billion. The negotiations aim to remove trade barriers, streamline standards and put European companies exporting to or doing business in Australia on equal footing with those from countries that have signed up to the Trans-Pacific Partnership or other trade agreements with Australia. The Council of the EU authorised opening negotiations for a trade agreement between the EU and Australia on May 22, 2018.

  2. EU-United States (Trans-Atlantic Trade and Investment Partnership): This agreement was expected to increase trade and services, but it is unlikely to pass under the Trump administration in the United States against the backdrop of rising global trade tensions.

  3. EU-Vietnam FTA: In July 2018, the EU and Vietnam agreed on final texts for the EU-Vietnam FTA and the EU-Vietnam Investment Protection Agreement (IPA). As of March 2019, the final text of the agreement has been finalised and is awaiting signature and conclusion.

Sources: WTO Regional Trade Agreements Database, Fitch Solutions

Investment Policy

Foreign Direct Investment

 

Graph: Estonia FDI stock
 
Graph: Estonia FDI stock
 
Graph: Estonia FDI flow
 
Graph: Estonia FDI flow
 

Sources: UNCTAD, Fitch Solutions

Date last reviewed: March 16, 2019

Foreign Direct Investment Policy

  1. The Estonian Investment Agency (EIA), a part of Enterprise Estonia, is a government agency promoting foreign investments in Estonia and assisting international companies in finding business opportunities in Estonia. EIA offers comprehensive, one-stop investment consultancy services free of charge. The agency's goal is to increase awareness of business opportunities in Estonia and promote the image of Estonia as an attractive country for investments.

  2. Licences are required if foreign investors want to enter the following sectors: Mining, energy, gas and water supply, railroad and transport, waterways, ports, dams and other water-related structures and telecommunications and communication networks.

  3. Estonia's government has not set limitations on foreign ownership and it does not screen foreign investment.

  4. As an EU member, Estonia maintains liberal policies in order to attract investment and export-oriented companies. Creating favourable conditions for foreign direct investment (FDI) and openness to foreign trade has been the foundation of Estonia's economic strategy. Existing requirements are not intended to restrict foreign ownership but rather to regulate it and establish clear ownership responsibilities.

Sources: WTO – Trade Policy Review, Fitch Solutions

Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive Programme Main Incentives Available
Four free trade zones: Muuga port (near Tallinn), Sillamae port (northeast Estonia), Paldiski north port (northwest Estonia) and in Valga (southern Estonia) - All free trade zones are open for FDI on the same terms as Estonian investments.



- Estonia's Customs Act permits the government to establish free trade zones.



- Goods in a free trade zone are considered to be outside the customs territory.



- Value added tax (VAT), excise, import and export duties (as well as possible fees for customs services) do not have to be paid on goods brought into free trade zones for later re-export.
 

Sources: US Department of Commerce, Fitch Solutions

Taxation – 2019
  • Value Added Tax: 20%
  • Corporate Income Tax: 20%

Source: Ministry of Finance, Estonia

Important Updates to Taxation Information

  • There is no separate capital gains tax. Gains derived by resident companies or branches of foreign companies are exempt until a distribution is made.

  • Estonia is regarded as offering a relatively favourable income tax regime, as all undistributed corporate profits are tax exempt. Estonia levies a corporate income tax only on profits that are distributed as dividends, share buy-backs, capital reductions, liquidation proceeds, or deemed profit distributions. Distributed profits are generally subject to 20% corporate tax (20/80 on the net amount of the profit distribution).

  • Starting from 2019, a lower corporate income tax rate of 14% is applicable to companies which regularly distribute profits has been made available; if taxable amount is less-than or equal to dividends paid throughout the preceding three years (set at 20%), the taxable rate will be set at 14%.

  • Effective January 1, 2019, amendments based on the anti-tax avoidance rules from the EU 2016/1164 Anti-Tax Avoidance Directive are disposed into Estonian legislation. These amendments will introduce controlled foreign company rules, a new general anti-abuse rule, and thin capitalisation rules in the form of taxation of 'exceeding borrowing costs'.

Business Taxes

Type of Tax Tax Rate and Base
Corporate Income Tax – Standard rate: 20%

– 14% for companies making regular profit distributions
Branch Remittance Tax None
 
Social security contributions - 33% (all employers)

- 20% is used for public financing of pensions

- 13% is used for fundig public health insurance



Unemployment insurance:

- Employer 1.0% of gross salary

- Employee 2.0% of gross salary
VAT/GST - 20% (standard)

- A lower rate of 9% applies to certain items such as books, newspapers and medicinal products
Withholding Tax (WHT)
 
- No WHT is applied to dividends or interest, with a few exceptions. As an exception, 7% WHT applies to dividends paid to resident and non-resident individuals if the distribution has been subject to the reduced CIT rate at the hands of the paying company.



- WHT on royalties are subject to a 10% rate
Transfer Tax None
Land Tax Annual tax rate of 0.1-2.5%, depending on the municipality, which is calculated on the assessed value of land

Source: Ministry of Finance, Estonia

Date last reviewed: March 16, 2019

Foreign Worker Requirements

Foreign Worker Permits

EU nationals, citizens of the European Economic Area member states and citizens of Switzerland enjoy the right of free movement within the EU.

Localisation Policies

The Estonian government does not mandate local employment or follow localisation policies.

Visa Requirements

Other than EU passport holders, Estonia waives visas for 62 other countries globally.

Sources: Government websites, Fitch Solutions

Risks

Sovereign Credit Ratings


 
Rating (Outlook) Rating Date
Moody's
 
A1 (Stable) 21/07/2017
Standard & Poor's AA- (Stable) 09/06/2011
Fitch Ratings
 
AA- (Stable) 05/10/2018

Sources: Moody's, Standard & Poor's, Fitch Ratings

Competitiveness and Efficiency Indicators


 
World Ranking
 
2017 2018 2019
Ease of Doing Business Index
 
12/190 12/190 16/190
Ease of Paying Taxes Index
 
21/190 14/190 14/190
Logistics Performance Index
 
N/A 36/160 N/A
Corruption Perception Index
 
21/180 18/180 N/A
IMD World Competitiveness 30/63 31/63 N/A

Sources: World Bank, IMD, Transparency International

Fitch Solutions Risk Indices


 
World Ranking
2017 2018 2019
Economic Risk Index Rank N/A 23/202 7/202
Short-Term Economic Risk Score 80.6 81.3 81.9
Long-Term Economic Risk Score 72 73.7 78.9
Political Risk Index Rank N/A 21/202 20/202
Short-Term Political Risk Score 84.4 84.4 84.4
Long-Term Political Risk Score 83.3 83.3 83.3
Operational Risk Index Rank N/A 25/201 25/201
Operational Risk Score 70.4 71.3 71.1

Source: Fitch Solutions

Date last reviewed: March 16, 2019

Fitch Solutions Risk Summary

ECONOMIC RISK

The Estonian economy is on a path of sustainable growth. Although its rapid recovery from severe recession following the global economic downturn in 2008 was characterised by export-led growth, economic activity will be increasingly driven by domestic demand in coming years. Estonia aimed to increase its share of global trade on the back of strong competitiveness gains since 2010. In addition to a diversified manufacturing sector, the higher value-added services sectors will increase its presence in the economy.

OPERATIONAL RISK

While the broad consensus among political parties for responsible economic management and market liberalism are likely to remain in play, the potential for change in policies exist should key opposition parties become increasingly acceptable as alternative coalition partners.

Source: Fitch Solutions

Date last reviewed: March 16, 2019

Fitch Solutions Political and Economic Risk Indices

 

Graph: Estonia short term political risk index
 
Graph: Estonia short term political risk index
 
Graph: Estonia long term political risk index
 
Graph: Estonia long term political risk index
 
Graph: Estonia short term economic risk index
 
Graph: Estonia short term economic risk index
 
Graph: Estonia long term economic risk index
 
Graph: Estonia long term economic risk index
 

100 = Lowest risk; 0 = Highest risk

Source: Fitch Solutions Economic and Political Risk Indices

Date last reviewed: March 16, 2019

Fitch Solutions Operational Risk Index


 
Operational Risk Labour Market Risk Trade and Investment Risk Logistics Risk Crime and Security Risk
Estonia Score 71.1 59.1 76.4 72.1 77.0
Central and Eastern Europe Average 72.7 62.7 71.4 76.0 80.8
Central and Eastern Europe Position (out of 11) 20
 
18 8 21 22
Emerging Europe Average 72.7 62.7 71.4 76.0 80.8
Emerging Europe Position (out of 31) 20
 
18 8
 
21 22
Global Average 49.6 49.8 49.9 49.0 49.8
Global Position (out of 201) 25 39 11 29 28

100 = Lowest risk; 0 = Highest risk

Source: Fitch Solutions Operational Risk Index

Graph: Estonia vs global and regional averages
 
Graph: Estonia vs global and regional averages
 
Country
 
Operational Risk Index Labour Market Risk Index
 
Trade and Investment Risk Index Logistics Risk Index Crime and Security Risk Index
Estonia 71.1
 
59.1
 
76.4
 
72.1
 
77.0
 
Czech Republic 70.9
 
57.7
 
67.9
 
73.7
 
84.5
 
Poland
 
69.6
 
55.6
 
69.4
 
75.0
 
78.4
 
Lithuania 68.4
 
55.2
 
71.5
 
75.6
 
71.5
 
Latvia 65.8
 
57.5
 
67.5
 
71.5
 
66.6
 
Hungary 64.0
 
55.6
 
62.0
 
66.9
 
71.3
 
Slovakia 63.3
 
49.7
 
66.5
 
63.4
 
73.5
 
Belarus 57.1
 
56.5
 
58.5
 
63.4
 
49.9
 
Russia 56.5
 
63.6
 
58.6
 
63.0
 
40.9
 
Moldova 46.6
 
39.8
 
51.1
 
52.2
 
43.4
 
Ukraine 46.5 54.9
 
48.8
 
52.0
 
30.5
 
Regional Averages 61.8
 
55.0
 
63.5
 
66.3
 
62.5
 
Emerging Markets Averages 46.7
 
48.1
 
45.5
 
47.4
 
46.0
 
Global Markets Averages 49.6
 
49.7
 
49.9
 
49.0
 
49.8
 

100 = Lowest risk; 0 = Highest risk

Source: Fitch Solutions Operational Risk Index

Date last reviewed: March 16, 2019

Hong Kong Connection

Hong Kong’s Trade with Estonia

Graph: Major export commodities to Estonia (2018)
 
Graph: Major export commodities to Estonia (2018)
 
Graph: Major import commodities from Estonia (2018)
 
Graph: Major import commodities from Estonia (2018)
 

Note: Graph shows the main Hong Kong exports to/imports from Estonia (by consignment)

Date last reviewed: March 16, 2019

Graph: Merchandise exports to Estonia
 
Graph: Merchandise exports to Estonia
 
Graph: Merchandise imports from Estonia
 
Graph: Merchandise imports from Estonia
 

Note: Graph shows Hong Kong exports to/import from Estonia (by consignment)

Exchange Rate HK$/US$, average

7.75 (2014)

7.75 (2015)

7.76 (2016)

7.79 (2017)

7.83 (2018)

Source: Hong Kong Census and Statistics Department

Date last reviewed: March 16, 2018


 
2017
 
Growth rate (%)
Number of Estonian residents visiting Hong Kong 3,902 -21.1

Sources: Hong Kong Tourism Board, Fitch Solutions


 
2017
 
Growth rate (%)
Number of European residents visiting Hong Kong 1,929,824 -0.2
Number of developed states citizens residing in Hong Kong 65,680 1.56

Sources: Hong Kong Tourism Board, Fitch Solutions

Date last reviewed: March 16, 2018

Commercial Presence in Hong Kong


 
2017
 
Growth rate (%)
 
Number of EU companies in Hong Kong 2,053
 
5
- Regional headquarters 459 2.5
- Regional offices 685 -2
- Local offices 909 4.1

Source: Hong Kong Census and Statistics Department

Treaties and agreements between Hong Kong and Estonia
 

  • The Double Taxation Agreement (DTA) between China and Estonia was signed on May 12, 1998 and entered into force in both countries on January 8, 1999.
  • Estonia and China have a Bilateral Investment Treaty that entered into force in June 1994.

Sources: UNCTAD, Government Sources, Fitch Solutions

Chamber of Commerce (or Related Organisations) in Hong Kong

Estonian Honorary Consulate in Hong Kong

Address: Suite 3101, 31/F, 9 Queen's Road Central, Central, Hong Kong

Email: info@estoniaconsulate.com.hk

Tel: (852) 2868 3110

Fax: (852) 2868 5006

Source: Protocol Division Governmnet Secretariat

Visa Requirements for Hong Kong Residents

Hong Kong residents do not need a visa for Estonia for a period of up to 90 days.

Source: Hong Kong Immigration Department

Date last reviewed: November 16, 2018

 

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