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Estonia - economic overview

Estonia - developed Member State of EU

The Republic of Estonia is showing the fastest growth rate in economy among the Eastern European region. According to the Wall Street Journal and Heritage Foundation’s Index of Economic Freedom 2017, Estonia is ranking at 6th (out of 180 countries) as one of the freest economies in the world. With a unique geographical position on the shore of the Baltic sea, Estonia has an attractive logistic centre position towards the northern, the western and the eastern markets which is a clear competitive advantage to make use of.

Estonia is the leading country in the field of information technology which is significantly adapted to everyday lives of Estonian physical and legal residents (companies). The advanced tax system and clear legislation creates a great environment for new company incorporation in Estonia and every-day management.

Tax system in Estonia

Estonia levies income tax only on profits that are distributed; providing reinvestments at a 0% tax rate and favourable conditions for business development. 

In addition, a lower corporate income tax rate of 14% applies to the amount of distributable profits which is less or equal to the average of distributed amounts over the previous three years for which the resident company paid income tax.

Macroeconomic stability

Country is demonstrating outstanding results in most of the macroeconomic categories. Estonia has GDP growth for the last 10 years; Country is controlling price stability and inflation hasn’t been higher than 4,7% in last 10 years; Unemployment is decreasing at 5,1% according to the latest data;

Average monthly gross salary is EUR 1291. Government budget is -0,3, but current account is in 3,2% surplus. Also, public debt is at low 9% level. The reasons why Estonia is performing so well is successful and sustainable government policy which includes no borrowing and very small budget deficit. An interesting and very smart way how Estonia is controlling economic growth is by creating balanced state budget. Estonia is the only country in European Union which hasn’t issued long-term bonds, which means that country is not borrowing. Estonian National Bank says that they are doing it to avoid overheat in the economy which will cause even higher raise of the salaries and there would be companies in the market who wouldn’t be able to survive it and would go bankrupt. Another important reason for Estonia’s success is good performance of their main trade partners – Finland, Sweden, Latvia, Germany and Russia.

Estonia has implemented several successful policies which has helped to improve in macroeconomic perspective – such as, tax reform in private sector where tax-free minimum was raised to EUR 500 which helped households to save more; e-residency system which has attracted 55 thousand customers and brought 5 thousand limited liability companies in Estonia in duration of 4 years.

Estonia is popular with advanced blockchain legislation. It is one of the first EU countries which has developed license for cryptocurrency exchange service provision and license for virtual currency wallet service providers. Due to government's position with regards to blockchain regulation, there have been many successful ICO's launched in Estonia. Also, Estonian banks are aware of companies who are operating in the area of blockchain technologies and it is possible to open bank account for company which holds cryptocurrency exchange license. More about cryptocurrency regulations in Estonia you can read here.

If you find that you would like to set up your business in Estonia then we are here to help and guide you through, we provide the most flexible full-service available in the field of corporate services. 

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