General Information

The Republic of Estonia borders Latvia to the south and Russia to the east. The country is separated from Finland in the north by the Gulf of Finland. The Estonian coastline is 3,794km long and the country has more than 1,500 islands, with Saaremaa and Hiiumaa being the largest. Estonia has 45,226km squared of territory.
Language
Estonia has an estimated population of 1.33 million people consisting mainly of ethnic Estonian (68 per cent) and Slavic minorities, divided into Russian (26 per cent), Ukrainian (two per cent) and Belarus (one per cent). The country’s official language is Estonian, spoken by 68 per cent of the population. The ethnic minorities predominantly speak Russian and Finnish, while English and German are also widely spoken and understood as second languages.
Currency
The Estonian currency is the Kroon (EEK) divided into 100 Cents. Estonia is aiming to adopt the euro in January 2007, although this date may be later due to Estonia not fulfilling the economic criteria set by the European Union (EU). The Kroon is pegged to the euro at EEK 15.646: €1.  

Economy

The newly independent Estonia has accepted and pursued the vision of a free market economy. Estonia abolished all barriers to trade and also fully opened the economy to foreign investment, ensuring that foreign and domestic investors were treated the same. Estonia’s economic development continued from 2000 onwards, with GDP growing at an astonishing rate. The modern Estonian economy has relatively low inflation, low levels of unemployment and strong FDI. Estonia has been referred to in the press as the Hong Kong of Europe. In 2005, the Global Growth Competitive Index placed Estonia 20th of 104 countries, above any other Eastern European country and, ironically, above Hong Kong!
Economic growth
Estonia’s economy continues to grow at a remarkable rate. The European Commission reports that Estonia’s GDP is expected to grow by 7.2 per cent in 2006 after achieving an impressive 9.8 per cent in 2005. Estonia’s GDP per capita is €13,000, according to a 2005 estimate.
 Source: Eurostat, the Statistical Office of the European Communities
Foreign direct investment (FDI)
Estonia recently became one of the leaders in Central and Eastern Europe in terms of FDI per capita. There have been speedy advances in privatization and in stabilizing and reshaping its economy. Other advantages include a stable currency, liberal economic policies, free trade and an excellent and improving climate for business.
Companies that are partly or fully owned by foreigners account for 33 per cent of Estonian GDP and over 50 per cent of the country’s exports. Foreign investment is forecast to increase further.
Source: Estonian National Bank  

The property market

Property prices have been rising by an average of 15 per cent since 1995 and peaked in the run-up to EU membership. However, according to a report from the Royal Institute of Chartered Surveyors (RICS), property prices in Estonia grew 28 per cent in 2005, which was faster than anywhere else in the whole of the EU.
The demand for new-build apartments remains strong and the bulk of developments continue to sell off-plan. Property prices are forecast to continue rising by five to ten per cent per annum for the next five to ten years.
Property hotspots
Tallinn is the medieval capital of Estonia, a key harbour and a centre of business and commerce. It receives 81 per cent of all of the country’s FDI and is the focus for the majority of jet-to-let investors. Property prices in Tallinn rose by 153 per cent between 1998 and 2004 and in the last two years they have risen by 50 per cent in the most popular districts. Property in Estonia is still cheaper than the EU average and the neighboring Baltic States of Latvia and Lithuania.
The rental market remains strong around Tallinn and while outlying apartments mainly attract local families or students as tenants, those in the centre are mainly tenanted by the growing number of foreign corporate or diplomatic workers. Other investment options to consider include coastal properties and Pärnu continues to appeal with increased local interest and new projects planned to develop holiday homes and leisure activities. Prices on the coast are not much cheaper than Tallinn.

Transaction costs

There are no restrictions on foreign ownership in Estonia. The ownership of land can be transferred to a foreigner or foreign companies providing you have permission from the County Governor.
The process of buying a property is well established and straightforward. Buying off-plan houses and apartments is the most common method of buying a property..
When buying off-plan, the developers normally require a non-refundable deposit of 10–20 per cent of the price at the time the preliminary contract is signed. The construction period is usually 12–18 months. The final balance is payable on completion.
Transaction costs are relatively low. There are no transfer taxes or stamp duties in Estonia. Notaries, rather than solicitors, typically oversee the transfer of ownership.
Purchase expenses are:
• Registration fee: When new-build apartments are purchased, there is a fee of up to 0.5 per cent of the transaction value to register the property at the Land Registry.
• Notary fees are based on the price of the property and on average are about 0.5–1.0 per cent of the purchase price.
• Estate agents’ fees are almost always included in the sales price of the property. There is no standard commission, but they often range between three and seven per cent and are normally split between the buyer and the seller.
• Legal fees will cost in the region of €200–€350, depending on the length of the contract.
• Other additional expenses may include a translation of the contract and you should allow around €100 for this.
Total costs come to about four to six per cent of the purchase price.
Annual costs
The cost of living in Estonia remains lower than the European average but has been rising steadily. Annual operating costs for running a property are summarized below:
• Land Tax. The local authority decides the rate of Land Tax, which varies from 0.1 to 2.5 per cent of the value.
• Maintenance costs cover heating, utilities and maintenance of communal areas and vary according to the type of property.

Taxes

Income Tax
A flat rate of 23 per cent is charged on income earned in 2006.
Corporation Tax
The standard rate of Corporation Tax is 23 per cent in 2006.
It’s important to note that the flat rate of Income and Corporation Tax will be reduced to 22 per cent in 2007, 21 per cent in 2008 and to 20 per cent in 2009.
Capital Gains Tax
In most cases, capital gains in Estonia are taxed as income for individuals and companies. Individuals are exempt from Capital Gains Tax on the sale of their main residence.
Industry and technology
Major industries: Engineering, Electronics, Wood and wood products, Information technology.

Links

Estonian National Bank          www.eestipank.info
Estonian Statistics                   www.stat.ee
Invest in Estonia                      www.investinestonia.com
Tourism in Estonia                    www.visitestonia.com             www.tourism.ee

 This web site provides general advice for guidance purposes only. It is recommended to seek professional advice before making any purchase. Contact us for additional information or services.