Estonia represents an attractive investment opportunity, both for residents of this small Baltic country and for foreigners looking for a stable investment with great returns.
Estonia is consistently ranked amongst the top countries for human capital, digital capability and ease of doing business, and as such it offers plenty of opportunity for the potential investor.
Institutional investors will find a lot to excite them in the country’s well-established IT and digital services industry as well as the thriving stock exchange, while private investors have a wide range of choices, whether backing a small start-up or indirectly investing in one of its many thriving fintech companies.
Here we’ll give an overview of the legal framework as well as the potential opportunities with a focus on private investment.
As a full member state of the European Union, Estonian law is firmly in line with that of other Eurozone countries. In fact, Estonia is seen as the most transparent and least corrupt of all the Central and Eastern European (CEE) countries, according to the Transparency International Corruption Perceptions Index 2018, where it ranked 18th globally.
The Estonian government does not screen or prevent foreign investments in any way, although sensitive sectors like mining and energy have restrictions on private equity.
The Estonian tax policy is based on a set of principles defined as simplicity, a broad tax base, and low taxation rates.
In 1994 the country introduced a flat income tax rate of 20% that applies to both individuals and companies.
Individuals need to declare their taxes each year and a 20% income tax is applied to all earnings. The first €500 is tax-exempt when your income is less than €14 400 per year. Should you earn between €14 400 and €25 200 the tax-exempt earnings ecrease from €500 to €0 on a sliding scale.
Investors may want to consider registering a company in Estonia, as 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.
As a company, If you invest €1000 and earn €120 in interest during the year, you do not have to pay taxes on your earnings if you do not transfer these funds to your bank account. The obligation to pay taxes applies only once you take the money out of your investor account.
The start-up scene
Estonia is a haven for start-ups, with the government actively encouraging their creation and removing many of the obstacles small, tech-driven businesses face in other countries. Whether you want to create your own start-up or invest in someone else’s idea, the country is simply brimming with opportunity. For a country of just 1.3 million people, Estonia punches far above its weight in this field and is second only to the UK in terms of money invested in start-ups per capita.
There are over 550 start-ups active in Estonia and it is easy to find ones looking for investment. Of course, start-ups are, by their very nature, a speculative endeavour and may take years to start turning a profit, but early investors in the likes of Transferwise, Bolt, Pipedrive, Verriff etc. have been rewarded handsomely for their faith in these companies.
It is also incredibly easy to launch your own start-up, and you’ll find a supportive and skilled community ready to assist and advise you, and the country even offers a special start-up visa to help founders from non-EU countries.
Setting up a company is incredibly easy. It can be done online, takes about 15 minutes and costs just €190. Company applications are usually approved within 24 hours.
Estonia is a hub for financial services, IT, research and development, and business and banking services, with plenty of international companies choosing to have their European bases in the country due to the business-friendly tax regime and highly educated population.
Estonia also has its own stock exchange – the Nasdaq Baltic stock exchange, which has performed strongly over its history. It was founded in 1996 as TALSE (Tallinn Stock Exchange), undergoing a name change in 2008, and since 1996 has returned an annualized 12.5%.
While the Nasdaq Baltic stock exchange may seem small in global terms, there are plenty of opportunities for the individual investor to realise very good returns.
Property and real estate
The Estonian property market is coming down from quite a boom, but even so, still represents a good investment if you do your research. As the economy grows and the population becomes more wealthy, there is a strong need for both modernised housing stock and new office space.
Should you want to invest directly, it might be easiest to open an Estonian e-Residency, as this will allow you to register a local bank account, which will make the entire transaction a lot easier. The e-Residency will also enable you to open a local business to manage your budding property empire. While property prices are much lower than some Western European countries, you’ll still need a large outlay of cash. Consider getting into this traditionally safe and stable asset class through one of the many Peer to Peer property investment companies that do business in Estonia. The barrier to entry is much lower and allows you to take advantage of the property market without breaking the bank. See Alternative Investments below for more info on how to get started.
This is the area where Estonia probably offers the best value for normal investors who are looking to start small or don’t have a huge outlay of capital.
Estonia is one of the only EU countries to regulate cryptocurrency exchanges and, as a result, has become a hub for both crypto and other blockchain assets. While this remains a hugely volatile industry with unpredictable movements, the strict regulation serves to protect users of compliant platforms and helps to enforce anti-money laundering laws.
The crowdinvesting or crowdfunding scene is also booming, with investors spoilt for choice. Peer to peer consumer loans, business loans and property loans all present handsome returns, but have also been dogged by defaults and lost capital. If you’re choosing to invest in this area, we advise that you choose a platform that secures loans with some form of collateral or, even better, a mortgage on the property or development you’re backing. At the risk of tooting our own horn, EstateGuru only issues loans against a mortgage and, in six years of operation, has seen zero loss of investor capital.
EstateGuru’s investments start from as little as €50 and there are no fees for investors. Sign up today and begin securing your future – https://estateguru.co