While there have been no “tremendous” changes in Estonia recently, according to Hannes Vallikivi, Managing Partner at Derling in Tallinn, the government that came into power in the fall of 2016 has changed the tax system.
“For many years taxes were untouchable,” according to Vallikivi. As of January 2018, however, the flat income tax rate of 20% can drop to as low as 14% for distributable profit and non-taxable profit. “[The government] has changed taxes and increased expense taxes,” he says, “and that has somehow made the market move.” And he says “of course it translates to lawyers’ work as well,” with both tax lawyers and restructuring specialists expected to see more business. Vallikivi says that additional changes are possible as well, though he calls them “quite theoretical” at this point, as the government is slowing down its legislative efforts leading up to the general elections in 2019.
Vallikivi reports that in Estonia, as everywhere else in the EU, changes in data protection regulations and in the financial sector are generating the most attention nowadays. “For Estonia the GDPR is probably the most noteworthy,” the Derling Managing Partner believes. Although the Estonian parliament has yet to pass implementing the legislation, Vallikivi insists that local laws on data protection are already in compliance with the EU directive, so “there will be few major changes.” But there will be some. “What will be new are higher penalties, general fear in the market, and a more detailed regulation on the EU level," he says.
Vallikivi pauses to note that he questions the necessity of all the new requirements under the GDPR, and although he reports generally being in favor of individual privacy rights, he says he’s not sure of the GDPR’s answer to “the difficult question: where to set a balance between the rights of citizens and the costs to business,” which will be increased by the required additional human resources and IT development programs.
Vallikivi turns his attention to changes to the financial laws coming in the form of the EU’s payment service directive and anti-money laundry directive. The former, which became fully applicable on January 13, 2018, provides a clear legal framework for existing and new payment service providers, regardless of their business model. The latter — the anti-money laundering directive — was adopted on October 26, 2017, incorporating the Fourth AML Directive into Estonian law, and bringing more clarity to the cryptocurrency business and new requirements involving the registration of the ultimate beneficial owners.
Vallikivi says that, for investors, “Estonia is deemed to be a crypto currency heaven,” as “the word has spread that Estonia is very aggressive in favor of new technologies, including crypto currency.” He smiles, noting that, “in fact it is more complicated; we are subject to the same EU regulations.” As a flip side of the crypto boom coin, he expects to see “fraud cases and really harsh regulatory interference” beyond what has been implemented so far, in Estonia or anywhere else. Indeed, despite all the inquiries and keen interest, he describes crypto-currency as a “grey area” in Estonia, with “high risks.”