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The Buzz in Estonia: Interview with Toomas Prangli of Sorainen

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“In terms of the legal market,” said Toomas Prangli, Sorainen’s Managing Partner in Estonia, "times have been very turbulent the last 15 months. Many Baltic alliances are being broken, and new ones are emerging.” As the most recent change he referred to the split of the Estonian firm from pan-Baltic Tark Grunte Sutkiene, which then allied with Varul’s Estonian firm, in turn triggering the termination of the Varul alliance in the region.

Sorainen, Prangli said, has been following the developments closely from the sidelines, although "the changes don’t really effect us directly.” He doesn’t believe the consolidation and shake-up of alliances in the Baltics has stopped yet, either, noting that there is “still a lot of pressure especially on 2nd or 3rd tier law firms to merge to stay in the race,” explaining, “the small-sized law firms have to decide if they want to be close to the first tier” — by merging or aligning with others to increase headcount and practice group coverage — "or stay smaller, which can also be perfectly good choice for them and many clients.”

In terms of business, Prangli said, “things have been very busy this year.” The bigger firms, he reported, have been very busy, with M&A, financial transactions, and real estate practices all strong. “Existing businesses are reevaluating their positions and new ones are entering,” though he conceded “it’s hard to generalize why, exactly.” He referred to research showing that local investors in Estonia are much more active in buying up foreign capital than their counterparts in other Baltic markets. He expects Q3 and Q4 to stay profitable as well, in the absence of any disrupting financial event. 

When asked about the effects of the Brexit, Prangli said so far they are minimal in Estonia, which he described as not as exposed to the UK markets as other countries in the region, which have proportionally bigger trade with Great Britain. “We’ll just have to wait and see until Article 50 is invoked and negotiations are clear.”

There are a few “hot topics” in terms of legislation, Prangli reported. The first is related to e-residency. A year and a half ago Estonia initiated a residency program allowing anyone from anywhere in the world to register for an Estonian ID card, providing access to Estonia services, programs, and agencies online. “At last count 11,000 people from outside the country have taken advantage of this,” he said, though he explained that many of the related legal issues — from possible double taxation issues to money laundering concerns — remain unresolved. “How to make sure the system is not misused,” he said. Parliament has acknowledged the problem and is already drafting a framework to address many of the issues. In the meantime, law firms such as his are encouraging some clients to take advantage of the program, which is designed to make life simpler for them.

Another area that is “quite active,” according to Prangli, is the Estonia start-up sector, booming both in the number of start-ups and start-up accelerators. “As always, legislation lags behind,” Prangli says, but changes enacted last year are making things better, and people are talking about it. Estonia has a strong history of tech start-ups — with Skype being the most famous example — and Prangli suggests that the small size of the country can actually function as an advantage, forcing start-ups to think about cross-border and multi-lingual functionality at early stages in the process. “Small is good, in that sense.”

Finally, Prangli commented on the “bottleneck” in employment tax — especially in social insurance tax — which can discourage companies from hiring highly paid specialists. “That’s an issue,” Prangli notes, but “on the other hand, clients see the value of stability in taxation, and one of our clients has said they watched the income tax structure for 10 years, and only now are confident in its stability enough to invest in the country.”


In “The Buzz” we interview experts on the legal industry living and working in Central and Eastern Europe to find out what’s happening in the region and what legislative/professional/cultural trends and developments they’re following closely.

 

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