The U.S. Department of State’s Investment Climate Statements provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world.  They analyze a variety of economies that are or could be markets for U.S. businesses.

Topics include Openness to Investment, Legal and Regulatory systems, Dispute Resolution, Intellectual Property Rights, Transparency, Performance Requirements, State-Owned Enterprises, Responsible Business Conduct, and Corruption.

These statements highlight persistent barriers to further U.S. investment.  Addressing these barriers would expand high-quality, private sector-led investment in infrastructure, further women’s economic empowerment, and facilitate a healthy business environment for the digital economy.  To access the ICS, visit the U.S. Department of Department of State https://www.state.gov/reports/2022-investment-climate-statements/estonia/ website.

Executive Summary

Estonia is a safe and dynamic country for investment, with a business climate very similar to the United States. As a member of the EU, the Government of Estonia (GOE) maintains liberal policies in order to attract investments and export-oriented companies. Creating favorable conditions for foreign direct investment (FDI) and openness to foreign trade has been the foundation of Estonia’s economic strategy. The overall freedom to conduct business in Estonia is well protected under a transparent regulatory environment.

• Estonia is among the leading countries in Eastern and Central Europe regarding FDI per capita. By 2021, Estonia had attracted in total USD 38 billion (stock) of investment, of which 27 percent was made into the financial sector, 17 percent into real estate, 15 percent into retail and wholesale sector, and 13 percent into science and technology. United States FDI stock in Estonia is USD 451 million, and Estonian FDI stock in United States totals USD 349 million.

• The Estonian economy has recovered strongly from the pandemic crisis. The country’s GDP grew 8.3 percent in 2021, one of the fastest recoveries in Europe. Although Estonia is tightly connected to international value chains, it has experienced relatively few impacts from global supply chain issues so far, but the war in Ukraine is likely to have a more significant impact on supply chains in the region than the COVID crisis.

• In the area of climate and environmental policies, Estonia is working toward decarbonizing its economy including reducing its dependency on oil shale in electricity generation, increasing the energy efficiency of buildings, and introducing carbon free transport. The green transition in the business sector will require support from the government to help ensure Estonia adheres to the principles of circular economy.

• Estonia’s government has not yet set limitations on foreign ownership, and foreign investors are treated on an equal footing with local investors. However, the government is currently developing a framework to screen incoming FDI for national security concerns, which could have some impact on foreign investments. There are no investment incentives available to foreign investors.

• Foreign investors have not faced significant challenges with corruption, though Estonia has had some cases in local municipalities.

• The Estonian income tax system, with its flat rate of 20 percent, is considered one of the simplest tax regimes in the world. Deferral of corporate taxation payment shifts the time of taxation from the moment of earning the profits to that of their distribution. Undistributed profits are not subject to income taxation, regardless of whether these are reinvested or merely retained. This may change for companies with an annual turnover of more than 750 million euros depending on the EU’s implementation of the OECD’s global minimum tax agreement.

• Estonia offers opportunities for businesses in a number of economic sectors including information and communication technology (ICT), green energy, wood processing, and biotechnology. Estonia has strong trade ties with Finland, Sweden, and Germany.

• Estonia suffers a shortage of labor, both skilled and unskilled.