From changes in government and potential alterations in tax reform to budget cuts in the court system and EU fines, the past few months have brought significant changes to Estonia’s legal and political landscape, according to Rask Partner Annika Vait.
“All in all, it’s been a few eventful months with lots of developments,” Vait points out. “First, Estonia’s government has gone through political shifts. The coalition will continue without the Social Democratic Party, with four ministers being already recalled. The Reform Party and Estonia 200, both liberal, remain in power and have decided to start bilateral coalition negotiations.” According to Vait, what makes this particularly interesting is that “the prime minister has publicly stated that changes to tax regulations are coming.” According to Prime Minister Kristen Michal, “Estonia returns to a simple income tax system.” What is unusual about the idea is that “the changes in corporate income tax and personal income tax, which the prime minister wishes to cancel, have been legally adopted but have not yet entered into force,” Vait adds. “There’s a chance these tax changes won’t be implemented after all, which is something foreign investors are watching closely.”
Another major issue, Vait notes, is the ongoing discussion around budget cuts in the court system. “The government has decided that every sector – except national security and important investments – must cut costs. This has sparked public debate on whether it’s appropriate for the legal system,” Vait emphasizes. “Judges are already dealing with high workloads, and there’s a concern that additional cuts will make court proceedings even longer. Beyond delays, there’s also a real fear that the quality of procedural management and court decisions will suffer. For the first time, we’re seeing judges consider stepping down by themselves – two have already announced their resignations, one from the district court and one from the Supreme Court.”
“Last week, we also received important news from the Estonian Bar Association,” Vait continues. “A new seven-member board was elected. What stands out about this new board is its diversity – board members come from both large and small law firms, and the combination of younger and more experienced lawyers, as well as women and men, reflects the modernization of the Bar Association, like what we see in contemporary private corporations.”
On the European front, Vait notes that Estonia has been fined twice by the EU Court for failing to transpose the directives. “One involves the competition directive, where Estonia received a EUR 400,000 fine, plus an additional daily fine of EUR 3,000 for each day of further delay. The competition directive is still not transposed to Estonian legislation.” Vait says. “The other fine concerns the EU whistleblower protection directive, which should have been implemented back in 2021. Our law on whistleblowing only came into force last year, leading to a EUR 500,000 fine. Although most of the work with whistleblowing protection regulation has now been completed, there are still some regulatory aspects that need to be finalized.”
Lastly, Vait mentions that the Ministry of Justice and Digital Affairs has released a report on crime trends in Estonia. “Fraud cases resulted almost in EUR 42 million in damages,” she says. “The report also highlighted an increase in computer fraud crimes, which rose by 14% compared to the previous year.” According to Vait, this trend aligns with developments in other countries, meaning that “while the numbers may be concerning, they’re not unpredictable.”