Category: Estonia

Triniti, working with Edinburgh’s Castletown Law and Helsinki’s Waselius & Wist, has drafted Estonia’s Nuclear Energy and Safety Act which, together with its legislative intent and the explanatory memorandum, has recently been handed over to the Estonian Ministry of Climate.

The project was part of a broader mapping of the regulatory and legal framework for the start-up of a nuclear program in the country, under the Nuclear Energy Task Force established by the Government of the Republic of Estonia.

“The use of nuclear technology has a cross-border impact, which means that the whole process, from the extraction of nuclear fuel source material to the disposal of radioactive waste, is subject to strict international regulation and supervision,” Triniti reported. “The comparative analysis of the regulatory framework, completed in June, provided an overview of the current nuclear and radiation safety regulations in Estonia, the relevant international law, and the legal provisions necessary for the deployment of nuclear energy, and was acknowledged for its expertise and thoroughness by the International Atomic Energy Agency (IAEA).”

“The preparation of the draft law and the mapping of the nuclear regulatory framework were of key importance in the preparation of both the IAEA expert mission and the final comprehensive report of the governmental Nuclear Energy Working Group,” Ministry of Climate Advisor Reelika Runneli commented. “An understanding of the content, structure, and international obligations of the legislation governing the use of nuclear energy must be in place before the principal decision is taken. On this basis, we will be able to assess the scope of the work required for the deployment of nuclear energy and, in the event of a positive decision by the Government of the Republic and the Estonian parliament, to move forward more quickly with the preparatory activities.”

The Triniti team included Partner Tonis Tamme, Senior Associates Sten Veidebaum and Ain Kalme, and Junior Associate Madlenne Timofejev.

Ellex has advised Viru Keskus majority shareholder Pontos Baltic on the sale of its stake to the Estonian Tristafan family office and existing co-owner Kapitel.

Viru Keskus is a retail center in Tallinn.

The Ellex team in Estonia Included Partners Risto Vahimets, Martin Maesalu, Martin Triipan, and Toomas Vaher, Counsel Dmitri Rozenblat, Senior Associates Alla Kuznetsova and Liisbeth Lillo, and Lawyers Regina Getter Maajarv, Carmen Linda Plats, and Miikael Tuus.

Ellex did not respond to our inquiry on the matter.

Triniti has advised Utilitas on its acquisition of the Paide and Valka district heating business from Enefit Green for EUR 15.8 million. TGS Baltic reportedly advised Enefit Green.

The transaction remains contingent on regulatory approval.

According to Triniti, “in Paide, the transaction consists of a district heating enterprise whose assets include a cogeneration plant commissioned in 2015, a biomass boiler plant, a reserve boiler house, and a solar park. Valka’s district heating business includes a cogeneration plant built in 2012 and a reserve boiler house. The company employs ten people, and the heat is sold to the customers by the city of Valka.”

Utilitas is a renewable energy producer and the largest district heating company in Estonia.

Enefit Green is listed on Nasdaq Tallinn and has approximately 64,000 investors.

Earlier in 2023, Triniti also advised on a joint venture between the City of Tallinn and Utilitas (as reported by CEE Legal Matters on May 24, 2023).

The Triniti team included Managing Partner Ergo Blumfeldt, Partners Tanel Kalaus and Ramil Pardi, Senior Associates Mikk Pold, Ain Kalme, Sandor Elias, and Peeter Motskula, and Attorneys at Law Risto Kabi, Katrin Kose, Maarja Lehemets, and Martin Jarve.

Editor’s Note: After this article was published, TGS Baltic confirmed it advised Enefit Green. The firm’s team included Partners Kadri Kallas, Triin Kaurov, Andra Rubene, and Agnese Hartpenga, Associate Partner Triinu Jarviste, Senior Associates Mirko Kikkamagi, Vitali Sipilov Mari Anne Rohtla, Anna Vaivade, Mara Stabulniece, and Dita Busa, and Associates Elina Lesnicenoka, Evija Abele, and Toms Tidemanis.

TGS Baltic has advised the Environmental Investment Center on developing a new support framework for the deployment of green hydrogen in the transport and industrial sectors in Estonia.

The purpose of EIC’s green hydrogen call for proposals is to test the introduction of green hydrogen in Estonian conditions from production to final consumption, the firm announced. The project included various financial advisors, state authorities, and the Ministry of Finance.

According to TGS Baltic, “the Ministry of Economic Affairs and Communications and EIC focused on solutions that make it possible to use the increasingly produced renewable energy to implement the green transition. Hydrogen from renewable energy creates a good basis for the first hydrogen projects to be launched in Estonia. The support created will be given to the creation of an integrated chain for the production and consumption of green hydrogen, leading to the use of hydrogen as a fuel in the transport sector or to the use of feedstocks produced from green hydrogen in the chemical industry.”

“Green hydrogen support is a very big step as hydrogen subsidies are still a new phenomenon and there is no previous implementation practice in the European Commission guidelines (CEEAG),” Associate Partner Triinu Jarviste commented. “We can be proud that Estonia is a pioneer in this field and that we have set standards and examples to be used in Estonia and other member states in the future.”

The TGS Baltic team included Jarviste, Partner Triin Kaurov, and Senior Associate Mari Anne Rohtla.

Pohla & Hallmagi has successfully advised SG Veteris in obtaining a virtual currency service provider license from the Estonian Financial Intelligence Unit.

According to the firm, this is the fifth new virtual currency service provider license issued by the Financial Intelligence Unit in Estonia under the validity of the new regulation.

SG Veteris is “an ambitious international fintech company striving to create a more inclusive space in the financial world for companies by creating powerful brands inside the cryptocurrency ecosystem,” Pohla & Hallmagi reported.

The Pohla & Hallmagi team was led by Partner Rait Kaarma.

From political gridlock to economic shifts, Estonia appears to be experiencing a number of challenges according to Triniti Managing Partner Ergo Blumfeldt, who reports unprecedented parliamentary obstructionism, a budgetary deficit prompting new tax laws, and a legal sector experiencing stagnant growth amid broader economic uncertainties.

“Estonia is facing considerable challenges at present, particularly in our parliamentary process,” Blumfeldt begins. “We’re witnessing unprecedented levels of obstructionism and ideological divides, making it difficult to advance legislative initiatives. This situation is quite unusual for Estonia,” he shares.

Indeed, there seem to be issues aplenty. “Estonia has historically prided itself on maintaining a balanced budget,” Blumfeldt continues. “However, we’ve recently run a deficit, leading the government to become more experimental in introducing or trying to introduce new taxes – this includes taxes on cars and the failed introduction of bank windfall profits taxes. It marks a shift from our simple tax system to a more complex one, which is causing some confusion and concern,” he explains.

Blumfeldt also reports that “the legal sector saw growth in 2022, but the first two quarters of 2023 have shown no growth in law firm billables. Moreover, the top law firms are experiencing a slight decline, with the top 15 law firms recording in total a 4% reduction in turnover Q3 to Q2 of 2023,” he says. “We’re also seeing fewer IPOs compared to the first half of 2022. The market is apprehensive, with signs reminiscent of the previous crisis,” he adds wearily.

However, not all is gloomy. “The energy sector, especially renewable energy, is thriving,” Blumfeldt says. “Several wind parks have been launched recently and the agricultural sector is also doing well.” On the other hand, he points out that “the IT sector, which Estonia is known for, is experiencing a slowdown with significant layoffs and reduced inbound investments.”

Finally, Blumfeldt reports there is a “significant focus on – and rise of – media and data protection disputes currently. The government plans to introduce a law criminalizing hate speech, which is sparking heated debates about media freedom,” he adds. “This seems to be part of an EU trend, but its implementation in Estonia has been delayed,” he says in conclusion.

Ellex Raidla has advised venture capital firm Tera Ventures on leading the EUR 755,000 pre-seed funding round into user experience library Flowstep. Specialist VC and several business angels joined the round.

Flowstep is a Tallinn-based user experience library that gives its clients insights to design better products. The round’s proceeds will be used for product development, with a core focus on community-led growth.

According to Ellex, Flowstep was founded by Estonians Kaarel Roben and Matt Clannachan, Finn Sami Nieminen, and Ukrainian Svyat Polishchuk in 2022. It “provides a UX library, consisting of recordings and screenshots of top applications such as Airbnb, Klarna, and Spotify. The company claims its solution helps users analyze these applications and design their own products faster.”

The Ellex team included Partner Antti Perli and Counsels Rutt Vark and Mari Must.

Ellex did not respond to our inquiry on the matter.

TGS Baltic has advised TKM Finants on its successful application for a creditor’s activity license from the Estonian Financial Supervision Authority for providing consumer credit services.

TKM Finants is a subsidiary of the Nasdaq-listed Tallinna Kaubamaja Grupp. According to the firm, Tallinna Kaubamaja is the largest trade group in Estonia and includes, among others: the Kaubamaja shopping center, Selver, ILU, Viking Motors, KIA Auto, and Viking Security.

The activity license enables TKM Finants to offer its customers credit products they can use to purchase goods and services offered by other TKM group companies. Starting in October, owners of the partner card can apply for installment payments at checkout when shopping at Kaubamaja.

The TGS Baltic team included Partner Kirsti Pent, Senior Associates Elina Varendi, Mari Anne Rohtla, and Olger Kaelep, and Associate Maria Suurna.

From January 1, 2024, the general VAT rate will increase from 20 percent to 22 percent.

Starting from January 1, 2025, reduced VAT rates will also increase:

Accommodation (including breakfast) to 13 percent, and
Books, textbooks, and periodicals (excluding primarily advertising or classified ads, erotic, or pornographic content publications) to 9 percent.
In this update, our focus is on the general VAT rate change that will come into effect from January 1, 2024.

How will the change take effect?

As the law does not contain transitional provisions, the VAT rate must be determined according to the regular procedure based on when turnover occurs.

If we disregard the special rules for self-supply turnover, then according to the general rule, it is the date on which the first of one of the following acts is performed:

the goods are dispatched or made available to the purchaser, or the services are provided,
Partial or full payment for the goods or services is received.
Therefore, the VAT rate depends on when the acts mentioned above are performed, i.e., when turnover occurs.

Examples to illustrate the VAT rate

Example: A car is ordered but is expected to arrive in June 2024, when also the invoice for the vehicle must be paid. If payment for the car is made in 2023 (turnover occurs in 2023), the VAT rate is 20%. If payment is made in 2024 when the car is delivered, the 22% VAT rate applies. If a leasing contract for purchasing the car is concluded, the specific terms of the leasing contract are relevant.

Example: A law office sends an advance invoice to the client in December 2023, indicating a 20% VAT rate. The client will pay the invoice in 2024. Therefore, the law office has the right to issue an additional invoice to the client because the 22% VAT rate applies to the advance invoice.

Example: An online store order is placed in 2023. In 2023, the seller dispatches the goods, but the customer pays the invoice in 2024. Since turnover occurred when the goods were dispatched in 2023, the 20% VAT rate applies. Why? Because turnover depends on which one of the followings occurs first – payment or dispatch. In this case, dispatch occurred earlier, so the time of dispatch in December 2023 is taken as the basis.

Are there any exceptions in the law?

It is allowed to apply a 20% VAT rate until December 31, 2025, if all of the following conditions are met:

A written agreement was concluded between the parties before May 1, 2023.
The agreement stipulates a 20% VAT rate (according to the agreement, the price of the goods or services includes VAT at a rate of 20%, or a 20% VAT rate is added to the price), and
In the agreement it is not established that due to a change in the VAT rate the price may change.
There is also an exception regarding cash-based accounting. Since it’s generally not used in practice, a brief overview is given: if an invoice was issued to the buyer, the goods were dispatched or made available, or the service was provided before January 1, 2024, a 20% VAT rate may be applied until December 31, 2025.

What does this exception mean?

Example: A service provision contract for the construction of a residential building, which is expected to be completed in 2026, has been concluded between the parties before May 1, 2023.

The contract specifies the price for the service in a tabular form, which is in line with standard practice. The table includes the following fields: price without VAT, 20% VAT, and price with VAT. Therefore, the contract specifies a 20% VAT rate.
Conclusion: The parties can apply a 20% VAT rate until December 31, 2025.

The contract specifies the price for the service without VAT. The contract includes the statement: “The price specified in the contract is subject to VAT under the laws in force in the Republic of Estonia.” Therefore, the contract does not specify a 20% VAT rate.
Conclusion: The parties must apply a 22% VAT rate to turnover from January 1, 2024. The parties do not have the right to use a 20% VAT rate until December 31, 2025.

The contract includes both of the points mentioned above (both the table-form price and the clause regarding the VAT rate).
Conclusion: In this case, the contract is contradictory. It is not clear how the Tax and Customs Board would interpret the situation. According to the authors, it is a situation where the contract specifies a possible change in the VAT rate, so the parties must apply a 22% VAT rate to turnover occurring from January 1, 2024. In other words, the parties do not have the right to apply a 20% VAT rate until December 31, 2025.

Summary

While the VAT change is coming quickly, there are established general rules to follow. Practical examples will help better apply the rules. It is also important to monitor the specific requirements for using the 20% rate in existing agreements.

By Margus Reiland, Partner and Head of Tax, Lextal

Cobalt has advised VKG on the sale of the VKG Elektrivorgud electricity distribution company in Estonia to Baltcap. TGS Baltic advised BaltCap.

VKG Elektrivorgud is a company that sells electrical power and network services. The company’s service area includes Narva, Narva-Joesuu, and Sillamae.  The annual electricity distribution volume of VKG Elektrivorgud in 2022 was approximately 250,000 megawatt-hours. The network comprises 951 kilometers of power lines and 372 low, medium, and high-voltage substations.

According to Baltcap, VKG Elektrivorgud is the first infrastructure investment in Estonia of their new EUR 200-million infrastructure fund (BInF II). “Baltcap’s investments aim to develop – in the Baltic states and Poland – renewable energy and public-private partnership transport and infrastructure projects with a high social impact,” Cobalt reported.

BaltCap is a private and venture capital fund operating in the Baltics covering buyouts, growth, venture, and infrastructure investments. BaltCap has invested in over 100 companies across a wide range of industry sectors.

The Cobalt team included Partners Martin Simovart and Aivar Taro, Specialist Counsel Madis Reppo, Managing Associate Tonu Kolts, Senior Associate Siim Vahtrus, and Assistant Lawyer Ken Saksniit.

The TGS Baltic team was led by Partner Kadri Kallas and included Partners Helmut Pikmets, Triin Kaurov, and Peeter Viirsalu, Associate Partner Triinu Jarviste, Senior Associates Mirko Kikkamagi, Sergei Jegorov, Vitali Sipilov, Liisa Levandi, Siret Saks, and Merli Maesalu, Associate Marija Toomjoe, Lawyer Artur Piisang, and former Senior Associate Mari-Liis Orav, who has since left the firm.