Category: Estonia

Sorainen has advised the Estonian Guarantee Fund on a reusable credit line contract to be concluded with the Republic of Estonia as the lender.

According to Sorainen, the credit line has a withdrawal period of three years and a contract term of five years, with a maximum limit of EUR 720 million in 2023, EUR 750 million in 2024, and EUR 785 million in 2025. “The purpose of the deposit guarantee sub-fund is to pay compensation to the depositors in the event of a possible loss, e.g., insolvency of a credit institution,” the firm informed.

“The Estonian Guarantee Fund is a legal person in public law founded under the Estonian Guarantee Fund Act on July 1, 2002,” the firm reported. “The objective of the Estonian Guarantee Fund is to guarantee, under the conditions and to the extent provided by the law, protection of funds deposited by clients of credit institutions, clients of investment institutions, unit-holders of mandatory pension funds, and policyholders under insurance contracts for a mandatory funded pension, and accumulate funds for financing of the implementation of the crisis resolution tools and rights provided for in the Estonian Financial Crisis Prevention and Resolution Act, thereby increasing the reliability and stability of the Estonian financial sector.”

The Sorainen team was led by Counsel Hetti Lump and included Associate Kamilla Alma Vilderson.

Sorainen did not reply to our inquiry on the matter.

On 20 April, the European Parliament endorsed two regulations which will fundamentally change the crypto-asset market landscape in the EU and potentially beyond: the Regulation for Markets in Crypto-assets (MiCA) and the recast version of the Transfer of Funds Regulation (TFR recast). As a forerunner in regulating crypto business, Estonia has had local crypto laws in place since 2017, however, MiCA and TFR recast will be directly applicable in the EU and will replace the respective local legislation.

Changes introduced by MiCA

Some of the most significant changes introduced by MiCA compared to the effective Estonian laws are as follows.

• MiCA will introduce three types of crypto-assets: (1) electronic money tokens, whose value is pegged to only one official currency and which have a very similar function to that of electronic money under EMD2; (2) asset-referenced tokens, whose value is pegged to any other value or right or their combination, including one or several official currencies; and (3) all other types of crypto-assets, including utility tokens. The third group of crypto-assets is intended as a catch-all category. The Estonian AML Act currently provides a definition for only one type of virtual currency.
• MiCA will cover ten crypto-asset services. MiCA’s list of crypto-asset services partly echoes the list of investment services in MiFID II. Compared to the applicable Estonian law, MiCA will increase the number of regulated crypto-asset services and will cover the following activities:
• custody and administration of crypto-assets on behalf of clients
• operation of a trading platform for crypto-assets
• exchange of crypto-assets for funds
• exchange of crypto-assets for other crypto-assets
• execution of orders for crypto-assets on behalf of clients
• placing of crypto-assets
• reception and transmission of orders for crypto-assets on behalf of clients
• providing advice on crypto-assets
• providing portfolio management on crypto-assets
• providing transfer services for crypto-assets on behalf of clients.
• MiCA will introduce a white paper requirement for all three types of crypto-assets and marketing communication requirements. A white paper must be drafted, notified to the competent authority and published on the crypto-asset service provider’s website. The currently applicable Estonian law does not require preparation of a white paper.
• Share capital requirements will be decreased for some crypto-asset services and increased for others compared to the currently applicable Estonian requirements. For example, while the share capital requirement of a virtual currency transfer service provider will decrease from EUR 250,000 to EUR 50,000, the share capital requirement of a virtual currency wallet service provider will increase from EUR 100,000 to EUR 125,000.
• Retail holders who are acquiring crypto-assets on the primary market will have the right of withdrawal within 14 days. The right of withdrawal will not apply to trading on the secondary market, as in such a case, the price of crypto-assets depends on the fluctuations of crypto-asset markets.
• The crypto-asset service providers license will be passportable in the EU upon notification of the home Member State. The current Estonian crypto license is only valid in Estonia.
• Offerors that are established in a third country should notify their crypto-asset white paper, and, upon request of the competent authority, their marketing communication, to the competent authority of the Member State where the crypto-assets are intended to be offered.

MiCA will not apply to, inter alia:

• crypto-assets falling under existing financial services legislation, e.g. which can be qualified as financial instruments under MiFID II
• non-fungible tokens (i.e. unique tokens which are not interchangeable)
• crypto-asset services which are provided in a fully decentralised manner without any intermediary
• crypto-asset services provided by third-country firms on a reverse solicitation basis
• offers of crypto-assets (other than asset-referenced tokens or e-money tokens) that are exclusively offered to qualified investors and can be exclusively held by such qualified investors, or that are made to a small number of persons (per Member State) (exceptions may apply)
• crypto-assets (other than asset-referenced tokens or e-money tokens) that are offered for free or that are automatically created as a reward for the maintenance of the distributed ledger technology DLT or the validation of transactions in the context of a consensus mechanism (exceptions may apply).

Changes introduced by TFR recast

Together with the MiCA Regulation, the European Parliament adopted a recast version of the Transfer of Funds Regulation (TFR recast). TFR, first adopted in 2015, sets out the so-called “travel rule” applicable to traditional transfers of funds. The travel rule means that information on the sender and the recipient of funds will have to “travel” with the transaction and be stored by service providers. With the recast version, the travel rule will also apply to crypto-asset transfers.

Under TFR recast, the crypto-asset service provider of the originator will have to ensure that transfers of crypto-assets are accompanied by the following information on (i) the originator, where applicable: name; distributed ledger address; crypto-asset account number; the originator’s address, including the name of the country, official personal document number, and the customer identification number or, alternatively, date and place of birth; the current LEI or any other available equivalent official identifier; and the following information on (ii) the beneficiary, where applicable: name; distributed ledger address; crypto-asset account number; the current LEI or any other available equivalent official identifier.

Crypto-asset service providers should in principle not be required to verify the information on the user of a self-hosted address (i.e. a wallet not provided by a crypto-asset service provider). However, in case of a transfer above EUR 1,000 to or from a self-hosted address, crypto-asset service providers will have to take adequate measures to verify the information on the person using the self-hosted address.

TFR recast will not apply to, inter alia:

• transfers of crypto-assets where both the originator and the beneficiary are crypto-asset service providers acting on their own behalf
• person-to-person transfers of crypto-assets carried out without the involvement of a crypto-asset service provider.

Entry into force and applicability of MiCA and TFR recast

Having been adopted by the Parliament, MiCA and TFR recast must now also be adopted by the Council and published in the Official Journal of the EU. MiCA will enter into force on the 20th day after its publication and apply from 18 months as of entry into force. The provisions related to asset-referenced and electronic money tokens (i.e. Titles III and IV) will apply from 12 months as of entry into force. TFR recast will apply from the date of application of MiCA. This means that crypto-asset service providers will probably have to start applying for a new licence under MiCA towards the end of 2024. Currently, local Estonian transitional provisions for current licence holders have not been adopted yet.

By Monika Koolmeister, Partner, Anna Daniel, Junior Associate, and Andres Havik, Assistant Lawyer, Cobalt

Following the general election, the new coalition government has committed to balancing the state budget and consequently revealed many intended taxation changes. While these ideas are not yet set in stone, here are the key changes that could be expected based on what has been communicated.

Personal income tax – tax rate increase, reworking personal allowance

The personal income tax rate is expected to increase from 20% to 22% in 2025. In conjunction, the government has promised to rework the system of personal allowance.

Currently, personal allowance is available for individuals with a yearly gross income of under 25,200 euros, starting at 7848 euros and progressively reduced once the yearly gross income exceeds 14,400 euros. Additional personal allowance may be available on behalf of a spouse or children. Starting in 2025, the government seeks to provide everyone with a yearly personal allowance of 8,400 euros, regardless of their income, while abolishing the additional personal allowance for a spouse or children as well as ending the deduction of housing loan interests.

The combined effect of these changes should generally benefit private individuals who either do not qualify for significant additional personal allowance or whose yearly gross income does not exceed 95,000 euros. The biggest winners relative to their income are people earning between 21,120 euros and 31,800 euros per year (1760 euros to 2,660 euros gross per month), as their income is effectively increased by 5% or more.

Corporate income tax – tax rate increase, abolishing the reduced rate for regular dividends

The corporate income tax rate is also expected to rise from 20% to 22% in 2025. At the same time, the government has promised to abolish the reduced tax rate for regular dividends.

Starting from 2019, a reduced income tax rate of 14% has been applied to dividends paid out by resident companies, as opposed to the standard 20% rate, insofar as the dividends do not exceed the average dividends paid out in the three preceding years. Generally, this only reduces the total tax burden in cases where the regular dividend payment is made to a corporate shareholder, as private individuals are obliged to pay the difference as additional personal income tax. The government seeks to abolish the reduced rate and go back to the universal application of the standard rate.

The abolishment of the reduced rate decreases the potential profits of corporate shareholders in Estonian resident companies. The effect is more significant for companies which regularly distribute profit. In contrast, taxation does not change in cases where the company pays dividends only once every three years or less frequently.

Value-added tax – tax rate increase, increasing the tax rate on accommodation services

The government seeks to increase the standard value-added tax rate from 20% to 22% starting from 2024. Additionally, the reduced rate of 9% shall cease to apply to accommodation services in 2025, whereby accommodation providers are effectively faced with a 13% tax increase.

Gambling tax – tax amount and rate increases

According to the coalition agreement, the parties agreed to increase tax revenue from gambling activities. The government has subsequently prepared draft legislation to increase gambling tax on all forms of gambling.

The tax rate on lotteries is set to increase from 18% to 22% in 2024. While general lotteries are monopolised by the State, the increased tax rate will also apply to commercial lotteries organised by businesses to promote their goods or services. The change will thus mostly affect regular businesses running certain consumer games, rather than private gambling operators who are generally precluded from organising lotteries. Additionally, the current 5% tax rate on betting and online gambling is also set to increase: to 6% in 2024 and to 7% in 2026.

Car tax

The government is seeking to establish a car tax by July 2024, with the details being determined during upcoming analysis. It has been expressed that the main criteria should be CO2 emissions, with less tax being due on more economical cars. On the other hand, the government is also considering increasing tax revenue based on car value, particularly to generate revenue from luxurious electric cars. The initially proposed mechanism to include both considerations is to charge a yearly CO2-based car tax as well as a one-off car-value-based tax at the time of purchase. This, along with the rest of the proposals described above, is subject to change based on future government decisions and analysis.

By Taaniel Sivonen, Junior Associate, Cobalt

Sorainen has successfully represented the Estonian State, acting through the Estonian Internal Security Service, in a civil dispute connected to a criminal proceeding.

According to Sorainen, “the dispute arose when a third party (legal successor of a company registered in Hong Kong) claimed recovery of nearly EUR 880,000 of assets, currently seized as a part of the criminal proceedings as the criminal income (bribe) that the management board members of Port of Tallinn allegedly received from the Turkish and Polish contractors. This is the first time a third party demanded on such legal grounds from the state authorities to recover assets in the civil proceedings while the same assets have already been seized in the criminal proceedings. The outcome of this case might affect whether the seized criminal income related to one of the biggest bribery scandals over the past years will remain frozen until the end of the criminal court proceedings.”

Sorainen represented the Estonian State before the Harju County Court, the Tallinn Circuit Court, and the Supreme Court of Estonia, obtaining favorable rulings on all levels.

Sorainen’s team included Partner Allar Joks, Senior Associate Albert Linntam, and Associate Kati Rohtla.

Sorainen has advised Lagrotte and the Net Systems Group on selling Hohle to HellermannTyton. Cobalt advised the buyer.

Hohle is an Estonian micro duct system manufacturer for fiber optic cables.

HellermannTyton supplies products for fastening, fixing, identifying, and protecting cables and their connecting components.

“In addition to the acquisition of Gabocom in 2019, this further enhances HellermannTyton’s market position in the fiber broadband market,” HellermannTyton Group President Andrew Leyland commented.

The Sorainen team included Partners Toomas Prangli and Karin Madisson, Counsel Lauri Liivat, and Associate Kristi Tammiku.

The Cobalt team included Partner Martin Simovart, Managing Associate Jesse Kivisaari, and Associate Getter Villmann.

Cobalt has advised Pakrineeme Sadama on selling its liquefied natural gas loading quay in Paldiski – together with the related infrastructure and port property – to the Estonian Stockpiling Agency for a total transaction value of EUR 31.5 million.

According to Cobalt, “the head of the stockpiling agency, Ando Leppiman, said that the state purchased the quay with the intention of establishing an independent gas security supply solution for Estonia in collaboration with Elering, the owner of the gas infrastructure. The aim of the Stockpiling Agency is to achieve the full capacity to receive LNG by sea by this autumn. This will increase the country’s and region’s energy security and businesses in the region will have a third option for importing natural gas in addition to the LNG-capable ports of Klaipeda and Inkoo.”

Cobalt’s team included Partner Aivar Taro and Senior Associate Siim Vahtrus.

Cobalt did not respond to our inquiry on the matter.

Pohla & Hallmagi has advised CF&S Estonia on its acquisition of railway wagons from Operail Leasing.

CF&S Estonia is a logistics group based in Tallinn. The group provides logistics services, including container, road, railway, sea, high & heavy, multimodal, and air transport solutions as well as warehousing, distribution, chartering, and ship agency services.

Operail is an Estonian state-owned freight rail company. According to Operail, 20 private companies took part in the company’s auction of rolling stock. The first phase of the sale took place in December 2022, when 522 wagons located in Ukraine were sold for EUR 6.51 million. Phase two, ending in January 2023, saw Operail sell 807 wagons at a price of EUR 22.1 million. Finally, the remaining rolling stock was sold: 1,036 wagons sold for EUR 22.7 million in March of 2023.

Pohla & Hallmagi’s team included Partners Toivo Viilup and Martin Mannik.

Pohla & Hallmagi has advised CF&S Estonia on renting new office space in the Ulemiste City business park from Opiku Majad.

Opiku Majad is part of the Mainor Group whose principal activity is the development of Ulemiste City,  a business park in Tallinn.

CF&S Estonia is a logistics group.

The Pohla & Hallmagi team was led by Partner Toivo Viilup.

Pohla & Hallmagi has advised the Nomme Kalju football club on the cooperation agreement with Marsbet as the club’s new shirt sponsor.

Nomme Kalju FC is an Estonian professional football club based in Nomme, Tallinn.

Marsbet is an online sportsbook and casino site.

Pohla & Hallmagi’s team included Partner Toivo Viilup.

Sorainen has advised Decathlon’s Lithuanian subsidiary Decathlon Lietuva on the commercial lease agreement for premises in Estonia’s Kurna shopping park near Tallinn.

According to Sorainen, “Decathlon is the world’s largest seller of sports products. It has more than 2,080 stores and more than 93,000 employees in 56 countries. In 2021, the group’s turnover was USD 11.4 billion. Previously, the closest store to Estonia was located in Riga. The first Estonian Decathlon will open in the newly built Kurna shopping park next to the freshly opened IKEA store in Rae, Estonia, just ten minutes from Tallinn city center.”

Sorainen’s team included Partner Paul Kunnap, Senior Associate Mirjam Vichmann, and Associate Elina Mizerova.

Sorainen did not respond to our inquiry on the matter.