It will be easier for foreigners to come to work and live in Estonia

Legislative amendments aimed at making it easier for foreign specialists to come to work and live in Estonia are about to take force on Jan. 1, 2016.

“The amendments to the Aliens Act taking effect from the new year are a follow-on to the amendments made two years ago whose aim was to favor highly skilled people taking up residence in Estonia,” Interior Minister Hanno Pevkur said in a press release. “The amendments ease formalities for foreigners coming to work or study in Estonia and afford them better conditions for self-realization,” the minister said.

From January next year, a foreigner who has come to work in Estonia can work for multiple employers simultaneously provided that the conditions set out in the residence permit issued for employment are observed. For taking up employment with another employer permission from the Estonian Unemployment Insurance Fund, payment of remuneration in the amount set out by the law and informing will no longer be required.

The permission of the Unemployment Insurance Fund necessary for applying for a residence permit for employment will no longer be personal, meaning that the Unemployment Insurance Fund may authorize an employer to fill one or several jobs with foreigners if no workforce with corresponding skills and qualifications can be found in Estonia. Besides the possibility will be created for foreigners staying in Estonia for a short term and foreigners staying in Estonia under a fixed-term residence permit to work in Estonia as a temporary agency worker.

To provide foreigners with more flexible conditions for continuing to live in Estonia, a 90-day transition period from the date of expiry of the residence permit will be introduced. The length of the transition period for students who have graduated from an Estonian university and for foreign researchers and university teachers is 183 days. During the transition period the person can apply for a new residence permit on different grounds, such as for enterprise, employment or study, without having to leave Estonia.

The amendments would create a new category of residence permit — residence permit for taking up permanent residence in Estonia. The latter can be issued to foreigners well adapted in Estonia for up to five years at a time to create better conditions for their remaining in Estonia for employment, study or enterprise.

Altogether 23,787 foreigners have a fixed-term Estonian residence permit at this point. The biggest numbers of applications for such permits this year have been filed by citizens of Ukraine and Russia, followed by people of unspecified citizenship and U.S. citizens.

Under current rules, an employer who wishes to hire a foreigner not having an Estonian residence permit must obtain permission from the Unemployment Insurance Fund and pay the foreigner at least 1.24 times the Estonian national average wage.

Source: Baltic News Service via Estonian Review

Estonia’s minimum pay in 2016 is 430 eur

The government on Thursday endorsed 2.54 euros per hour and 430 euros per month for full-time employees as the minimum wage for 2016 and respectively 2.78 euros and 470 euros for 2017.

The minimum rates of pay for 2016 and 2017 were agreed between the Estonian Employers Confederation and the Estonian Trade Union Confederation (EAKL) on Oct. 28.

The signing of the agreement was preceded by long negotiations and the agreement was reached through mediation by acting public conciliator Henn Parn.

According to the Tax and Customs Board there were roughly 15,800 full-time employees in Estonia getting the national minimum wage in the second quarter of 2015.

The Ministry of Finance has estimated the number of people directly influenced by the increase in minimum wage to be approximately 50,000. The bigger number mainly represents people who are paid more than the currently valid minimum wage but less than the new minimum rate of pay.

Raising the minimum pay from 390 euros to 430 euros a month will bring 8.6 million euros of extra money into the state budget. Revenue of the state will grow by 15.2 million euros and expenditures of the state by 5.6 million euros. In addition one million euros will be deducted from receipts of social tax and transferred to pension funds.

Compared with the 2016 state budget adopted by the parliament, which reckons with a rise in minim pay equal to the rise in average pay, the increase in the minimum wage to 430 euros a month will bring 2.7 million euros more money into state coffers.

The rise from 390 euros to 470 euros a month will bring 15.7 million euros of extra money into the state budget. Revenue of the state will grow by 42.7 million euros and expenditures of the state by 23.3 million euros. In addition 3.7 million euros will be deducted from receipts of social tax for transfer to pension funds.

Source: Baltic News Service

Service sector gives 68 pct of the gross value added

According to Statistics Estonia, based on the gross domestic product, the differences in the economic structure of the counties are increasing, but the majority of the value added was created in Harju county in 2014 as well.

The share of Harju county in the Estonian gross domestic product (GDP) in 2014 was 12.4 billion euros at current prices, 9 billion euros of which came from Tallinn. Harju County was followed by Tartu and Ida-Viru counties, which respectively accounted for 10% and 8% of the Estonian GDP. Hiiu and Põlva counties had the smallest share, each having contributed less than 1% of the Estonian GDP.

In 2014, more than 68% of the gross value added in Estonia was created in the service sector. The continuously growing sector was the largest sector in all the counties except for Ida-Viru county. The influence of the cities of Tallinn and Tartu resulted in Harju and Tartu counties having the largest share of services – 77% and 70%, respectively. The three counties creating the greatest value added (Harju, Tartu and Ida-Viru counties) accounted for 85% of the value added of the entire service sector. In recent years, the growth of the sector has been the most prominent in counties where services already make up more than 50% of the value added of the county. Since 2011, the fastest growth in the service sector has taken place in Lääne and Saare counties.

Industry and construction accounted for 28% of the gross value added of Estonia in 2014. The three counties creating the greatest value added accounted for three-quarters of the value added of the sector in the entire country. While in the rest of Estonia the share of the sector is either stable or decreasing, Ida-Viru county is the only county showing growth in the share. Since 2010, the share of industry and construction in Ida-Viru county has increased more than 5% and accounted for 59% of the value added of the county by 2014. In all other counties, the share of the sector is less than 42% of the value added of the county.

Agriculture, forestry and fishing accounted for 3% of the gross value added of Estonia in 2014. This sector had the largest share in Jõgeva county (22%). The counties not showing a downward trend in the share of the sector are Valga, Võru, Viljandi, Lääne-Viru, Hiiu and Saare counties.

In 2014, the GDP per capita was 15,186 euros, which was 759 euros more than a year earlier. The GDP per capita was the highest in Harju county, exceeding the Estonian average by 43%. Harju County was followed by Tartu and Ida-Viru counties, where the GDP per capita was respectively 14% and 31% below the Estonian average. The GDP per capita was the lowest in Põlva county.

Diagram: GDP per capita, 2014

Industry and construction – mining and quarrying; manufacturing; electricity, gas, steam and air conditioning supply; water supply; sewerage, waste management and remediation activities; construction.

Services – wholesale and retail trade; repair of motor vehicles and motorcycles; transportation and storage; accommodation and food service activities; information and communication; financial and insurance activities; real estate activities; professional, scientific and technical activities; administrative and support service activities; public administration and defence; compulsory social security; education; human health and social work activities; arts, entertainment and recreation; other service activities.

Read more from Statistics Estonia

The Government gave an overview of the activities of 2015

On Dec.16, 2015 Prime Minister Taavi Rõivas, Minister of Health and Labour Jevgeni Ossinovski and Minister of Social Protection Margus Tsahkna gave an overview of carrying out the Government’s activity programme in 2015.

The Government’s priorities are strengthening Estonia’s security, promoting economic growth and reducing labour-related taxes, improvement of the subsistence of low-paid workers and developing an environment that supports childbirths, state and local administration reform and developing peripheries and preparing for the presidency of the European Union and carrying it out successfully.

To ensure security Estonia will continue keeping defence expenditure on the level of 2% of GDP, to which the expenses related to receiving allies are added. The Government has continued strengthening independent defence capabilities as planned and applied for the strengthening of NATO’s deterrence posture and increasing the presence of allies.

Several defence infrastructure objects have been completed this year: the NATO headquarters were opened in June and in February the Government made a principled decision to allocate 40.6 million euros over five years for the construction of infrastructure promoting the presence of allies and to allocate this money in addition to the 2% defence budget. Estonia also contributes to strengthening security internationally – we have supported the reducing of instability caused by Syria’s civil war, fight against the refugee crisis and terrorism. For example a police mission unit was sent to Slovenia and in May a team-size unit of the Defence Forces went to Lebanon.

To increase internal safety and ensure public order the salary fund of the police, officials of the rescue service and other internal security employees will be increased by 4% next year. The border line of the Estonian-Russian border was cleaned and the first border post has been placed there. In addition the Narva border point has been renovated and the renewed Narva-2 border point will also soon be opened. The Government also presented the Estonian-Russian border treaty to the Parliament for ratification.

To accelerate economic growth the Government reduced labour force taxation, which helps to increase competitiveness by shifting the tax burden more on the taxation of goods damaging health and polluting the environment. The Government reduced the rate of social tax from the current 33 per cent to 32 per cent by 2018. Tax exempt income will increase to 205 euros per month during the next four years, thereat to 170 euros in 2016. The additional basic exemption applicable to pension will continue to increase so that the average pension will remain exempt from tax.

To promote economic growth the Prime Minister has called an economic development working group consisting of experts and the Team Estonia cooperation platform is being created to improve the export capacity of Estonian companies and attract foreign investments into Estonia. The Government also simplified the opportunities for applying for e-residency.

A 5 million euro support measure for areas of growth was opened for enterprises to increase the productivity of enterprises and support export capacity. The availability of growth companies capital is improved by a 7 million euro support measure to accelerate start-up enterprise, i.e. Startup Estonia.

The work ability reform launching next year will bring more workers to the labour market and gives and opportunity to be necessary for the society. To increase the subsistence of low-paid workers the Government will launch a repayment system from 1 January 2016. Depending on the structure of income and tax exemptions the support is a maximum of 59 euros per month from 2017. In addition to increase social security from 2016 the subsistence level is 130 euros per month. The Government also agreed on the principles of the support scheme for pensioners living alone.

To improve the subsistence of families with children the Government decided to increase child support to 60 euros by 2019. From 1 July 2017 the benefit for large families will come into force for families with three or more children. The Government also approved the amendment, with which the housing benefit programme for large families will be extended to families with at least three children.

Launching the state reform is the first specific response to the forecast of population decline. To carry out the state and local administration reform the Government has agreed on the principles of the reform and the merging criteria of local governments. The content of the state reform is making principled choices on which activities, services and tasks to do differently compared to so far, what to do less in order to direct more resources into more important areas at its expense.

To reduce the volume of the Government, decisions have been taken in 2015 for structural reorganisation of the authorities of the government sector, consolidation of support services, increasing the efficiency of the Government and administrative arrangement, converting to an accrual-based budget and introducing spending review.

For the Estonian presidency of the European Union taking place in 2018 a supplemented preparation activity plan, Estonia’s European Union policy for 2015-2019 and a list of potential managers, who will represent Estonia in the leading positions of the negotiations of the EU Council have been approved.

Report of the Government’s activity programme (in Estonian): https://valitsus.ee/sites/default/files/content-editors/arengukavad/vali… (PDF)

Source: GOVERNMENT COMMUNICATION UNIT via Estonian Review

Estonia’s immigration quota for next year to be set at 1,317

The Estonian government is to discuss on Thursday endorsing 1,317 persons, 0.1 percent of the country’s permanent population, as the immigration limit for 2016.

The immigration quota was set at 0.1 percent of the permanent population also for 2015, spokespeople for the government said.

The limit does not apply to citizens of the European Union, of a member state of the European Economic Area, and Switzerland, and does not include the war refugees to be accepted by Estonia from Greece and Italy under the EU refugee distribution scheme.

For 2012-2014, the government set the limit at 0.075 percent of the permanent population of Estonia, raising it to 0.1 percent of the population in 2015.

In 2013 the number of temporary residence permits to be issued was capped at 1,000 and altogether 602 such permits were issued during the year, meaning that 398 units of the quota were not used. The maximum number of permits that could be issued last year was 996 and 720 permits were issued during the year. The quota for this year is 1,322 and 1,137 permits had been issued by Dec. 1.

Source: Baltic News Service via Estonian Review

Tartu becomes UNESCO City of Literature

Tartu, the second largest city in Estonia and its self-proclaimed intellectual capital, is the first city is the Baltic-Nordic region to become UNESCO City of Literature.

UNESCO’s City of Literature program was launched in 2004 and forms part of its Creative Cities Network. This year, Tartu and eight other cities were welcomed to the program, almost doubling the number of Cities of Literature in the world. The first to earn the honor in 2004 was Edinburgh in Scotland, followed by Melbourne and Iowa City in 2008.

Altogether, 47 cities from 33 countries joined the Creative Cities Network this year within seven creative fields (crafts and folk art, design, film, gastronomy, literature, media arts and music).

“The most characteristic feature of cultural life in Tartu is creativity joining all free arts, openness to new ideas and a will to attract the citizens and the visitors to join these creative experiments,” the application committee said. “Tartu is historically a city of verbal arts and literary culture but it is also essential that in Tartu literary activity is closely connected with other arts and spheres of life: many events and projects bring together literature, music, visual arts and performing arts and literature often serves as the connecting link between different spheres of culture.”

Tartu is the location of several state institutions like the Ministry of Education and Research, Estonian National Museum, and Estonian Literary Museum. The city is also the center of many nationwide literary events and projects, including the Estonian literary festival Prima Vista, and has over one thousand institutions related to creative industries registered in the its Business Register.

Tartu submitted its preliminary application for the title in 2013 and the final application in July 2015. The application process was led by the Estonian Literary Society.

“Tartu is a city where culture, creative freedom and interdisciplinary innovation have been vital aspects of identity, of local and global aspirations to uniqueness as living environment. Becoming a member of the CCN is an acknowledgment of our historic and current creative achievements, but foremost an affirmation of our willingness to share best practices with partners worldwide,” the committee said.

Source: ERR News via Estonian Review

Estonia sees biggest employment growth in EU in Q3

Among EU member states for which data are available, Estonia registered the biggest increase in employment in the third quarter of 2015 compared with the previous three-month period, Eurostat said on Tuesday.

Next after Estonia, which posted employment growth of 2.1 percent, came Hungary with 0.8 percent, and Ireland, Spain, Luxembourg and the United Kingdom, all with 0.6 percent. Decreases were recorded in Croatia, 0.6 percent, Portugal, 0.5 percent, and Malta, 0.3 percent.

The number of persons employed increased by 0.3 percent in the euro area and by 0.4 percent in the EU28 in the third quarter of 2015 compared with the previous quarter, according to national accounts estimates published by Eurostat.

Compared with the same quarter of the previous year, employment increased by 1.1 percent in both the euro area and the EU28 in the third quarter of 2015.

Source: Baltic News Service via Estonian Review

Estonian banks were profitable in 2015

The major banks active in Estonia see the current year as very good for their business and several of them say they are on course to setting a new record for full year profit.

The board chairman of LHV Pank, Erki Kilu, said at a media event of the Estonian Banking Association on Monday that the outgoing year has been very successful for LHV. “The first thing is the issuance of bonds and second the opening of ATMs. Aside from all this we are on course for a record profit. The banking market is in a good shape,” Kilu said.

The head of the Baltic units of Danske, Ivar Pae, also said the banking sector is enjoying a solid base now. “Why have banks been able to post continuously good results? First, good loan quality, which is at its best since the financial crisis now. Second, banks have been able to manage their cost base. Third, banks have adapted and their asset quality is high,” Pae said.

Pae added that even though Danske exited the private customer segment this year, it has boosted its operating volumes by one-third. “I can be altogether satisfied,” he said.

Silver Kuus, head of corporate banking at Nordea Eesti, said the outgoing year has been very good for the bank particularly because they were successful in activating their customer base.

“We earned money where we hadn’t earned before. A double digit figure will represent the increase in our profitability this year. We are in for a very upbeat figure,” Kuus said.

Allan Parik, board chairman of SEB Estonia, said the figures for the first three quarters of the year suggest a modest increase in expenses. “Our results reflect the environment. Despite challenges, we can be very satisfied with this year. The liquid savings of individuals and businesses alike are growing at a rapid rate,” Parik said.

The board chairman of Swedbank Eesti, Robert Kitt, also said there were indications that 2015 will turn out to be a very good year when it comes to earnings. The bank is not planning to pay out extraordinary dividend next year like it did using accumulated profit this year.

In their forecasts for next year, all the banks emphasized their expectation of faster economic growth and, first and foremost, that investments by the business sector and the private sector would start to grow.

Source: Baltic News Service via Estonian Review

IMF: Estonia’s economy has been holding up reasonably well

On December 14, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with the Republic of Estonia, and considered and endorsed the staff appraisal without a meeting.2

Following the rebound from the deep recession in 2009, economic growth has slowed. Although Estonia’s economic and institutional fundamentals are among the strongest in the region, the economy is expected to expand by only a modest 1.6 percent this year. Growth is primarily driven by private consumption, which benefits from strong wage growth as labor market slack diminishes for demographic reasons. Exports are subdued because of weak economic activity in key trading partners. Nonetheless, prices will likely be flat this year and the current account is expected to record a moderate surplus.

The economy should gather speed going forward. Growth is projected at 2.5 percent for 2016 and should average around 3 percent over the next few years. It is set to benefit from stabilization in the external environment through better exports and higher investment, while support from private consumption growth is likely to continue. But risks are tilted to the downside. Inflation will rise in line with price developments in the euro area, with excise tax increases providing an additional one-time boost to price levels for the next years. In the long run, the current account is projected to move into moderate deficit as investment reverts to its full historical strength.

Executive Board Assessment

In concluding the 2015 Article IV consultation with the Republic of Estonia, Executive Directors endorsed staff’s appraisal, as follows:

The economy has been holding up reasonably well in the face of difficult and uncertain external conditions. Growth is likely to decelerate to 1.6 percent this year, reflecting recession in Russia and stagnation in Finland, two important destinations for Estonian exporters. It should pick up to 2.5 percent in 2016 as the external drag diminishes and private consumption remains robust on the back of strong wage growth. Risks are mainly to the downside and relate to the external environment.

Yet, sluggish growth in recent years likely also reflects a decline in potential growth. Since 1995, Estonia has achieved the highest average growth in Central and Eastern Europe, but potential growth is estimated to have averaged only 2.25 percent a year during 2011–14. Going forward, worsening demographics, diminishing options for “easy” productivity gains, and reduced scope for capital accumulation will be additional headwinds. As a result, convergence with living standards in Western Europe could slow markedly.

This makes policies to lift potential growth the primary economic policy imperative. While Estonia clearly faces headwinds, it also has many assets: macroeconomic and institutional fundamentals are very strong; the business climate is amongst the most favorable in the region; educational standards are high; technology and science are being promoted; and Estonia is a leader in e-government. A range of further commendable reforms is under preparation in the context of the new programming period for EU funds, including revamped enterprise support with more emphasis on innovation and entrepreneurship, a new life-long learning strategy, a “work capacity reform” seeking to put more disability pensioners to work, and reforms to streamline local and central governments.

Additional growth-promoting measures could be considered. In the short-run, the focus should be on getting the planned new initiatives off the ground. It will also be critical to now start strengthening the operational policy focus on fostering productivity growth. To that effect, a strong productivity unit in the Prime Minister’s office could be established to oversee implementation, evaluate and adjust programs, and keep track of government spending on productivity promotion. Over time, existing programs should be scaled up—active labor market programs, life-long learning, enterprise support, and apprenticeship programs are still rather limited in size. Supporting the upgrading of traditional industries as a second leg of innovation policies should also be considered as these industries account for the bulk of employment and value creation in the economy.

Estonia’s public finances are exceptionally strong and fiscal space could be used to support productivity-enhancing programs. With no net public debt and structural fiscal surpluses since 2009, there is room for additional spending to promote productivity growth rather than accumulate more fiscal reserves. But it will be important to ensure that these fiscal resources are truly used for their intended purpose by keeping close tabs on them, for instance in the productivity unit in the Prime Minister’s office. Once in place, fiscal space could be accessed while remaining in compliance with Estonia’s stringent fiscal rule by producing budgets that are on average in structural balance rather than systematically in surplus. In the longer run, the rule itself could be made more flexible and allow modest structural deficits in line with European requirements while preserving overall prudent fiscal policy.

Estonia’s external position is solid, but wage growth far in excess of productivity growth is starting to cloud the outlook for the tradable sector. Company profits have lately been falling and export market share gains have begun to peter out. This further underscores the centrality of raising productivity, but wage growth also needs to come down to a more sustainable pace. In this context, the more moderate wage increases envisaged in the central government’s 2016 draft budget send a prudent message. The government should also make clear to social partners that the steep minimum wage increases since 2013 risk becoming counterproductive and cannot set the pace for general wage developments.

Impressive soundness indicators and further upgrades to oversight frameworks underpin financial sector stability. The return to moderate private sector credit growth is a positive development. Risks reside mainly abroad. They could be transmitted to Estonia through the cross-border banks that dominate Estonia’s financial system and through trade channels, but domestic and foreign lines of defense are also strong. Nonetheless, close cooperation with home-country authorities remains important and existing Nordic Baltic platforms should be revitalized. Cooperation could also help strengthen the traction of macroprudential instruments should they need to be deployed in the next upswing in the financial cycle.

 

See also Republic of Estonia: Selected Economics Indicator, 2011–16

Source: Bank of Estonia

Estonian companies are ready to go fully over to SEPA

At a meeting on Dec.10, 2015 of the Estonian Payment Forum in Eesti Pank, the banks confirmed that companies that make bulk payments have largely finished upgrading their systems and the conditions of the Single Euro Payments Area (SEPA) will apply in full from 1 February 2016.

“By now, most companies that use bulk payments have adopted the new format or are finishing working on it, so we can confirm that Estonia will make the final transition to SEPA smoothly. This will not mean any additional changes for private individuals. It should be remembered that from February next year it will only be possible to make bank transfers using the IBAN format for bank account numbers. Though in fact it is now generally the rule in most banks to use the IBAN, and people have got used to that change”, said Madis Müller, Deputy Governor of Eesti Pank.

Companies making bulk payments have had two years to change over to the new format for payments. During this time, the banks had to provide conversion services, which they may provide from February next year as an extra service.

The initial deadline for the Estonian changeover to SEPA was February this year, and companies should have been ready by then to use only the new format for their bulk payments. By that date however, only 53% of companies making bulk payments had made the necessary changes. As a result, the central bank, the Estonian Banking Association, the Ministry of Finance and market participants decided that the deadline should be extended by a year to 1 February 2016, which was the maximum transmission period for Estonia.

The Estonian Payment Forum also discussed current topics relating to settlements in Europe and the current state of legislation for settlements in the European Union and within Estonia.


Background Information

It is principally large companies that are affected by the move to the new format for bulk payments. Companies that make bulk payments had to update their IT systems to fit with the ISO 20022 XML messaging format. Ten of the banks operating in Estonia offer a service for bulk payments.

The banks made all the necessary changes for private individual clients themselves and the domestic bank account numbers were automatically converted into the IBAN, or International Bank Account Number. When the changeover period ends on 1 February 2016, private clients will only be able to use the IBAN,

The Estonian Payment Forum was founded jointly in April 2012 by Eesti Pank, the Estonian Banking Association and the Ministry of Finance, and is also attended by the banks and other market participants. The forum is chaired by Eesti Pank. More detailed information about the Forum, including the topics discussed there and the participants, can be found in Estonian at www.pangaliit.ee/maksefoorum.

Source: Bank of Estonia