Mundo’s Country Rating is an index whereby our team of specialists analyzed a combination of elements regarding different kinds of freedom, giving special attention to personal, financial, and business freedom. Today, we want to talk about our ratings for one of our countries: Estonia. The rating for each category goes from 1 to 10.

Political Stability: 9

Estonia is a democratic country, with a center-right, business-friendly government. Kaja Kallas took over as head of government this January, following the resignation of Prime Minister Juri Rattas, embroiled in a corruption scandal. The new government seeks to continue the policy of openness and friendship with foreign businesses that have made Estonia one of the main investment centers in the entire EU, as well as to defend transparency and fight corruption.

Despite these setbacks, the Bertelsmann Transformation Index, in its 2020 report, gave Estonia a score of 9.8 out of 10 in the Political Transformation category, which concerns elements of political participation, stability of democratic institutions, and political integration.

As a single point of concern in this small Baltic country, it is worth mentioning the Estonian Conservative People's Party, currently the third-largest political force and consistently framed in far right-wing positions, and sometimes, controversial positions. It was part of the government of Juri Rattas until several of its members resigned 

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Personal Safety: 9

Estonia has one of the lowest crime rates in the world. The most common crimes, according to 2020 Criminal Statistics, include theft (6863), physical assault (6023), and driving under the influence (2781). Although as in any country, there are areas that are more dangerous than others.

In general, crime is not the main threat to personal safety in Estonia. According to many travel and tourist portals, the greatest danger is presented in vehicular traffic, due to the recklessness of some drivers, so it is something to consider when you are there. For anything else, you have nothing else to do, but enjoy what this little but great country has to offer.

Taxation: 10

Estonia has one of the most attractive tax programs in the world for foreign investors. This small country understood the benefits of being a friendly destination for investment and the creation of new businesses, and it has paid off. Several major companies, like Skype, have their home base in Estonia, so let us tell you why.

Estonia follows the EU regulations on Value Added Tax (VAT), but it’s still free to set its own rate. The country has a standard VAT rate of 20%, with a reduced rate of 9% for books and learning materials, medicines, and medical equipment, and in some cases, as low as 0%, which applies to exports, intra-community supply of goods, international passenger services, goods and services supplied on board of ships and airplane, delivery of goods, services for diplomatic and consular missions, international organizations, institutions of the European Union and NATO, goods located in free zones, services supplied to other countries, cross-border services.

This country has a corporate income tax of 20%. However, it is only charged when these profits are distributed among the company’s shareholders. What is the good news? The payment of this tax is postponed as long as the shareholders decide not to distribute the earnings as dividends, which translates into 0% tax on undistributed and reinvested earnings. Shareholders are free to decide when to distribute their profits. This tax policy is part of an elaborate plan to maintain a steady flow of investments, and it applies to both Estonian resident companies and permanent establishments of non-resident companies registered in Estonia. 

And if everything said above is not enough, Estonia has made sure to avoid double taxation with almost all the countries with which it does business, giving rest to one of the foreign investor’s main concerns.

Real estate is another tax of interest in Estonia. The country imposes a rate varying between 0.1% and 2.5% as a property tax, depending on what is determined by local authorities and the land’s value.

Anything too special so far, but the thing is that Estonia incurs in a rather peculiar practice for collecting this type of tax. The Estonian tax regime exempts from tax payment the constructions and investments made on that land or property in question to guarantee the necessary and safe investment on the land owned, limiting the tax’s payment to the physical space on which it is invested, so you pay for the land, not for what you do with it.

Lifestyle: 10

Living in Estonia is quite exciting. This small country is in constant pursuit of innovation and advancement in all areas. Knowing this, Estonian society appreciates and respects innovative ideas, which pursue growth and development. This is surely incredibly attractive for you and for anyone thinking of investing in this country, knowing that those who pursue success will always seek to grow by looking to the future.

Estonia, besides being a technological power, is a clean, highly educated, and safe country. It is not just that it has a great air quality, something hard to find in major cities on the planet.

Here they know that hard work is the key to growth, but they also know how to have fun and relax, so the entertainment options will never be few.

The crown jewel in this society is its huge digital presence. Estonians can accomplish most of their daily activities just by logging on to the Internet. Government websites, banks, schools, and household shopping can be done online. This is only possible in a technological powerhouse and a great society, and Estonia certainly is.

Investment Potential: 10

What is the first thing you think of when looking for where to make your next investment?

Estonia has many arguments for you to consider as an option. This country has made a complete migration to an online presence, something that only a country with great technological power could do, and that is precisely the area where this small country stands out.

The development of telecommunications became Tallinn's priority since regaining its independence in 1991, so this became its main area of interest for investors. Today, you can register a company in Estonia without actually being in the country; the whole process is online, as long as you are part of the E-Residency Program (an online ID we’ve talked about in our “Estonian E-Residency Program” article), which opens the doors for EU markets, thanks to Estonian membership in the European bloc.

As we have already said, companies such as Skype, Elenger, CIVITTA etc. started and still maintain their base of operations in Estonia.

This country, which has left behind its Soviet past, and embraced democratic and liberal ideas, has become one of the main promoters of the free market and foreign investment. Proof of this is found in the fact that Estonia has been able to maintain and improve a high rating in the Heritage Foundation's Index of Economic Freedom for 2021 (8th rank).

As an investor, and under certain conditions, you may also gain access to different government grants to start your new business, and the tax advantages, we already mentioned, only make it sound even better. The opportunities for investing in Estonia are in place. It's your turn to explore them, and for that, you can count on our support here at Mundo.

Mundo’s Estonia Freedom Rating: AAA, 48/50