Estonia: An Up-Date On The Latest Legal Developments In Estonia

On 20 April 2005 the Estonian Parliament (Riigikogu) adopted the Code of Civil Procedure and the Code of Execution Procedure. The Code of Civil Procedure provides rules for proceedings in the courts of all instances as well as arbitral tribunals. The new code should increase the efficiency of proceedings and reduce the number of disputes arising from procedural law. Under the new rules it is now possible to file an action electronically (as an e-mail) and in certain circumstances an expedited procedure can be applied. The objective of the new Code of Execution Procedure is to replace the 1993 Code which had been amended many times since then, with a set of systematic rules. The new Code prescribes the rights and obligations of the debtor, claimant and the bailiff, as well as the procedure for performing enforcement acts. Under the Act for Implementing the Code of Civil Procedure and the Code of Execution Procedure both shall enter into force on 1 January 2006.

On 20 April the Riigikogu adopted the Act Amending the Income Tax Act, Social Tax Act and Taxation Act and Related Acts. The amendments harmonize the law with the parent companies and subsidiaries directive 90/435/EEC. The amendments determine the cases when profit distributed by a resident company and payments made through a permanent establishment of a non-resident are not taxed. Payment of income tax by another company provides an exemption from tax if the recipient of the dividends owned at least 20% of the dividends payor at the time of the distribution. Thus the indirect credit method, which allowed one to take into account the income tax paid abroad when paying income tax in Estonia and thus reduce the Estonian tax burden, has been replaced by the so-called exemption method. The rules of taxation of interest and royalties received by companies were also brought in line with the relevant EU directive. The rules of taxation of business and official travel reimbursements were also amended, granting an exemption to reimbursements and daily allowances paid by not only an employer but also by a third party. Such reimbursements shall be exempt from tax within the limits established at the place where the work is performed, if the place of work is abroad. With some exceptions the amendments entered into force on 1 July 2005. In addition, the Riigikogu amended the current Income Tax Act with the Act of Amending the Income Tax Act, Social Tax Act and Related Acts on 20 June 2005. Under this amendment the process of reducing the income tax rate was slowed down. Pursuant to the previous rules the income tax rate was to be reduced by 2% in a year, but now the reduction will be limited to just 1% a year. Under the amendment the income tax rate shall be 23% in 2006, 22% in 2007, 21% in 2008 and 20% starting from 2009. An additional income tax exemption was established by the amended law to families who have at least two children. The amendments shall enter into force on 1 January 2006.

On 4 May 2005 the Riigikogu passed the Tobacco Act. The new Tobacco Act is in compliance with the EU law and prescribes stricter requirements to the packaging, sale, sales promotion and sponsorship of tobacco products. The new act also now prohibits smoking in many public places. The act entered into force on 5 June 2005, except some provisions that require more time for implementation and thus enter into force at a later date. These include for example the prohibition to sell tobacco and another product in the same package, restrictions on sponsorship, ban on sales promotions and the prohibition to smoke in catering establishments. These amendments enter into force two years after the act first entered into force.

On 4 May 2005 the Riigikogu adopted the Act Amending § 3 of the Wages Act. The amendment introduces the definition of wage conditions which must be determined in the employment contract. The law now unambiguously states that in addition to various other conditions an employment contract to be concluded between an employer and an employee must determine the gross wages of the employee. The amendments entered into force on 5 June 2005.

On 4 May 2005 the Riigikogu adopted the Act Amending the Waste Act, Packaging Act and Packaging Excise Duty Act. The amendments provide the grounds for determining the location of a waste management facility (landfill). A problem product register is established under the law and provisions are prescribed which pertain to handling end-of-life electric and electronic equipment and covering costs related thereto, as well as returning packages. The amendments entered into force on 10 July 2005.

On 11 May 2005 the Riigikogu adopted the Act Amending the State Audit Office Act and Local Government Organisation Act, under which the State Audit Office is granted the right to carry out economic monitoring and control of local governments both as regards state and municipal property. The State Audit Office shall exercise control over the lawfulness but not reasons for using the property and funds by local governments. The amendments enter into force on 1 January 2006.

On 12 May 2005 the Riigikogu adopted two acts, which amend the Traffic Act. The aim of the act is to increase traffic safety and establish equal conditions for competition between carriers. Under the amendments a joint vehicle register is established, which brings into the current traffic register the data concerning recreational craft and the related driving privileges. The register of personal watercraft is also brought under the traffic register and other vehicles can be included as well. These amendments entered into force on 1 July 2005. Under the same amendment tachographs became compulsory in vehicles carrying passengers or goods and road trains. There are also rules to regulate the working and rest time as well as social guarantees of drivers of motor vehicles. The amendments entered into force on 3 June 2005.

On 16 June 2005 the Riigikogu adopted the Act Amending the Immovables Expropriation Act, Code of Execution Procedure, Roads Act and Railways Act. The act prescribes special rules for the expropriation of immovables carried out for the purpose of building public roads or railways and for the expropriation of land adjacent to the state border. Under the current law, expropriation could not be carried out in practice because of prolonged proceedings and court cases. This had become an obstacle to building public roads, including those to be built with co-financing from the European Union. Under the new provisions expropriation may under certain circumstances be executed on the basis of a comprehensive plan, preliminary building design documentation or building design documentation. Under the previous wording this was only possible under an effective detailed plan. The owner of an immovable may file objections to the purchase proposal during an established time frame. The owner of the immovable also has the right to challenge the decision of expropriation and the expropriation payment approved. The expropriation process is not suspended, however, because of a challenge to a decision or act, except in cases where possession or title of an immovable is transferred. Challenges to payment for expropriation thus do not suspend the expropriation, and are generally filed separately from other claims, provided this does not hinder the transfer the transfer of possession or title. If several decisions or acts pertaining to the same expropriation proceedings are challenged in court, the disputes are resolved within the framework of one and the same proceeding. The amendments ought to improve the possibilities of building public roads and railways and better protect public interests. The amendments entered into force on 21 June 2005.

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