E-Residency update #4 on the coronavirus (COVID-19) pandemic
By: Hannah Brown
Tags: Covid 19, Estonia, E Residency, Startup, Entrepreneurship

Employment Measures

E-residents have created around 12,000 Estonian companies, which employ about 1700 employees. These businesses may qualify for relief under the Estonian Unemployment Insurance Fund (the Fund) if they meet the eligibility requirements.

The Fund has approved measures to help “qualified employers” maintain jobs by the state’s support in paying salaries through temporary measures of wage reduction.

Eligibility requirements: a“qualified employer” must meet two of the three criteria:

the company’s turnover has fallen 30% (compared to same month in 2019); the company cannot provide work for at least 30% of its employees; the company has reduced employees’ salaries by at least 30%.

This measure involves compensation by the Fund to qualified employers (up to €250 million in total) to support wage reduction during the crisis. Under Estonian employment law, an employer can reduce the wage of an employee in certain circumstances and subject to procedural requirements set by the law.

Under the emergency measures, the Fund will partially compensation the salary costs of a “qualified employer” under the following conditions:

1) the compensation is used within 2 months from March to May 2020;

2) the compensation is 70% of the average 12 month gross salary but not more than €1000 per month per employee in need of the support; and

3) the employer must pay 30% gross salary to the employee (at least €150 per month) in addition. The Fund and the employer will pay all labour taxes on wages and benefits.

Only employees are entitled to the compensation, not management board members. The employer must apply for the compensation for each month separately (applications are expected to open in April), however the compensation will be paid directly to an employee. The employer must return the paid compensation if the employee is laid off within the next month.

For more information, please refer to the Fund’s website:

While some e-resident businesses may get relief under these measures, others may not qualify. For these, be aware of the strict rules and procedures around reducing wages or terminating the contracts of employees under Estonian employment law if you are considering taking action to reduce the wage costs of your business. In which case, think about other ways to save on wage costs. For example, discuss and make a mutual agreement with your employees for temporary measures to counter the financial effects of the crisis, e.g. temporarily lowering salary, changing role to take on other responsibilities, etc.

Tax relief measures

The Government has announced that tax debt late penalty fees are cancelled for two months from 1 March to 1 May (may be extended). This means that you can delay paying your taxes owing in this period and there will be no interest accruing on the delayed taxes owed. But all declarations still need to be filed on time and the taxes still need to be paid when possible.

Another tax relief measure provides businesses with the ability to reschedule tax debt repayments at lower interest rates than currently in force — if paying tax owed in instalments for example.

There is also some help for sole proprietors, i.e. “Füüsilisest Isikust Ettevõtja”, or “FIE”. Social tax advance payments don’t need to be paid for the first quarter of 2020 and can be claimed back if already paid.

For more information about COVID-19 tax relief measures or to make inquiries as to whether your business is eligible, the Estonian Tax and Customs Board has opened a special tax advice and information page on their website (in Estonian, English and Russian):

Finance Measures

So far, the Government has announced €1.55 billion in financial measures with the KredEx Foundation (KredEx) to provide relief for eligible Estonian companies. KredEx is an Estonian foundation, which was set up by the Government in 2001 to support the provision of state-backed financial solutions and services, including loans, venture capital, credit insurance and guarantees.

The emergency measures so far announced include:

KredEx loan guarantees of up to €5 million for enhancing a company’s liquidity by facilitating relaxed credit terms of existing loans, or backing new loans, with Estonian commercial banks or lending institutions (up to €1 billion in total); KredEx liquidity loans of up to €5 million for boosting a company’s liquidity (up to €500 million in total); and KredEx investment loans of up to € 5 million to take advantage of the business opportunities created by the coronavirus, and other new business opportunities (up to €50 million in total).

It’s important to note that these measures are not designed to fully replace the ability and responsibility of Estonian commercial banks or lending institutions to give relief to their business customers. It is thus important that if you foresee loan repayment difficulties for your business in the near future, you should immediately contact your Estonian commercial bank first to see if you can get relief.

Applications for the KredEx loan guarantees are processed by your Estonian commercial bank or lending institution. Applications for the KredEx loans are processed by KredEx, but applicants must be able to show that they have not been able to enhance their financing from their Estonian commercial bank or lending institution. For example, by proving that it has not provided you with relaxed credit terms or increased your overdraft.

There are eligibility conditions for Estonian companies to apply for relief under these measures, including that the company:

is registered in the Estonian business registry with all required reports submitted; is solvent as at 31 December 2019 and not in financial difficulty according to EU regulation 651/2014 Article 2(18); has no overdue debts to the tax authorities and credit institutions up to 1 January 2020; has no direct or indirect owners who are registered in low tax rate territories; is not active in non-eligible fields of activities (agriculture, forestry, financial services tobacco, gambling, real estate development, GMO, etc).

For the KredEx loan guarantee measures, there are also limits on the interest rate on the loan that can be guaranteed. For all measures, there are guarantee/loan contract fees.

For more information and to read the terms and conditions for each measure in detail, please visit the KredEx website:

Final thoughts and further resources

Earlier this week, PwC Estonia joined e-Residency in a webinar to introduce the measures discussed above and share their knowledge of crisis management more broadly. Watch it here:

At the end of the webinar, the PwC experts shared their advice to entrepreneurs on what to do right now given the current economic situation. Their advice was as follows:

Analyse the cash flow situation of your company for at least the next 6–18 months. Study your fixed costs and other outflows. Scenario-plan for various reductions in revenues/inflows over this period or longer, e.g. what happens if your business falls by 30%, 50%, 70%? Once you have performed this analysis, consider what counter-measures to put into place to protect the business. For example, look at your contract terms with suppliers, service providers, subcontractors and see whether it is possible and practical to terminate or amend them. Look at the options to re-finance or re-structure your loans and leases. Consider any potential employment measures to cut wage costs. Diversify / pivot your business to find new clients, projects, or activities.

For more information, we highly recommend that you visit the PwC Estonia COVID-19 website for advice on how to manage your business through the crisis. Other helpful resources can be found on the London Business School website, and at e-Residency Marketplace service provider Gate to Baltics’ website.

The e-Residency team also strongly recommends that if you anticipate that your business will experience financial difficulty as a result of the crisis, that you speak to your service provider for counselling and to mutually find a solution.

We also recommend that you use any downtime caused by the crisis productively, e.g. upskill, take online courses, write project and fundraising proposals, and take time for things you never have time to do, like revamping your website or writing.

And we would love to hear about your experiences. Please comment below the effects COVID-19 has had on you personally and in your business — what are the pain points, where do you need support, what are the opportunities, have you made changes to your business strategy or pivoted to take advantage of new opportunities, what information would be helpful from us to you, etc?