Annual Report on Exchange Arrangements and Exchange Restrictions 2005
Chapter

ESTONIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of December 31, 2004)

Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: August 15, 1994.
Exchange Arrangement
CurrencyThe currency of Estonia is the Estonian kroon.
Exchange rate structureUnitary.
Classification
Currency board arrangementOn June 27, 2004, Estonia adopted the ERM II. However, the authorities still maintain the currency board arrangement without modification.
The exchange rate of the kroon is pegged to the euro at the rate of EEK 15.6466 per €1. The Bank of Estonia (BOE) allows commercial banks to buy or sell foreign exchange to adjust their kroon liquidity. All transactions are initiated by commercial banks. For licensed credit institutions, the BOE is obliged to exchange euros for Estonian krooni and vice versa without limits. There is no spread between the buying and selling rates of the Estonian kroon against the euro. Transactions in convertible currencies are effected by commercial banks, which are free to quote their own exchange rates.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketYes.
Arrangements for Payments and Receipts
Prescription of currency requirementsNo.
Payments arrangements
Bilateral payments arrangements
InoperativeEstonia has bilateral agreements with Armenia, Azerbaijan, Belarus, Kazakhstan, the Kyrgyz Republic, Latvia, Lithuania, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan. Kroon balances held by the central banks of these countries in their correspondent accounts are fully convertible without delay. No swing credits or overdraft facilities are provided by these arrangements. Commercial banks in Estonia are free to open their own correspondent accounts with commercial banks worldwide, including in the Baltic countries, Russia, and the other CIS countries.
Regional arrangementsOn May 1, 2004, Estonia became a member of the EU and the free trade agreements with the EFTA, the EU, the Czech Republic, the Faeroe Islands, Hungary, Latvia, Lithuania, Poland, the Slovak Republic, Slovenia, Turkey, and Ukraine were abolished.
Administration of controlThe BOE issues and enforces foreign exchange regulations. The MOF controls and monitors imports and exports, and licenses gold trading.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)In accordance with the EU’s Common Foreign and Security Policy, Estonia maintains restrictions with respect to Serbia and Montenegro, former president Milosevic and his associates, persons and organizations with links to the Taliban and Al-Qaida, other persons and entities associated with terrorism, the former governments of the Democratic Republic of the Congo, Iraq, Liberia (effective February 10, and April 29, 2004), Myanmar (effective April 26, 2004), Sudan (effective January 26, 2004), and Zimbabwe (effective February 19, 2004).
In accordance with UN sanctionsEstonia applies restrictions and the measures adopted by the European Union within the framework of the Common Foreign and Security Policy.
Payments arrearsThere are some unsettled balances with Russia and certain other CIS countries that originated in the early 1990s.
OfficialAll settlement issues with Russia pertain to official debt.
Controls on trade in gold (coins and/or bullion)
Controls on domestic ownership and/or tradeA license from the MOF is required for companies to trade in gold.
Controls on external tradeExports and imports of gold are subject to licensing requirements administered by the MOF.
Controls on exports and imports of banknotesThere are no controls on exports and imports of banknotes, but a customs declaration is required for amounts exceeding the equivalent of EEK 100,000.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadYes.
Accounts in domestic currency convertible into foreign currencyYes.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measures
Other nontariff measuresImports of certain dangerous chemicals, waste products, and goods against humanity are prohibited.
Open general licensesOpen general licenses are required for alcohol, food, fuel and energy, medicinal products, narcotics and psychotropic substances, precious metals and stones, radioactive materials and devices, tobacco, plants, and weapons.
Licenses with quotasLicenses or special permits are required to import explosives, weapons and ammunition, radio broadcast equipment, plants, seeds, rare species of animals and plants, goods subject to veterinary and phytosanitary controls, certain foods, plant preservatives and fertilizers, medicinal products, narcotics and psychotropic substances and precursors, strategic goods, radioactive materials, motor vehicles, products that decrease the ozone layer, and waste products.
Import taxes and/or tariffsImport taxes include custom duties and local taxes on goods (regulated by the Tax Act). Imported goods are subject to a VAT of 18% and excise duties that are levied on specific products, such as tobacco, alcohol, fuel, and packaging materials. Similar taxes are levied on domestically produced goods. Effective May 1, 2004, the excise tax rate on alcohol, cigars, and cigarillos is harmonized with EU regulations. The harmonization of the rate of excise tax on cigarettes, fuel, and smoking tobacco will have a transition period up to 2010.
The excise tax and duty rates on cigarettes are EEK 210 for each 1,000 cigarettes and 24% ad valorem; the excise tax on smoking tobacco is EEK 220 a kilo.
Foodstuffs originating from countries with which Estonia has not concluded a free trade agreement are subject to customs duties.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licensesThe export of certain dangerous chemicals, waste products, and goods against humanity is prohibited.
Without quotasLicenses or special permits are required for alcohol, items of cultural value, precious metals and articles containing these products, medicinal products, weapons, explosives, rare species of plants and animals and hunting trophies, goods subject to veterinary and phytosanitary controls, certain foods, narcotic drugs and psychotropic substances, strategic goods, radioactive substances, weapons of mass destruction and precursors, and toxic and other waste products.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital transactionsYes.
Controls on capital and money market instrumentsNo.
Controls on derivatives and other instrumentsNo.
Controls on credit operations
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsFinancial guarantees to nonresident credit institutions are subject to reserve requirements.
Controls on direct investment
Inward direct investmentEffective May 1, 2004, foreign capital controls in the aviation sector are harmonized with EU regulations.
Controls on liquidation of direct investmentNo.
Controls on real estate transactionsThe regulations on the purchase and sale of land are harmonized with EU regulations.
Purchase locally by nonresidentsPurchases of more than 10 hectares of agricultural land and forest are subject to approval by the county governor concerned. Acquisition of real estate by non-EEA residents is prohibited in the islands, except for the four largest islands, and in certain local municipalities bordering Russia.
Controls on personal capital transactions
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsThere is a control on the transfer of real estate as a gift.
Provisions specific to commercial banks and other credit institutionsCredit institutions may not deduct claims to foreign banks from liabilities to foreign banks for the purpose of satisfying reserve requirements.
Differential treatment of deposit accounts held by nonresidents
Reserve requirementsLiabilities to foreign credit institutions are subject to a reserve requirement. There is no differential treatment of deposit accounts held by nonresidents of other sectors.
Open foreign exchange position limitsBanks’ open foreign exchange positions (as a percentage of individual foreign currencies and total position) are subject to prudential limits.
Provisions specific to institutional investorsProvisions applicable to life and nonlife insurers limit the allocation of committed assets (i.e., assets covering technical reserves) to trustworthy liquid assets (i.e., OECD A-zone and Estonian-regulated market for bonds and fund units, and IOSCO member state markets for shares held for a short term).
A pension fund may invest up to 100% of its assets in foreign securities. These securities must be freely tradable and traded in regulated markets of Estonia and EU, EEA, or IOSCO member states, as specified in the fund rules.
Limits (max.) on investment portfolio held abroadYes.
Currency-matching regulations on assets/liabilities compositionThe whole net position of investments of mandatory pension funds in securities denominated in foreign currencies (except the euro) cannot exceed 30% of the fund assets.
Other controls imposed by securities lawsNo.
Changes During 2004
Exchange arrangementJune 27. Estonia adopted the ERM II, although the authorities continued to maintain the currency board arrangement without modification.
Arrangements for payments and receiptsJanuary 26. Restrictions were imposed on certain transactions with respect to Sudan.
February 10. Restrictions were imposed on certain transactions with respect to Liberia.
February 19. Restrictions were imposed on certain transactions with respect to Zimbabwe.
April 26. Restrictions were imposed on certain transactions with respect to Myanmar.
April 29. Further restrictions were imposed on certain transactions with respect to Liberia.
May 1. Estonia became a member of the EU, and the free trade agreements with the EFTA, the EU, the Czech Republic, the Faeroe Islands, Hungary, Latvia, Lithuania, Poland, the Slovak Republic, Slovenia, Turkey, and Ukraine were abolished.
Imports and import paymentsMay 1. The excise tax rate on alcohol, cigars, and cigarillos was harmonized with EU regulations.
Capital transactions
Controls on direct investmentMay 1. Controls on foreign investments in the aviation sector were harmonized with EU regulations.

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