Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

ESTONIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of July 31, 2007)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: August 15, 1994.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictionsEstonia applies international security restrictions in accordance with the Common Foreign and Security Policy of the EU.
In accordance with IMF Executive Board Decision No. 144-(52/51)On November 17, 2006, Estonia notified the IMF that in accordance with EU Council regulations, certain restrictions are maintained on the making of payments and transfers for current international transactions. The restrictions include the freezing of funds and economic resources of certain individuals and entities of Belarus, Côte d’Ivoire, the Democratic Republic of the Congo, Iraq, Lebanon, Liberia, Myanmar, Syria, Sudan, Zimbabwe, the former Federal Republic of Yugoslavia; of persons indicted by the International Criminal Tribunal for the Former Yugoslavia (ICTY); of persons associated with Osama bin Laden, Al-Qaida, and the Taliban; and of certain other persons, groups, and entities, with a view to combating terrorism. Financing and financial assistance for the sale, supply, transfer, and export of arms and related material are prohibited to any person, entity, or body in Côte d’Ivoire, the Democratic Republic of the Congo, Liberia, Myanmar, Sudan, and Zimbabwe. The granting of loans or credits in any form, including the acquisition of bonds, certificate of deposits, warrants, or debentures, to certain Burmese state-owned enterprises is prohibited.
Other security restrictionsYes.
References to legal instruments and hyperlinksCouncil Regulation (EC) No. 765/2006; Council Regulations (EC) Nos. 174/2006 and 560/2005, as amended; Council Regulations (EC) Nos. 889/2006 and 1183/2005, as amended; Council Regulations (EC) Nos. 1210/2003 and 1799/2003, as amended; Council Regulation (EC) No. 305/2006; Council Regulations (EC) Nos. 234/2004 and 872/2004, as amended; Council Regulation (EC) No. 817/2006; Council Regulations (EC) Nos. 131/2004, 838/2005, and 1184/2005, as amended; Council Regulation (EC) No. 314/2004, as amended; Council Regulation (EC) No. 173/2004, as amended; Council Regulation (EC) No. 2580/2001, as amended, and Council Decision 2005/428/CFSP; Council Regulation (EC) No. 881/2002, as amended; Council Regulation (EC) No. 2488/2000, as amended.
Exchange Arrangement
CurrencyThe currency of Estonia is the Estonian kroon.
Exchange rate structureUnitary.
Classification
Currency board arrangementThe exchange rate of the kroon is pegged to the euro at the rate of EEK 15.6466 per €1 within the context of the ERM II. 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.
References to legal instruments and hyperlinksLaw of the Republic of Estonia on the Security for Estonian Kroon; Currency Law of the Republic of Estonia; Eesti Pank Act; www.legaltext.ee/indexen.htm or www.eestipank.info/pub/en/dokumendid/dokumendid/Seadused/seaduste_kogum.html?objId=190724.
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, the Russian Federation, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan. Kroon balances held by the CBs 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, the Russian Federation, and the other CIS countries.
Regional arrangementsEstonia is a member of the EU.
Administration of controlThe BOE issues and enforces foreign exchange regulations. The MOF controls and monitors imports and exports. Providers of currency exchange services and companies trading in precious metals are required to register with the Ministry of Economic Affairs and Communications (MEAC) before commencing operations.
Payments arrearsThere are some unsettled balances with the Russian Federation and certain other CIS countries that originated in the early 1990s.
OfficialAll settlement issues with the Russian Federation pertain to official debt.
Controls on trade in gold (coins and/or bullion)
On domestic ownership and/or tradeRegistration with the MEAC is required for companies to trade in precious metals (including gold).
On external tradeExports and imports of gold are subject to registration requirements administered by the MEAC.
Controls on exports and imports of banknotesThere are no controls on exports and imports of banknotes. Effective June 15, 2007, a customs cash declaration is required for amounts exceeding the equivalent of €10,000, in accordance with relevant EU regulations.
References to legal instruments and hyperlinksPrecious Metal Articles Act; Money Laundering and Terrorism Financing Prevention Act; Decree No. 91 of April 23, 2004, of the MOF; EU Regulation No. 1889/2005 of October 26, 2005, on Controls of Cash Entering and Leaving the Community; www.legaltext.ee/indexen.htm.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadYes.
Accounts in domestic currency convertible into foreign currencyYes.
References to legal instruments and hyperlinksn.a.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsIn the event of justified suspicion of money laundering or terrorist financing, the Financial Intelligence Unit may issue a precept to impose restrictions on the use of an account for up to two working days after receiving notification regarding a suspicion of money laundering or terrorist financing.
References to legal instruments and hyperlinksMoney Laundering and Terrorist Financing Prevention Act; www.legaltext.ee/indexen.htm.
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
Negative listYes.
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 their precursors, strategic goods, radioactive materials, motor vehicles, products that deplete the ozone layer, and waste products.
Other nontariff measuresImports of certain dangerous chemicals, waste products, goods that infringe on intellectual property rights, and goods against human welfare are prohibited.
Import taxes and/or tariffsImport taxes include custom duties and national 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. The excise duty rate on alcohol, cigars, and cigarillos is harmonized with EU regulations. The harmonization of the rate of excise duty on cigarettes, fuel, and smoking tobacco will have a transition period up to 2010. The transitional period for the excise duty on oil-shale used for heating will expire in 2013.
Effective July 1, 2006, the excise duty rate on cigarettes is EEK 275 for each 1,000 cigarettes and 26% of the retail selling price. Effective July 1, 2007, the excise duty rate on smoking tobacco is EEK 360 (previously, EEK 320) a kilo.
Customs duties are established in accordance with the EU regulations.
State import monopolyNo.
References to legal instruments and hyperlinksTax Act; Alcohol Act; Food Act; Medicinal Products Act; Narcotic Drugs and Psychotropic Substances Act; Precious Metal Articles Act; Radiation Act; Tobacco Act; Plant Protection Act; Weapons Act; Liquid Fuel Act; Waste Act; Strategic Goods Act; Veterinary Supervision over Trade in, Import of, and Export of Animals and Animal Products Act; Ambient Air Protection Act; VAT Act; Alcohol, Tobacco, and Fuel Excise Duty Act; www.legaltext.ee/indexen.htm.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licensesThe export of certain dangerous chemicals, waste products, goods that infringe on intellectual property rights, and goods harmful to human welfare 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 their precursors, and toxic and other waste products.
Export taxesNo.
References to legal instruments and hyperlinksAlcohol Act; Food Act; Medicinal Products Act; Narcotic Drugs and Psychotropic Substances Act; Precious Metal Articles Act; Radiation Act; Tobacco Act; Plant Protection Act; Weapons Act; Waste Act; Strategic Goods Act; Veterinary Supervision over Trade in, Import of, and Export of Animals and Animal Products Act; www.legaltext.ee/indexen.htm.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsYes.
Repatriation requirementsNo.
Controls on capital and money market instrumentsNo.
Controls on derivatives and other instrumentsNo.
Controls on credit operationsNo.
Controls on direct investmentNo.
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 the Russian Federation.
Controls on personal capital transactions
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsControls apply on the transfer of real estate as a gift.
References to legal instruments and hyperlinksRestrictions on Acquisition of Immovables Act; Land Reform Act; www.legaltext.ee/indexen.htm.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutions
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 other nonresidents.
Open foreign exchange position limitsEffective December 29, 2006, the relevant EU legislation applies.
Provisions specific to institutional investors
Insurance companies
Limits (max.) on securities issued by nonresidentsIn general, there is no differential treatment of securities issued by nonresidents of other sectors. General investment limits on securities are the following: (1) assets covering technical provisions may be invested in securities of one issuer or in loans secured by one borrower in an amount of up to 5% of the total amount of technical provisions together with the reinsurer’s share and in an amount of up to 10%, provided neither the proportion of securities nor the proportion of secured loans in assets covering technical provisions exceeds 40% of the total amount of technical provisions together with the reinsurer’s share; and (2) assets covering technical provisions may be invested in securities not specified in §77 (6) 2) of the Insurance Activities Act that can be sold within a short period of time, and in shares of investment funds not specified in §4 of the Investment Funds Act in an amount of up to 10% of the total amount of technical provisions together with the reinsurer’s share.
Limits (max.) on investment portfolio held abroadThere are no specific limits on investment portfolios held abroad just as there are no limits on investment portfolios held locally.
Currency-matching regulations on assets/liabilities compositionAn insurer is required to invest assets covering technical provisions corresponding to the commitments arising from insurance contracts in the same currency that the commitment was assumed, unless (1) the assets covering technical provisions corresponding to the commitments assumed in such currency do not exceed 7% of the assets covering technical provisions expressed in other currencies; (2) the assets covering technical provisions corresponding to the commitments assumed in such currency do not exceed 20% of all the commitments of the insurance undertaking expressed in the same currency; (3) the assets covering technical provisions corresponding to the commitments assumed in Estonian krooni are invested in euros; and (4) the commitment arises from unit-linked life insurance contracts. The currency in which the insurer has assumed the commitment is determined as follows: (1) if an insurance contract stipulates the currency in which the insurer is required to pay the indemnity, then such currency is deemed to be the currency in which the insurer has assumed the commitment; and (2) if an insurance contract related to the insurance activities does not stipulate the currency in which the commitment has been assumed, then the currency of the state where the insured risk is situated is deemed to be the currency in which the insurer has assumed such commitment. An insurer has the right to select a currency in which the insurance payments are to be made in cases where such selection is justified. Such selection is justified, above all, in cases where after conclusion of the contract it will be likely that the commitment must be paid in the same currency in which insurance payments were made and that currency is not the currency of the state where the insured risk is situated.
Pension funds
Limits (max.) on securities issued by nonresidentsA pension fund may invest up to 100% of its assets in foreign securities, which are freely tradable and traded in regulated markets of Estonia and EU, EEA, or IOSCO member states, as specified in the fund rules. However, the total value of securities whose issuers are registered in a state that is not a contracting state of the EEA or a member state of the OECD may not exceed 30% of the market value of the assets of a pension fund. The total value of the securities that are traded only in the regulated securities markets of non-EEA or OECD states may not exceed 20% of fund assets.
Currency-matching regulations on assets/liabilities compositionThe total net position of investments of mandatory pension funds in securities denominated in foreign currencies, except the euro, may not exceed 30% of the fund assets.
Investment firms and collective investment funds
Limits (max.) on securities issued by nonresidentsAll investment funds may invest up to 100% of their assets in foreign securities. However, in general, the assets of UCITS and other open-ended public funds may be invested in securities that are freely transferable and traded in regulated markets of Estonia and EEA members or other countries, as specified in the fund rules.
References to legal instruments and hyperlinksEesti Pank Governor’s Decree No. 13 of December 29, 2006, on Prudential Ratios of Credit Institutions; Insurance Activities Act, Chapter 4; Investment Funds Act, Chapter 7; Minister of Finance Regulation on Limitations on Investment of Assets of Mandatory Pension Funds in Securities, Paragraph 6; www.legaltext.ee/indexen.htm; www.eestipank.info/pub/en/dokumendid/dokumendid/oigusaktid/maaruste_register.
Changes during 2006
Exchange measuresNovember 17. Estonia notified the IMF that in accordance with EU Council regulations, certain restrictions are maintained on the making of payments and transfers for current international transactions. The restrictions include the freezing of funds and economic resources of certain individuals and entities of Belarus, Côte d’Ivoire, the Democratic Republic of the Congo, Iraq, Lebanon, Liberia, Myanmar, Syria, Sudan, Zimbabwe, and the former Federal Republic of Yugoslavia; of persons indicted by the International Criminal Tribunal for the Former Yugoslavia (ICTY); of persons associated with Osama bin Laden, Al-Qaida, and the Taliban; and of certain other persons, groups, and entities, with a view to combating terrorism. Financing and financial assistance for the sale, supply, transfer, and export of arms and related material are prohibited to any person, entity, or body in Côte d’Ivoire, the Democratic Republic of the Congo, Liberia, Myanmar, Sudan, and Zimbabwe. The granting of loans or credits in any form, including the acquisition of bonds, certificate of deposits, warrants, or debentures, to certain Burmese state-owned enterprises is prohibited.
Imports and import paymentsJuly 1. The excise duty rate on cigarettes was set at EEK 275 for each 1,000 cigarettes and 26% of the retail selling price.
Provisions specific to the financial sector
Provisions specific to commercial banks and other credit institutionsDecember 29. The relevant EU legislation on open foreign exchange position limits was applied.
Changes during 2007
Arrangements for payments and receiptsJune 15. The export and import of banknotes exceeding the equivalent of €10,000 became subject to a customs cash declaration.
Imports and import paymentsJuly 1. The excise duty rate on smoking tobacco was set at EEK 360 (previously EEK 320) a kilo.

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