Free trade zones in Estonia
Relocating your business to another country or city is not only an excellent way to expand your company but it is also a great way to reduce and optimize costs and taxes. The most common question is: which country (or city) to choose? While Baltic States proved to be popular among Nordic, British, German and investors from CIS countries, the difference between each city also matters. A good example is so-called “free economic zone” which offers a variety of benefits for the investors settled in that area. The information provided below features requirements and tax exemptions of free economic zones in Estonia.
Free trade zone (FTZ) is economic zone on a specific geographic area where goods can be stocked, landed, manufactured etc. without liability to pay customs, tariffs or certain taxes. The liability arises when the goods are moving to another place from the FTZ.
In Estonia there are four free trade zones: in Paldiski, Muuga, Sillamäe and Valga. The first three are active nowadays, but Valga is not commonly used anymore. Estonia does not tax reinvested profits and the same applies also to free trade zones.
Paldiski Northern Port is in Northern Estonia, about 50 km from Tallinn to west. Paldiski Northern Port gained free trade zone status in January 2011.
Muuga Port is located as well in Northern Estonia less than 20 km from Tallinn to east. It is the largest and deepest cargo port in Estonia. It has good connections to Tallinn, but also to other countries by sea, rail or by mainland.
Sillamäe Port is located in Eastern part of Estonia. Its distance from Tallinn is 186 km and it is the closest EU port to Russia. In Sillamäe there is a railway station for cargo.
Estonian Customs Act regulates free trade zones in Estonia. Requirements for free zone are following: zone must be located immediately next to border-area, free zones are established for certain period of time and establishment continuation must be economically motivated. The act mainly sets up requirements for authorization to operate in free zone:
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For industrial, commercial and service activity in a free zone, authorization shall be applied from the customs authorities
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Application shall include:
-The name, personal identification code or registry code and address of the applicant;
-The economical reasoning and a list of the planned operations;
-The list of documents annexed to the request.
The storage space is freely available to all firms, and goods can be store in the warehouse for up to a year but Estonian Tax & Customs board can extend the time.
The benefits of using free zones are that Estonian’s custom duties, excise taxes or VAT are not applicable to the goods, also less administrative burden. Services in free zones are subject to regular taxes. Usually the logistics are also better in the area.
|
Taxes/Payments |
Free Trade Zone |
Regular rate |
|
VAT |
0% |
20% or 9% |
|
Excise Duties |
0% |
Depending on goods |
|
Import/Export duties |
0% |
Depending on goods |
Tony Koivula, attorney at law of the Gencs Valters Law Firm in Tallinn.
Practising in fields of Value added tax in Latvia, Lithuania, Estonia.
T: +372 61 91 000
F: +372 61 91 007