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Economic crisis and support

Recession

Which sectors of the economy are in the most trouble right now?

Right now the most critically affected is the tourism industry, which covers travel companies, accommodation, catering, conferences, seminars and events. The next worst hit is transport, and problems will come after some delay to industry and services. In effect the entire private sector will be affected by the situation.

The main problems for companies are:

  • Liquidity problems from loan liabilities and overdrafts
  • Staff remaining at home, especially in jobs where remote working is not possible, and the question of who should pay them
  • Compulsory leave as an alternative to redundancies or part-time working
  • Inflexible approaches in projects that receive subsidies, as problems may appear later because of EU rules
  • A negative shock to demand, which is already widely evident

Can companies that have been closed because of the emergency situation demand that the state compensate for their damages?

The general principle is that the state compensates for unlawful damages, for lawful damages as an exception only if the unfairness to a company is obvious. In an emergency situation, the public and private sectors have a solidary liability. This means that the private sector tolerates legal restrictions that have been imposed on it for the good of the society and to protect the life and health of a big proportion of the population. To understand what preconditions need to be met for the damages to be compensated and by what time the entrepreneur should act, read more on the web page.

How does the emergency situation affect the continuity of contracts in private law relations?

Generally, the performance of a contract is obligatory for the parties. The rules of the contract law, including the obligations regarding the performance of contracts still apply in an emergency situation. The Emergency Act does not allow the state to interfere with private law contracts (e.g. to extend payment deadlines etc.). At the same time, the contract law regulations in force also provide special rules for situations where the performance of a contract is hindered due to force majeure or where the circumstances on the basis of which the contract was concluded or the ratio of the obligations of the contract parties has changed significantly. For more specific information, see the web page of the Ministry of Justice.

How much will it cost to recover from the economic downturn?

The restrictions on economic activity and movement associated with preventing the spread of coronavirus seriously undermine the functioning of our labour market and business. As the causes of the crisis are not related to the Estonian economy, the Government is obliged to do its utmost to mitigate the impact of the crisis on both businesses and households. The further development of economic conditions is unclear, and it is important to monitor the progress of measures to those in need. If the crisis lasts longer than expected, the country must be prepared to consider additional aid measures. Therefore, it is still early to talk about the final amounts of the financial costs of exiting from the crisis.

The impact of crisis mitigation measures in the additional budget adopted by the Parliament for 2020 on the budgetary position of the government sector is EUR 1.15 billion this year. As a result of the crisis, lower tax revenues, financing transactions and the use of reserves will increase the negative cash flow of the Treasury to EUR 3.8 billion this year. To cover the negative cash flow, the Treasury plans to borrow and issue bonds of EUR 3.5 billion. As a result, the government debt burden will rise to around 22% of Estonia's gross domestic product (GDP) by the end of the year.

During the recession orders for the construction industry will probably decrease. Could the state itself give more work to the construction companies right now?

[Supplementary amended budget] (https://www.riigikogu.ee/tegevus/eelnoud/eelnou/9eb928f5-d085-4104-a317-ad9d767727dd/2020.%20aasta%20riigi%20lisaeelarve%20seaduse%20eeln%C3%B5u%20(171%20SE%20II) includes an aid package to construction companies so that they would survive in a recession. The construction industry will get 145 million Euros to help them maintain stability on the market.

The role of the state as a contracting entity on the market will be increased already this year but the main payments to companies will be made over the following years.

As it is very difficult to accelerate the process when it comes to large infrastructure projects, it is most important to begin with the sites that have already in development.

  • Thus, 100 million Euros of the money directed toward the construction industry has been planned as co-financing for building and reconstructing apartment buildings and small residential buildings.

  • Local municipalities will get 30 million Euros for road construction and the Road Administration will get 10 million Euros.

  • 5 million Euros was earmarked for the budget for demolition of abandoned buildings, to increase the budget for demolition support in the already existing building fund of KredEx will increase by that sum.


Try to find ways

 

The recession caused by the emergency situation has inhibited the outlook of many companies. Still, in the light of the crises, quite a few have come up with inventive solutions.


Offer your help, do not expect to be rewarded

 

The recession caused by the emergency situation touches us all. If you see an opportunity to help so that the regular life of our society would be restored quicker, offer your team’s assistance.


Learn from the emergency situation

 

Every company has had to enact changes to deal with the new situation. If some of the new habits have turned out to be useful for the company, they might be considered for future implementation as well.

 

Banking

Are banks in Estonia applying uniform principles on how to accommodate individuals and companies in the current situation?

Although some details might differ, according to the Estonian Banking Association, all banks grant grace periods for loans and leasing contracts. In the event of insufficient resources, the banks request both individuals and companies to inform the banks well in advance to avoid defaulting.

What kind of debt-relief is available for small and medium size enterprises and large companies?

Small businesses can usually apply for a grace period under a simplified procedure, similar to private individuals. Medium-sized enterprises are handled according to their circumstances and the needs of the company.

What are the banks planning to do and how are they helping the companies that are in trouble?

The banks have affirmed their wish to help their customers so that they could cope with the difficult situation. On March 25, the Bank of Estonia decided to lower the systemic risk buffer required of commercial banks from 1% to 0%. This way 110 million Euros is released to the banks, which the banks can use to cover possible loan losses and to issue new loans.

How do I know what my insurance covers?

The terms of the insurance are provided in the insurance contract, which also indicates the insurance coverage and duration. If any misunderstandings occur, contact your insurance undertaking (if you have signed the contract through an insurance broker or intermediary, you may also contact them). More information can be found here (in Estonian): https://www.minuraha.ee/index.php/et/kindlustus/probleem-kindlustusega

What should I do if I have fallen behind my loan, lease or instalment payments?

The most important thing is to address the problem immediately and contact the loan provider or the leasing company. You need to act fast before the indebtedness occurs, it will provide a good ground for reaching an arrangement. Also, it is important to take note your credit history would remain positive, and no notices will be included to the Estonian Credit Register. Additional information: https://minuraha.ee/et/pangandus/laenud/makseraskustes-kaitumine

What should I do I am if I not able to make loan repayments due to a loss of income?

If the loss of income may cause difficulties in loan repayments in due time and in full, contact your loan provider immediately. Quick action before the indebtedness occurs allows good grounds for reaching an arrangement. Also, it is important to take note your credit history would remain positivite, and no notices will be included to the Estonian Credit Register. Additional information: https://minuraha.ee/et/pangandus/laenud/makseraskustes-kaitumine.

What kind of debt-relief is available for large companies?

Larger companies are handled on a case-by-case basis, and the opening of KredEx Foundation measures are also to be expected. In co-operation with KredEx Foundation, it is possible to use a proportional loan guarantee (50% of the loan amount) or a fixed loan guarantee (35% of the loan amount). The maximum loan guarantee is EUR 5 Million euros or double the company's payroll in 2019 including the social tax. However, the initial amount of KredEx measure is only EUR 100 Million. It is possible this amount will need to be increased.

 

Taxes

How does the state support businesses that are having trouble paying their taxes?

  • In order to mitigate the financial situation of companies, the Tax and Customs Board will suspend the calculation of interest on the corporate tax arrears during the emergency situation. Interest exemption will apply retroactively from March 1 until May 18.

  • As of May 18, the interest rate will be reduced from the current 0.06 per cent to 0.03 per cent. Going forward, the Tax and Customs Board may reduce the interest rate by 50 to 100 per cent.

  • The state is going to cover the first quarter advance social tax payments for self-employed persons to help them overcome the economic difficulties caused by the crisis. The state will transfer the first quarter advance payment of the social tax to the self-employed person's advance payment account at the Tax and Customs Board. If the self-employed person has already made the advance payment, they can use this amount to cover any current or future tax liability, as well as request the payment of these funds to their bank account.

  • If the entrepreneur wishes to participate in public procurements, apply for grants or permits from the state or local municipality, it is definitely necessary to organize the payment of arrears in instalments. The payment of tax arrears in instalments is also necessary for applying to several state support measures.

  • The payment of tax arrears in instalments is important even when the difficulties are long-term.

  • All tax returns must be correctly completed and submitted in due time so that the state can assess the real situation of companies and make the right decisions to help them.

What should a natural person enterpreneur do?

The state pays advance payments to self-employed persons (natural person entrepreneurs) in the first quarter to cover the social tax in order to help cope with the economic difficulties of the crisis.

The amount of the advance payment of the social security contributions of natural person entrepreneurs in the first quarter shall be transferred to their advance payment accounts in the Tax and Customs Board. If the natural person entrepreneur has already made the advance payment, they can use this money to cover any tax liability either presently or in the future, and they may request to receive it to their bank account.

Both for natural person entrepreneurs and for other taxpayers no tax debt interest calculations will be made within two months, i.e. from March 1 1 March to 1 May, and these interests will not need to be paid later.

If there are problems with payment, natural person entrepreneurs must also submit tax returns correctly, otherwise the State cannot obtain an adequate assessment of the status of entrepreneurs. When a tax debt is incurred, the Estonian Tax and Customs Board recommends the deferral of debt. The payment obligation can be deferred also when the date for payment has not yet arrived, but the tax return has already been submitted.

The calculation of interest from tax debt is suspended from March 1, to May 1. However, this does not mean that the tax should not be paid if it is possible – suspending the calculation of interest does not mean tax exemption.

The natural person entrepreneur needs to take into account that if they suspend their business activities in the Business Register, then their health care insurance will lapse in two months’ time. It would be advisable for people whose health care insurance depends on their activities as a natural person entrepreneur, not to suspend their business activities.

How can businesses obtain up-to-date information regarding tax changes?

Tax and Customs Board service bureaus were reopened on May 18. To protect the health of the customers and the customer service officials, the 2+2 rule is in force in the service bureaus and the waiting rooms of the service bureaus will remain closed. Income tax returns of natural persons will be accepted both electronically and on paper until June 30.

  • The Tax and Customs Board opened a website that gathers together tax information regarding the emergency situation at https://www.emta.ee/eng/etcbs-information-emergency-situation, where companies will find answers to frequently asked questions and current news about the changes. Information on the website is being constantly updated.

  • In Russian, the answers to frequently asked questions can be found at https://www.emta.ee/ru/chrezvychaynaya-situacya.

  • For further questions, we ask the entrepreneurs to contact the e-mail address ariklient[at]emta[dot]ee or to call 880 0812. The Tax and Customs Board responds to the e-mails within five working days, if your question in more urgent, you should preferably try reaching us on the phone.

  • Customs information can be obtained from tolliinfo[at]emta[dot]ee or call: 880 0814

  • For technical issues and instructions regarding e-MTA, please contact e-maks[at]emta[dot]ee or call 880 0815.

  • Questions from private customers will be answered by eraklient[at]emta[dot]ee and by phone 880 0811.

Can a company simply not pay taxes?

The answer is no. The suspension of the calculation of interest form tax debt does not mean a general tax exemption. We understand that this is a difficult time for everyone. However, in order to ensure the functioning of the State, it is important that any person who is able to pay tax would still pay. In the current situation, this is more important than ever before.

 

Subsidies

How does the state handle the situation where a company is unable to pay their employees?

The board of the Unemployment Insurance Fund agreed on March 18, that the Unemployment Insurance Fund plans to compensate 70 percent of salary within two months to avoid layoffs in affected companies.

According to the plan, companies whose turnover and income have fallen sharply and whose employees have no work will be compensated for 70 percent of employees' gross income for two months from March to May. Companies must also participate in the compensation themselves.

To be eligible for compensation, a company must two conditions out of three:

  1. the company's turnover must have fallen by at least 30 percent compared to the same period previous year;
  2. the company cannot provide employment for at least 30% of its employees;
  3. employees' salaries have been reduced by at least 30 percent.

The measure will apply retroactively from 1 March to 31 May, 2020. The compensation may be claimed for up to two months' salary for the period chosen by the employer within that three-month period. The measure therefore also applies to workers who have already received notice of redundancy as from 1 March.

On May 13, 2020, the Board of the Unemployment Insurance Fund decided to extend the compensation measure for payroll until June, changing its conditions. The Government of the Republic approved of the decision on May 28. Remuneration compensation is currently 50% of the salary.

Compensation shall be paid if, the turnover or income of the company has decreased compared to June last year at least 50%.

In addition, the company must meet one of the following two conditions:

  • there is no employment under agreed terms to at least 50 % of the employees of the company, and the working hours of the employees has been reduced by at least 30%,

  • the wages or salaries of at least 50 % of the employees of the company has been reduced by at least 30% or to the minimum wage.

  • The employer has reduced the working hours or the wages of the employees for the entire month of June.

  • The compensation can be applied for by both private and public sector employers, regardless of the size of the company.

  • Payroll compensation for June can be requested by the companies who have no tax debt or who have applied for deferred tax payment.

The employer can apply for compensation for employees working based on an employment contracts whose employment relationship began no later than on March 1, 2020 and for whom an entry has been made of the same date to the employment register.

  • Compensation shall be paid to those employees who have not been provided with employment as agreed by the employer or whose salary has been reduced.

  • The amount of compensation is 50% of the average monthly salary. The maximum amount of compensation is 800 euros. In addition, the employer has to pay the employee a salary of at least 150 euros (gross). The employer must make their payment before the submission of the application.

  • The employee will receive at least a minimum wage, i.e. 584 euros combined from the Unemployment Insurance Fund and the employer. If the employee has received lower salary than the minimum salary due to the part-time nature of their work, their current income level will remain the same.

  • In July, the employers can also apply for wage or salary compensation for June for those employees for whom compensation was applied for March, April or May. Therefore, the employee may receive compensation for a maximum of three months instead of two months.

  • the Unemployment Insurance Fund and the employer pay the social tax, unemployment insurance tax and compulsory pension tax and income tax on the compensation or wages, respectively.

When will the support be paid out?

After the application is submitted, it will be analyzed and a decision to approve or deny will be drafted. A support connected to the crisis assistance measure will be paid by the State Treasury after the decision to approve has been made. This takes up to ten working days. In the case of measures connected to regular supports, the money is generally paid out after the statements have been approved.

The conditions of paying out the support are determined by the regulation of the measure.

What additional services will the KredEx Foundation provide to companies affected by crisis? When will these services become available?

The KredEx Foundation package of measures have been developed based on various probable crisis scenarios, and with the aim of helping companies to prevent or mitigate liquidity problems.

Pursuant to the decision of the Government, KredEx Foundation will offer the following new services within the framework of the existing economic package in the following order:

  • for loan guarantees to offer additional surety for new and existing bank loans. KredEx will receive targeted special purpose support up to EUR 1 Billion euros for loan guarantees.
  • for revolving business loans in the amount of EUR 500 Million in order to help the companies to overcome liquidity problems caused by the coronavirus, including, where necessary, the re-payment of bank loans.
  • for investment loans in the amount of EUR 50 Million to provide investment loans to companies so they can overcome problems caused by the coronavirus.

More information can be found at: https://kredex.ee/et/koroona

It is said that the state plans to support companies through short and long-term aid packages. What exactly are they?

The government adopted a short-term package on March 19. State funds are channelled to support businesses through KredEx and the Rural Development Foundation. The package also includes Unemployment Insurance Fund labour market support, sickness benefits, tax benefits and allows tax arrears to be deferred for 18 months. It also includes the temporary suspension of the second pillar contribution to the pension fund and the partial reimbursement of the direct costs of the cancelled events.

Content of the package:

  • Additional grants through KredEx. Read more about the services here: https://kredex.ee/en/koroona
  • Labour market services provided by the Unemployment Insurance Fund to support reduced wages. The total amount is EUR 250 million and is subject to the following conditions:
  1. the benefit is available to any qualifying employer for a period of two months from March to May 2020;
  2. the allowance shall be paid up to a maximum of EUR 1000 per month and per worker;
  3. the allowance shall be payable, as a general rule, at 70% of the gross salary of the employee over the previous 12 months, plus at least EUR 150 gross salary from the employer. The Unemployment Insurance Fund and the employer pay all taxes on wages and allowances.
  • From March to May, the state will reimburse the employee for the first three days of sick leave for all sick leave certificates.
  • Rural businesses can apply for a guarantee (up to EUR 50 million), a working loan (up to EUR 100 million) or land capital (up to EUR 50 million) from the Rural Development Foundation.
  • Advance social tax aid measure will be implemented for self-employed workers.
  • Pillar II pension fund contributions will be temporarily suspended.
  • The State will reimburse up to € 3 million of the direct costs of cultural and sporting events that were scheduled between March and April but have been cancelled due to COVID-19.

In what language can I submit an application? Can I do it in Russian or English as well?

Generally the submission of applications is done in Estonian at the e-service of Enterprise Estonia. The substantive descriptions of the applications for support to mitigate the effects of COVID-19 can also be submitted in Russian and English.

The contact information of the applicant and the project name must still be filled out in Estonian when submitting an application. The activities and results of the project can be described in English or Russian, if necessary. To make things easier, we have translated the sample application forms into Russian and English. You can find them on the web page of the relevant support.

Information on all COVID-19 supports has been gathered here: https://www.eas.ee/covid-19-toetused/. You can find the sample of the needed application form on the web page of the support that is of interest to you.

How many times you can apply for crisis support?

You can apply for support once. There are several crises support measures (e.g. partial compensation for losses in tourism sector for small enterprises), but the entrepreneur can apply for only one of them. You can find a suitable support scheme and submit an application here.

 

Support to various industries

What kind of assistance is provided to farmers?

200 Million euros are allocated through the Estonian Rural Development Foundation to mitigate the economic impact on farmers:

  • loan guarantees to the agricultural and food sector and for loans already granted to farmers (a total budget of 50 million euros).
  • revolving business loan to companies operating in rural areas to overcome liquidity problems caused by the outbreak of coronavirus (total budget of 100 million euros).
  • land capital support for owners of agricultural land for sale-and-leaseback transactions to overcome liquidity problems caused by the outbreak of the coronavirus (a total budget of 50 million euros).

More information about the Estonian Rural Development Foundation can be found on their homepage.

The budget for support measures for the farmer's replacement service to cover a period of absence, is increased by 0.5 Million euros to ensure that producers will be replaced if the virus spreads. In addition to livestock farmers, also the crop sector is added.

Where can I find the support for micro- and small enterprises?

Micro- and small enterprises have the possibility to apply for a support for partial compensation of a small entrepreneur’s damages as a COVID-19 crisis support. The support is for micro enterprises whose 2019 turnover was at least €20,000 and at most €100,000.

Find out about the support conditions at: https://www.eas.ee/covid-19/?lang=en

I wish to apply for compensation of COVID-19 damages as a catering enterprise. What do I need for that?

You can find more information on the support mechanism for compensating damages to catering entrepreneurs at: https://www.eas.ee/teenus/covid-majutus/.

Additionally, a tourism service provider that has been hurt by the COVID-19 virus outbreak has the possibility to apply for support for developing its business model in order to adjust to the new circumstances. Read more at: https://www.eas.ee/covid-19-toetused/.

 

Support to tourism sector

What are the support mechanisms for tourism enterprises?

The support for partial compensation of damages caused by the COVID-19 outbreak to the tourism sector enterprises, in the total sum of 25 million Euros, is directed at the target groups that were most affected and hurt by the crisis and whose business activities have stopped or been significantly damaged due to the suspension of travel. These are hospitality entrepreneurs, catering entrepreneurs, touring entrepreneurs, managers of permanent attractions and providers of tourism services.

Additionally, it is possible to apply for support to develop tourism business models.

See more at https://www.eas.ee/covid-19/?lang=en

Where can I find the support for tour operators?

You can find more information on the support mechanism for compensating damages to tour operators at: https://www.eas.ee/teenus/covid-reisiettevote/.

Additionally, a tourism service provider that has been hurt by the COVID-19 virus outbreak has the possibility to apply for support for developing its business model in order to adjust to the new circumstances. Read more at: https://www.eas.ee/covid-19-toetused/.

I wish to apply for compensation of COVID-19 damages to a hospitality enterprise. What do I need for that?

You can find more information on the support mechanism for compensating damages to hospitality entrepreneurs at: https://www.eas.ee/teenus/covid-majutus/.

Additionally, a tourism service provider that has been hurt by the COVID-19 virus outbreak has the possibility to apply for support for developing its business model in order to adjust to the new circumstances. Read more at: https://www.eas.ee/covid-19-toetused/.

What kind of an enterprise gets the tourism service provider support?

You can find more information on the support mechanism for compensating damages to tourism service providers at: https://www.eas.ee/teenus/covid-turismi-teenuse-pakkuja/.

Additionally, a tourism service provider that has been hurt by the COVID-19 virus outbreak has the possibility to apply for support for developing its business model in order to adjust to the new circumstances. Read more at: https://www.eas.ee/covid-19-toetused/.

Does a tourism attraction that is not an enterprise get support from Enterprise Estonia?

You can find more information on the support mechanism for compensating damages to tour operators at: https://www.eas.ee/teenus/covid-turismiatraktsioon/.

Additionally, a tourism service provider that has been hurt by the COVID-19 virus outbreak has the possibility to apply for support for developing its business model in order to adjust to the new circumstances. Read more at: https://www.eas.ee/covid-19-toetused/.

 

Last updated: 15 June 2020