COVID-19: Package of economic measures

UPDATED: April 7, 2020

The Estonian Government has approved a package of economic measures to mitigate the situation for workers and businesses in Estonia. The planned package of measures will amount to at least EUR 2 billion.  On April 2, the Government approved the supplementary budget act and submitted it to the parliament. The focus of the supplementary budget is to support Estonian workers and entrepreneurs and alleviate the economic downturn caused by COVID-19. 

Tax alleviation measures

• Late payment interest calculation is suspended on all tax arrears for the period of emergency with retroactive effect from 1 March to 1 May 2020;
• From 1 May late payment interest on tax arrears is reduced by 50%, i.e. to 0,03% per day vs the previously applicable 0,06% per day;
• Deferred tax arrears are no longer subject to late payment interest at all (previously 50% late payment interest at 0,03% per day was collected);
• Sole proprietors are exempted from the advance social security contributions for the first quarter of the year whereas the State will be remitting the tax due on their behalf;
• If the sole proprietor has already paid the advance social tax, he or she can use the amount to cover any tax liability, either immediately or in the future, or may ask for the transference of this amount into his or her bank account;
• Tax authorities have declared that they would be as flexible as possible in debt proceedings and will not initiate compulsory executions while in the state of emergency (currently until 1 May).

Additional tax and excise reliefs to reduce costs for both businesses and consumers

• In order to alleviate transport and household costs, the government will lower excise duty rates on several fuels for two years, from 1 May 2020 to 30 April 2022:
  • The excise duty rate on diesel will be reduced from 493 euros to 372 euros per 1,000 litres, which is expected to reduce the price of diesel by 14.5 euro cents per litre;
  • The excise duty rate on natural gas will be reduced from 79.14 euros to 40 euros per 1,000 cubic metres, i.e. to the 2017 level. For households, this means a 7.1% reduction in the price of natural gas;
  • The excise duty rate on electricity will be reduced from 4.47 euros to one euro per megawatt-hour, which is the minimum rate allowed by the EU. For consumers, this will lead to a 3.1% reduction in electricity prices. In addition, there is a discount for large electricity users.
• The VAT rate for electronic publications will be reduced to 9%, i.e. to the same level as for paper publications;
• The VAT rate on audio books on a tangible medium will also be reduced.

Other financial measures

• The state will suspend pension payments to the second pillar, that are made at the expense of social tax, from 1 July this year until 31 August 2021. In October 2020, everyone who has joined the mandatory funded pension will be able to decide whether to waive their contribution as well. 
• The regulation of the deduction of expenses from income received upon the transfer of timber will also be extended to natural persons.

Employment measures

250 million euros will be directed to a measure through the Estonian Unemployment Insurance Fund. To grant an income for the employees during the emergency situation and help the employers to surpass difficulties, the Estonian Government will launch via the Unemployment Insurance Fund a temporary wage subsidy program.

• Temporary subsidies will be paid to employees whose employers are significantly impacted by the current emergency situation.
• The subsidy is paid, when an employer is in a situation where they comply with at least two of the following terms:
  • turnover or revenue of the company has decreased at least 30% compared to the same month last year;
  • wages have been cut at least 30%;
  • it is impossible to provide work to at least 30% of the employees in the agreed amount.
• The amount of the subsidy will be 70% of the average monthly wage of the employee. The maximum amount of the subsidy is €1,000. In addition to that, the employer must pay a wage of at least €150 to the employee.
• The Unemployment Insurance Fund will pay the taxes on the subsidy, the employer will pay the taxes on the employee’s wage.
  

KredEx Foundation measures

To support businesses, the Ministry of Economic Affairs and Communications provides assistance in the supplementary budget through KredEx Foundation. This will help to alleviate the economic difficulties caused by the spread of the coronavirus. KredEx’s packages have been developed in accordance with various possible scenarios of the crisis and with the aim of helping to prevent or mitigate liquidity problems of businesses. KredEx will offer loan guarantees, working capital loans and investment loans.

Loan collateral amounting to EUR 1 Billion for bank loans already issued in order to allow for repayment schedule adjustments (maximum EUR 600 Million for the surety collection), under the following conditions:

1. If the bank relaxes the repayment schedule of the existing bank loan which has not been secured by KredEx Foundation, then KredEx will secure the loan;
2. The maximum guaranteed amount is EUR 5 Million per company;
3. If possible, fixed guarantee will be restored or the guarantee rate will be increased to cover more than 80% of the guaranteed liability.

Business loan – amounting to EUR 500 Million, subject to the following conditions:

1. KredEx issues a revolving business loan to a company in order to overcome liquidity problems caused by the coronavirus, including, where necessary, the payment of bank loans;
2. The maximum loan amount is EUR 5 million per company;
3. The interest rate is approximately 4% per year.

Investment loan – amounting to EUR 50 million, under the following conditions:

1. KredEx Foundation grants an investment loan to the company so it would be possible to take advantages of the business opportunities created by the coronavirus, and other new business opportunities;
2. The maximum loan amount is EUR 5 Million per company;
3. The interest rate is approximately 4% per year.

Rural life

Rural companies can apply to the Rural Development Foundation for guarantees (up to EUR 50 million), business loans (up to EUR 100 million) or land capital financing (up to EUR 50 million). 

Education and science

• 4 million euros will be provided to support research and development activities related to COVID-19, including investments in the third level biolab of the University of Tartu.
• Private schools, kindergartens, hobby education, etc. are supported to cover expenses.

Culture and sport

• The size of the crisis package in the field of culture and sport is 25 million euros. The package is divided into two: 
  • income support for natural persons in the field of culture and sport
  • partial compensation for costs already incurred and unavoidable fixed costs in the event of missed events in the field of culture and sport.
• The state also helps to support the churches and ministers of religion in the supplementary budget whose activities have been severely disrupted during the crisis, but who continue to provide assistance to people.

Social sphere

• To help the medical system, the Health Insurance Fund is provided with funds to compensate for the first three days of illness. In addition, the medical system will receive an additional 200 million to cover hospitals, ambulances and other exceptional expenditure.
• In the social sphere, it is also possible to provide parents with children with special educational needs with a supplementary budget through the Estonian National Social Insurance Board. In addition, a change will be made to the assessment of the ability to work and the automatic extension of the severity of disability.