In Estonia, cost for starting a business and time to comply with taxes are among the most supportive in the EU. Estonia has made continued efforts at simplification and digitalisation over the past decade. The government is actively reducing administrative burden through its Zero-Bureaucracy project initiated in 2015. A notable new initiative is the introduction of an entrepreneurship account programme for individual entrepreneurs: revenues up to EUR 25 000 are taxed a flat 20% rate (and 40% above this threshold) without having to submit declarations. Another example is the Reporting 3.0 programme which will automate business reporting from 2018 onwards, transferring information directly from accounting software to tax and statistics services. The initiative is expected to reduce accounting time and costs of SMEs by up to 20%.
OECD SME and Entrepreneurship Outlook 2019
Chapter 16. Estonia
Figure 16.1. Structure and performance of the SME sector in Estonia
Sources: Charts A, C, D: OECD Structural and Demographic Business Statistics Database 2018, http://dx.doi.org/10.1787/sdbs-data-en; Chart B: For creations (employer enterprise births), OECD Structural and Demographic Business Statistics Database 2018; for bankruptcies, Financing SMEs and Entrepreneurs 2018: An OECD Scoreboard; Chart E: OECD Structural and Demographic Business Statistics Database 2018, Employer Business Demography dataset.
SME business conditions and access to strategic resources
Institutional and regulatory framework
Market conditions
Estonia’s regulation is quite welcoming to foreign direct investment. The government has rolled out measures to attract foreign investors as part as its programme in support of start-ups and scale-ups, Startup Estonia. Estonia also aims to facilitate access to the Estonian market and public services by foreign entrepreneurs through the creation of an “e-residency” status, an international first. Estonia’s public procurement market is close to the OECD median in size. The Support for Innovative Public Procurement programme introduced in 2016 is expected to increase the capacity of SMEs to meet the innovation demand of the public sector.
Infrastructure
The Estonian government aims to invest 1.3% of GDP in infrastructure development over 2018-20. Areas of investment include the road and railway systems as well as the broadband network. Indeed, in spite of consistent investments over the past decade, the overall quality of infrastructure (transport, communication and energy) is still considered to be around the OECD average.
Access to finance
SME access to credit has increased in recent years in Estonia and new SME lending, albeit below pre-crisis levels, was among the highest in the OECD in 2016. The government supports SMEs through guarantees rather than loans and the volume of guarantees has increased over the past decade – albeit with large yearly variations – amounting to EUR 61 million in 2017. Availability of venture capital (VC) was on par with the OECD median in 2016, and at its highest level ever in Estonia. The EstFund fund of funds was introduced in 2016 to further increase VC investment, in particular for SMEs. Set up jointly by the government and the European Investment Fund, it will invest EUR 60 million into VC funds, to be complemented by private investors (up to EUR 40 million). Investments began at the end of 2017.
Access to skills
Estonia has a good skills base and students are better equipped than most of their OECD counterparts. However, Estonia is at the median when it comes to ICT skills proficiency and tertiary educated workforce, and human resource development is a government priority. A programme aimed at improving the ICT skills of the labour force has recently been introduced, along with updated university curricula incorporating new technologies. In addition, the 2014 R&D and Innovation Strategy aims to increase the number of PhDs to 300 graduates a year by 2020.
Access to innovation assets
Estonian SMEs tend to be active in R&D and innovation with performance on par or above the OECD median. They are particularly well integrated into collaborative innovation networks, with the highest level of connections to international networks in the OECD. To further facilitate co-operation between SMEs and public R&D institutions, the “ADAPTER” online platform was established in 2016. Funded by the European Regional Development Fund, the platform is a joint project of the six main public universities; it acts as a one stop shop allowing SMEs and others to find R&D partners and access services offered by any of the institutions involved. It is managed by the Ministry of Education and Science and operates with a budget of EUR 700 000.
The full country profile is available at https://doi.org/10.1787/34907e9c-en
References
EC (2017), 2017 SBA Fact Sheet Estonia, European Commission, https://ec.europa.eu/docsroom/documents/29489/attachments/9/translations/en/renditions/pdf
OECD (2017), OECD Economic Surveys: Estonia 2017, OECD Publishing, Paris, https://doi.org/10.1787/eco_surveys-est-2017-en.