Crisis: Regulatory adjustments in Estonia in regards to COVID-19 (2020)

On 12 of March, the Government of Estonia declared an emergency situation until 1 May 2020, due to the worldwide pandemic of Coronavirus COVID-19 and the threat of mass infections. No emergency situation has ever been declared in Estonia before. Under the emergency situation, many different measures have been taken, including limiting normal business activities. Such measures and limitations affect the daily business of companies, including the supply of goods, provision of services and on the market in general. In this article, you can find some instructions that can be useful not only for Estonian based companies but also for e-residents who manage Estonian companies.

Employment issues

As there are no special regulations nor practice regarding employers’ and employees’ rights and obligations during an emergency situation, we would like to give you a small overview of various aspects of the employment relations that the employer should consider during the rapid spread of the coronavirus.

Based on the Estonian Employment Contracts Act, the employer may reduce an employee’s pay for up to three months over a period of 12 months if, due to unforeseen economic circumstances beyond the employer’s control (e.g. arising due to the coronavirus), the employer cannot provide the employee with the agreed amount of work and payment of the agreed remuneration would be an unreasonable burden on the employer. The remuneration may be reduced to a reasonable extent, but not below the minimum wage established by the Government of the Republic (584 euros per month). An employee has the right to refuse to perform work in proportion to the pay reduction.

Before reducing pay, the employer must offer the employee other work (including work that can be done remotely) if possible and also inform the trustee or, in his or her absence, the employees and consult them according to the procedure provided for in the Employees’ Trustee Act. An employer must provide notice of a pay reduction of at least 14 calendar days in advance. The trustee or the employee must give his or her opinion within seven calendar days of receiving the employer’s notice.

An employee has the right to terminate his or her employment contract upon a pay reduction, notifying the employer five working days in advance. Upon the termination of an employment contract, the employee is entitled to compensation in the amount of one month’s average salary of the employee.

It is also recommended to cancel all non-critical business trips to risk areas. If an employer decides to send an employee on a business trip to a high-risk area, the employee may refuse to go. This cannot be considered a violation of the employee’s duties.

Relief measures for employers

Temporary salary subsidies are available to both public and private companies most affected by the Coronavirus. The relief measure will be made available to the companies that meet two out of the following three criteria:

• The employer must have suffered at least a 30% decline in turnover or revenue for the month they wish to be subsidized for, as compared to the same month last year.
• The employer is not able to provide at least 30 percent of their employees with work.
• The employer has cut the wages of at least 30% of employees by at least 30% or down to the minimum wage.

The Unemployment Insurance Fund will pay compensation to an employee in the amount of 70% of the average wages of the employee but in the gross amount of no more than 1,000€ per month. In addition to that, the employer must pay gross wages of at least 150€ to the employee who receives the compensation for wages. If the employer terminates the contract with the employee due to redundancy in the course of the same or the following calendar month they have received the temporary subsidy, the subsidy is to be returned to the Unemployment Insurance Fund.

An employee is entitled to receive compensation for wages for up to two calendar months when the employer met the conditions specified above. Thus, the measure can be applied for two months between March 1, 2020, and May 31, 2020. To apply for the compensation, an employer must file an application with the Fund for every calendar month normally within five calendar days after payment of the wages to the employees.

Temporary measures related to foreign employees

Foreigners who had statutory grounds to reside in Estonia on March 12, 2020, and are facing obstacles in leaving the country are deemed to have a statutory ground to remain in Estonia also after the expiry of their visa or residence permit. They are not required to file for a prolongation of their visa or residence permit. Processing of new visas, residence permits, and short-term employment applications has been suspended for the time being.

Foreigners who have a legal basis for staying in Estonia as of March 12, 2020, and who are registered with the Police and Border Guard Board can continue to work in Estonia. The prerequisite for this is that they have an employer in Estonia who so wishes and who re-registers their short-term employment with the Police and Border Guard Board. The maximum permitted short-term working time is 365 days for 455 consecutive days and seasonal work 270 days for 365 consecutive days. These periods cannot be extended. Therefore, the employer must be careful to ensure that all employees are registered and that deadlines are not exceeded.

The Police and Border Guard advises foreigners who have a legal basis for a temporary stay in Estonia, but who no longer have a job in Estonia, to return to their country of residence as soon as possible if border crossings and transport allow. Information on foreigners staying and working in Estonia can also be found here: https://www.politsei.ee/en/instructions/emergency-situation/foreigners-right-to-stay-and-work-in-estonia

Contractual obligations

In the current situation, many companies cannot perform their contractual obligations in the usual agreed manner. Emergencies should not completely paralyze business and transactions since business activity and transactions are essential to keep the economy alive. It may be that the transaction has been agreed long before the emergency situation was declared and that the parties do not wish to delay it.

Force Majeure as an Excuse for Non-performance

The emergency situation declared in Estonia does not automatically change private law contracts. According to the Estonian Law of Obligations Act, non-performance by an obliged party is excused if it is caused by force majeure. Force majeure means circumstances which are beyond the control of the obliged party and which the obliged party could not reasonably have been expected to take into account, avoid or overcome the impediment or the consequences thereof. Usually, the content of force majeure is agreed upon in the contracts. Taking into consideration the coronavirus pandemic, the emergency situation declared and the measures taken thereunder, it is clear that for many contractual relationships and obligations this could mean invoking force majeure. The situation declared in the country may be treated as force majeure in the contractual relations, as several activities are limited.

Force majeure excludes recourse to some judicial remedies, in particular interest for late payment and damages, if the party has breached the contract due to force majeure. There must be a direct link between the discharge of liability and the emergency situation declared in the country.

The meaning of force majeure and its effect on the contract as provided by law and therefore parties may rely on it even if the parties have not separately referred to it in their contract. The law, however, allows the parties to limit or extend cases where non-performance due to force majeure is excused. For this reason, the first thing should always be to check the force majeure regulation in the specific contract. In practice, it is very unusual for the parties to rule out the option to rely on force majeure. Even though under normal economic activities invoking force majeure is very rare, under the present emergency situation this might become more relevant. The general rule still is that contractual obligations undertaken by a party must be performed even under more difficult conditions.

The law may also require that the contract be amended if, after the contract has been entered into, the circumstances on which the contract is based have changed significantly and the relationship between the obligations of the parties has changed significantly — for example, the costs of one party increase upon the performance of the contract or the value from the other party decreases significantly. The right to demand the amendment of the contract depends on the distribution of risks directly or indirectly agreed between the parties.

If due to unforeseen circumstances, the performance of the contract has become impossible, the contract partner should be informed immediately. To invoke force majeure, the party wishing to do so must inform the other party of the circumstances hindering performance and the effect thereof immediately after becoming aware of such circumstances. Specific requirements for such notifications may be provided in the contract between the parties. As a general rule, any change in the terms of the contract shall require the consent of both parties. The mutually agreed solution is always better than a dispute!

Notary services

Due to the emergency situation, the notaries have also changed their normal client reception — namely, several notaries have decided to change their routine business hours or even close their offices. In cases where the parties to the transaction are unable or unwilling to go to a notary’s office, but the transaction is still necessary, the possibility of remote certification by a notary is proposed. Declarations of intent that in a legal form require notarial certification can be made digitally, transactions with a private limited company registered in the securities register do not need to be notarized, and notarial wills can also be made at home. Depending on the country, it may also be possible for a foreign notary to authenticate or certify the power of attorney and applications sent to the registry, which usually requires apostille.

Remote authentication is being implemented in Estonia, but its application is currently limited. It means that transactions can also be made at home via a video bridge. At present, the following transactions can be carried out through remote authentication: transactions with the shares of a private limited company, power of attorney, applications for marriage and divorce, succession applications, deletion and assignment of rights of a real right and commercial pledge. No direct contact in the case of remote authentication makes it much safer to make transactions with a notary.

Tax-related issues

The Ministry of Finance of Estonia announced that the tax interest is not applied to tax arrears within the period of 1 March 2020 and 30 April 2020. The relief is applied automatically to all the tax arrears for two months regardless of whether the debt has arisen within this period or earlier. It is still important to submit the tax returns on time and settle the tax obligation, but the accrual of tax interest is stopped during these two months if it becomes impossible to make a full tax payment in time. As a long-run relief, the Ministry of Finance proposes to decrease the tax interest from 0.06% per day to 0.03% per day.

In the case of solvency problems, taxpayers can apply for the tax payments in instalments. The tax authority is instructed to grant the payment schedules for 18 months if the tax arrears have arisen due to the liquidity problems caused by the spread of coronavirus disease and the loss of income within this period. Concerning insignificant tax amounts (up to 20,000 euros) a payment schedule could be generated automatically online at e-Tax/e-Customs Board.

Support package from the Estonian government

Estonian government launched a €2 billion economic support package to boost the economy and mitigate the effects of the crisis caused by the coronavirus. Fulfilment of existing contractual obligations and finding a solution to ensure business continuity including helping with identifying and applying for support measures to be provided by state-owned financial institutions KredEx.

Also, KredEx Foundation measures:

KredEx Foundation business loan — amounting to €500 million, subject to the following conditions:

• KredEx Foundation issues a revolving business loan to a company to overcome liquidity problems caused by the coronavirus, including, where necessary, the payment of bank loans,
• The maximum loan amount is €5 million per company,
• The interest rate will be approximately 4 percent per year.

KredEx Foundation investment loan — amounting to €50 million, under the following conditions:

• KredEx Foundation grants an investment loan to the company so it will be possible to take advantage of business opportunities created by the coronavirus, and other new business opportunities.
• The maximum loan amount is €5 million per company,
• The interest rate is approximately 4 percent per year.

Comistar Estonia is here to help you in navigating these challenging times. Feel free to get in touch with us via our contact page or write directly to estonia@comistar.com.

This post was first published at e-resident.me blog.