These are some of the most important institutions and regulations for participants in the Estonian market:
Regulatory authority
Tallinn Stock Exchange is licensed and supervised by The Financial Services Authority.
ECSD - Estonian Central Securities Depository
The Eesti Vaartpaberikeskus (Estonian Central Securities Depository) (ECSD) is the central depository for all registered equity and debt securities. The ECSD provides securities settlement, registration and safekeeping, payment of dividends, and tax withholding on entitlements distributed to shareholders. All securities traded in Estonia through brokers are held in dematerialised form at the ECSD. All shares held in dematerialised form at the central depository - once registered, they cannot be withdrawn and held physically. Shares are generally registered in the name of the beneficial owner. Shares held by non-resident investors may be registered in the name of the custodian bank acting as custodian for a client.
The Tallinn Stock Exchange
In April 1995 10 commercial banks, 9 brokerage firms and state players founded The Tallinn Stock Exchange. It is the only regulated securities market in Estonia and is a part of OMX Exchanges, which owns and operates exchanges in Stockholm, Helsinki, Vilnius, Riga and Tallinn. Since April 2004 the Tallinn Stock Exchange has been a member of the Nordic-Baltic stock exchange alliance Norex. From end-September 2004 The Tallinn Stock Exchange have been using the Nordic-Baltic trading system SAXESS, which will then in addition to Estonia be used by exchanges in Sweden, Finland, Denmark, Norway, Iceland and Latvia.
Taxation
Interest paid on listed bonds is exempt from withholding tax. Listed bonds include convertible bonds, other tradable debt obligations, bonds or their depository receipts that have been listed on the Estonian exchange or on the exchange of a member state of the European Economic Community (EEC). In order to be exempt from the withholding tax, the interest must be paid by the Estonian State, a local government, a resident, or a non-resident, through or on account of its permanent establishment. The current withholding tax rate on dividends and interest is 26 percent and will be reduced to 24 percent beginning in 2005, to 22 percent in 2006 and finally to 20 percent in 2007.
Investment restrictions
The Estonian economy is open to foreign investments, although an investor must notify the sub-custodian upon exceeding or falling below 5%, 10%, 20%, 33%, 50% and 66% ownership in the company. According to a takeover law, upon reaching the 50% ownership level in a TSE-listed company, investors must take a tender offer to the other shareholders to buy the remainder of the company’s shares.
A foreign investor must obtain prior approval from the Central Bank before acquiring 20% or more of the shares in an Estonian Bank. It should not take more than two months to obtain such an approval from the Central Bank after having filled all necessary documents. A separate additional license is required each time a foreign investor wishes to obtain 33% and 50% of a bank’s outstanding share capital. Moreover a foreign investor who wants to invest directly in the medical, telecommunications, transports or utility sectors must obtain a license from the Ministry of Finance. This rule does not apply to portfolio investments.