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Latvia: Immigration law amendments
26th May 2014
Latvian parliament adopted amendments to the Immigration Law in Latvia on May 8th, 2014. The amendments will come into force on September 1, 2014. Changes refer to the minimum thresholds of the property that qualifies for temporary residence permit.

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Finance sector in Estonia

Before the Second World War economy was based on agriculture and a growing industrial sector, similar to that of Finland. Butter, milk and cheese were widely known on western European markets. Main markets were Germany and the United Kingdom and only 3% of all commerce was with the USSR.

USSR's annexation of Estonia and the ensuing Nazi and Soviet destruction crippled the Estonian economy. Post-war Sovietization of life continued with the integration of Estonia's economy and industry into the USSR. Before the war Estonia and Finland had a similar standard of living. By 1987, capitalist Finland's GDP per capita was 14 370 USD while communist Estonia's GDP per capita was 2 000 USD.

After Estonia moved from Communism in the late and became an independent capitalist economy in 1991, it became a pioneer of the global economy. In 1994 it became one of the first countries to adopt a flat tax with a uniform rate of 26% regardless of income. From 2005 and 2008 the personal income tax rate was reduced from to 21%. Estonia received more foreign investment in the second half of the 90s than any other country in Eastern Europe. The country has been quickly catching up. It is already rated a high-income country according to the World Bank. GDP per capita of the country was $23 631 in 2012 according to the World Bank. Because of its economic performance Estonia has been termed one of the Baltic Tigers.

Banking system

Bank of Estonia is an independent central bank. Estonia is part of the Euro zone and the core tasks of the Bank are to help to define the monetary policy of the European Community and to implement the monetary policy of the Central Bank. Eesti Pank is holding and managing Estonian foreign exchange reserves as well as overall financial stability and maintaining well-functioning payment systems. The Bank of Estonia is responsible for the circulation of cash in Estonia.

Developments in the banking sector have been rapid and welcoming foreign capital. Banking sector has gone through restructuring as a result of privatisation and bankruptcy following a relatively stable period in the 2000s. Banking sector is dominated by two commercial banks, Swedbank and SEB. These banks control approximately 62% of the financial market. In Estonia there are no state-owned commercial banks or other credit institutions.

In the transition to a market economy Estonia took a stance to development of private banking. Episodes of banking crisis at the beginning of 1990s induced stricter regulation to foster financial sector oversight. It lead to the formation of the Financial Supervision Authority carrying out supervision of all Estonian financial institutions.

Financial system is largely bank based and local equity markets play a subdued role. Small size of the economy, monetary environment together with full currency convertibility, free capital movement from early years of transition and low public debt with prudent fiscal policy have all had their influence on financial sector. Since the 1990s when Swedish large banking groups acquired two major Estonian banks, the banking sector is primarily foreign-owned. This has brought a need for cooperation between home and host authorities in the Nordic-Baltic region.

Investment institutions

Investment funds provide a range of investment options. In total there are four types of investment funds allowed in the country. Contractual investment and investment funds are the main types of funds used for investment. The majority investment funds are managed by commercial banks. Operations of pension funds build on the pension reform that was implemented in 2003.

For young people contributions into the pension fund are compulsory. Others may join the system but they cannot cancel the contract afterwards. The contribution to the mandatory pension fund is 2% of the salary to which the state adds 4%. Mandatory pension funds have become popular. Voluntary funds offer traditional insurance services as for example life insurance. There is tax incentive where individuals can make contributions up to 15% of their income that are exempt from income tax.

Venture capital facilities are more and more accessible. It has become easier to gain access to financing through EBRD and other programs. The amount of venture capital committed to Estonia is still small compared to developed countries. Capital is usually of foreign origin although many local banking units are also involved in investment activity by providing with private equity finance.

Capital markets

Estonian public limited company securities are registered in Estonian Central Securities Depository. Transactions can be made using over the counter systems or on the market.

Stock market operates in the context of a cross Baltic stock exchange that coordinates the trading and imposes regulations. Investors can access minimised investment barriers when operating on Estonian, Latvian and Lithuanian markets. Baltic stock markets have similar practices and rules for all three Baltic countries, with common market information and trading systems.

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