This section offers a comprehensive guide to the purchasing process in Estonia, a process which can usually be completed in less than one month. Whilst we have endeavoured to cover every angle in some detail we are always happy to answer any further questions you may have in person or by telephone. We pride ourselves on the quality of our staff and they will normally be able to address any queries or concerns you may have on the spot. If not, we can draw on our in-country resources to answer your questions within 24 hours.

• Choosing the Right Property
• Power of Attorney
• Property Ownership by Private Individuals
• Standard Payment Terms
• Costs Associated with the Purchase
• Financing the Purchase
• Exchange Rate Risk
• Tax Liabilities
• Letting the Property
• Rent Collection
• Local Banking
• Reselling the Property

For further information on the property market, please browse our latest Estonia market research report.

Choosing the Right Property

At Arc Property we pride ourselves on our in-depth knowledge of every market we operate in. Our staff in Tallinn, Estonia’s beautiful capital, provide us with authoritative market reports, city development plans, planning applications and press coverage so that you can make your decision on the basis of expert and up-to-date advice.

Thanks to our extensive network of contacts, including partnerships with all the major developers, we are normally one of the first to find out about the most exciting and newest developments. Unlike other overseas estate agencies, we are completely independent and have no incentive to recommend particular properties or developments over others.

In certain instances, we may be able to negotiate with the developers to obtain a discount or more favourable payment terms. You can rest assured that any discounts we negotiate will be passed onto you in their entirety. This ensures that our advice is always completely impartial.

Back to Top

Power of Attorney

The calibre of our market research and information packs on individual properties is such that many of our clients are confident purchasing a property without ever having visited Tallinn.

However, should you wish, we can make all the necessary arrangements to save you time. We can arrange a reputable English-speaking lawyer to sign the property deeds and take out a mortgage on your behalf using power of attorney.

Of course If you would like to visit Tallinn, we will be happy to show you around the city and assist you in the decision-making process. We can fully brief you on the current market situation and take you on an inspection tour of all the ongoing and potential developments. This will give you a better understanding of the market and allow you to see your investment first-hand. This service is naturally free of charge and on a no-obligation basis.

Back to Top

Property Ownership by Private Individuals

In Estonia, foreigners are freely permitted to own property and, unlike in many other central and eastern European countries, it is not necessary to form a company.

Back to Top

Standard Payment Terms

When buying off-plan properties in Estonia the developers will usually require a non-refundable deposit of between 10-15% of the value of the property at the time the contract is signed. This will be held in an escrow account with a local bank until the construction is competed. The balance of the payment is payable upon completion (normally 6-12 months later). All payments are normally made in Euros.

One of the key attractions to Estonia is that unlike in many other countries (Bulgaria for example) no staged payments are required while construction is ongoing. This means that should you plan on taking out a mortgage, the only equity investment you will ever need to make is the deposit. On this basis, a studio/one bedroom apartment can be purchased with a down payment of only £4000-5000.

Back to Top

Costs Associated with the Purchase

One of the key benefits of purchasing properties off plan is that costs associated with purchasing a property can be kept to a minimum. Arc Property can arrange for the contracts to be looked over by an independent Estonian lawyer. This will cost in the region of £150-300, depending upon the length of the contract and any ammendments that need to be made.

On purchasing an apartment there is a notary fee of 0.1% of the transaction value (the
sale price), and a fee of 0.075% of transaction value to register the property in the land registry.

See also tax liabilities

Back to Top

Financing the Purchase

You can obtain a high loan to value Euro mortgage from one of several European banks in Estonia. The minimum loan amount is usually around 50,000 Estonian Crowns and the loan term can be between 1– 30 years. 

A further incentive to invest in Estonia is that Banks are willing to provide high loan-to-value (up to 90%) mortgages at some of the lowest rates available. They can afford to lend so much given their confidence that the market will continue to perform strongly for the next 5-10 years.  Mortgages are available in US Dollars, Euros and Estonian Crowns, but as the Crown is pegged to the Euro anyway, we recommend a Euro mortgage for the sake of convenience.

The best variable mortgage rate currently available is 4.5%.

Alternatively, you can opt for a fixed interest rate, based on the 5 or 10-year Euro 5 interest rate plus the bank’s margin. The interest rate is then fixed in the loan contract for either 5 or 10 years, protecting you against possible interest rates hikes.  If necessary, dependent on income, some banks will grant a grace period for up to 2 years, for example for the birth of a child. Most banks will also allow early repayment of the loan with approximately 3 months advance notice.

Given that rental yields on newly-built properties are around 5-5%, your property will be generating a significant cash income from day one. There is no standard mortgage term in Estonia and repayment mortgages can be up to 30 years. Interest only mortgages are not currently available.

Alternatively you could utilise assets held in the UK (or home country); either by using savings, releasing equity from you home or rebalancing your investment portfolio by weeding out the under performers. Arc Property International Ltd. are not regulated by the Financial Services Authority (FSA) and we recommend that you take independent financial advice before making any investment decision.

Back to Top

Exchange Rate Risk

Exchange rate risk is a fact of life when purchasing properties in a currency other than your own. Rate fluctuations may work in your favour or against you so it is important to be aware of the risks and the potential consequences.

For example in 2004 the variation in the GBP-EUR exchange rate was 8.3%. Under this scenario the Sterling value of a EUR 100,000 property would have fluctuated by GBP 3,888.

One way to manage adverse currency fluctuations is to ensure that you have sufficient funds available to absorb any extra costs. Alternatively a forward deal can be put in place with a foreign exchange company to secure a set rate at some future date (up to 2 years in advance). Should you wish we can recommend a number of suitable firms.

Back to Top

Tax Liabilities

Stamp Duty - 0.3% to 0.5%

Stamp duty in Estonia is paid on a sliding scale and as in the UK this is payable when the property deeds are transferred (i.e. upon completion).

* Exclusive of VAT,
** in case of sums over 10 million, an additional fee equalling 0.4% of the transaction value is applied.

We will assist you with making this payment although it is relatively straightforward. Of course if you sell the property before completion there is no stamp duty as technically you have sold the contract rather than the property.

Land Tax - 0.2% to 0.7%

Land tax (the equivalent of council tax) is payable annually and the amount varies depending on where your property is located. At present the rate in Tallinn varies between 0.2 to 0.7 percent of the assigned value of the land the property is situated on (this is normally significantly lower than market value). As in the UK this tax is normally paid by the tenants.

Income Tax – 22% Flat Rate

Estonia has a flat income tax rate of 22% and this could decrease as the government in publicly committed to reaching 20% (in 2009). As part of our inclusive service we can offer you discounted rates with a well-respected English speaking accountant who will be able to manage your tax returns on your behalf. Unless you have any other income streams in Estonia this is simple and inexpensive.

Capital Gains Tax (CGT) - 22%

Capital Gains are considered as income and as such are charge at the prevailing rate of income tax (currently 22%). The Estonian government is publicly committed to reducing the rate of income tax to 20% in 2009.

VAT - 18 %

VAT is applied to all newly constructed properties in Estonia at the standard rate of 18%. The VAT, however as in the UK, is nearly always included in the advertised price and where it is not it will be clearly indicated.

Inheritance and Gift Tax - 0%

Back to Top

Letting the Property

Arc Property has teamed up with one of the market leaders in letting management. The type of tenant and contract will vary depending on the property. City centre apartments generate the most rent and will appeal largely to international workers. The length of contract tends to be 3-12 months but highly lucrative longer-term contracts (normally with for embassy staff) are possible. Apartments in the suburbs will predominately attract the burgeoning, newly affluent local middle class. In our experience they are generally highly qualified young professionals and many of whom work for the ever growing number of large corporations relocating to Tallinn. The normally contract period in these areas is 1-2 years. At present demand for apartments is outstripping supply so we confidently predict 100% or near occupancy.

Depending on the type of property and location tenants will either be sourced from a database of corporate clients or by advertising widely in the local press.

The letting management service is comprehensive so you will never need to have an ongoing involvement in the property. As part of the service agreement we have with the rental management firm they will obtain tenants, perform background and credit checks, collect the rent, arrange necessary maintenance using only fully accredited parts and labour, and conduct regular inspections visits. They will liaise closely with our partner accountant to ensure tax returns are completed swiftly and with minimal cost.

Should you wish make alternative arrangements we will be happy to point you in the right direction and offer practical support and advice on a no cost basis for the lifetime of your investment.

Back to Top

Rent Collection

As stated above our rental management partner will be responsible for collecting rent from the tenants. As use of the Euro for large transactions is already fairly commonplace in Estonia it is usually possible to collect the rent in Euros or Estonian Crowns. Although the Euro-EEK exchange rate is pegged many of our clients prefer to collect rent in Euros for the sake of convenience. If you take out a mortgage to fund the property it would probably make more sense to collect the rent in that currency.

Back to Top

Local Banking

Many of our clients opt to open local bank accounts so that mortgage payments can be made in a timely fashion with minimal hassle and to maintain a ‘working’ balance to cover local costs (maintenance, tax returns etc).

Estonian banks are used to opening accounts for foreigners and marketing material and all documentation is available in English. In the vast majority of branches their will be at least one individual with good English.

We have good relations with a number of banks and can make appointments on your behalf with fluent English speakers. Alternatively you may open a bank account from the comfort of your own home via power of attorney. All major Estonian banks allow clients to check their balances and make payments via secure internet banking.

Back to Top

Reselling the Property

At some point, sooner or later, you will wish to sell the property. This is possibly the most important stage in the investment cycle as it is only at this point that any capital gains become real.

As part of our ongoing service we will advertise your property on our website free of charge and actively promote it to any of our clients looking to buy in Estonia. We also have an arrangement with one of the leading high street estate agents in Estonia that will ensure your property gains maximum exposure to potential local buyers. Upon request we can arrange to have a property inspection and valuation conducted by an independent and reputable surveyor so you can be confident of getting the market rate.

By whichever means the property is eventually sold it will not cost you anything as all the costs associated with the sale will be the responsibility of the buyer. Should you wish to explore other options we will be happy to offer advice and point you in the right direction.

Back to Top

Estonia Properties >>

Estonia Market Research >>