Estonia provides good investment opportunities when it comes to real estate properties mainly because foreign citizens and companies generally stand in an equal position with Estonian citizens and companies, also because there is no property tax (i.e. tax on the value of buildings) in Estonia.
This article outlines some of the most conventional questions related to property purchase in Estonia and we encourage all those who wish to purchase property or land to reach out to our team of real estate experts, to gain a comprehensive understanding of the legal requirements and implications.
As usual in Estonia most of the buying/selling process (preparation, forwarding and processing of registration applications and the making the registration entries) takes place in an electronic environment. Since all this must also be safe and correct, then according to Estonian law, all real estate transactions, except for renting, must be conducted at a notary public. The notary verifies the information necessary to prove the transaction, the actual will of the participants, and their active legal capacity and the capacity to exercise will. The notary is also the one who forwards the certified contract and other documents relating thereto to the Estonian Land Register.
The Estonian Land Register (you can find it here) is a record of proprietary interests and restricted rights, providing third parties with information about registered immovable property. The register focuses on both legal and factual circumstances and ensures legal certainty of the immovable property ownership and hedges the risks of real estate transactions. All property is entered into the land register, unless otherwise provided for by law. Each individual property has an independent entry and is given a unique number (registered property number).
What steps are required for real estate transactions?
It would be wise to start with a background check, especially if you are in the role of a buyer. So, when purchasing real estate property in Estonia start with determination of the owner and the property (size, limitations, condition, mortgages etc.). Primary information can be found from the Estonian Land Register.
However, if you are in the role of a seller, then one of the first steps in selling real estate is to conduct a property valuation. This is a kind of survey that determines the value of your property. It's from here that you can set an initial asking price when you finally put your property in Estonia for sale. If you hired a real estate agent to help you with the sale, it's highly likely that a valuation is part of their services. If not, or you decided to sell your property on your own, you can always hire a third-party company to do it. Do note that the buyer may also conduct a valuation as part of their application for a mortgage in Estonia.
Concluding a contract of purchase and sale
Before you book an appointment with a notary, important terms of the transaction such as price, handing over time, who will pay the notary fee etc. should be negotiated and agreed. Considering the conditions presented, the notary draws up the contract and the time of the transaction can be agreed. Typically, a draft contract is also sent via email to customers for review. The contract must be signed in front of a public notary.
There are many notaries in Estonia, and you can choose, for example, from the list maintained by the Chamber of Notaries (you can find it here).
In the case of joint property, the spouse must always be considered. They must participate in the transaction they need to approve the sale of the property.
What documents are needed?
Valid identification documents of both parties are always required to complete the transaction.
Depending on the transaction and the foreign element, may also be necessary power of attorney, document proving ownership of the real estate, marriage certificates (of the seller if the property that is being sold was purchased during the marriage / of the buyer if the property is purchased with the help of a bank loan), business register extract about the company, shareholder’s decision to sell the property.
In general, if it is necessary to present and bring something additional, the notary office will notify you in advance.
Documents in a foreign language must be submitted with a translation certified by a sworn translator or a notary. Official documents issued abroad must be legalized or apostilled by a notary.
As a rule, the transaction parties must also fill out a money laundering form.
Related costs and taxes
Property transfers are generally subject to state and notary fees.
Land tax is an annual tax levied on the ownership of land, including real estate properties. The tax rate varies between 0.1% and 1.0% of the property value, depending on the municipality where the property is located. If you purchase this property in Estonia and become the land owner, you are responsible for paying the tax.
For rental income, you pay 20% of the total rental income earned from the property if you are the owner.
If you sell the property, you pay the capital gains tax, which is 20% of the net capital gain, calculated as the difference between the sale price and the acquisition cost of the property.
There is no property tax (i.e. tax on the value of buildings).
Fondia´s real estate professionals can assist you with all your real estate related matters. Our lawyers work hand in hand with our tax and other related teams to offer a full range of business-focused legal and tax solutions to our clients in the real estate industry.