As a member of the European Union, Estonia is part of the one of the world’s largest and most tightly integrated trade blocs.

In June 1992, Estonia replaced the ruble with its own freely convertible currency, the kroon (EEK). A currency board was created and the new currency was pegged to the German mark at the rate at 8 EEK for 1 DEM. When Germany introduced the euro, the peg was changed to 15.6466 kroon for 1 euro. The Estonian government finalized the design of Estonia’s euro coins in late 2004, and is now intending to adopt the euro as the country’s currency in 2010, later than planned due to continued high inflation.

In 1994, Estonia became one of the first countries in the world to adopt a flat tax, with a uniform rate of 26% regardless of personal income. In January 2005 the personal income tax rate was reduced to 24%. A subsequent reduction to 23% followed in January 2006. The income tax rate will be decreased by 1% annually to reach 20% by January 2009.

In 1999, Estonia experienced its worst year economically since it regained independence in 1991, largely because of the impact of the August 1998 Russian financial crisis. Estonia joined the WTO in November 1999. With assistance from the European Union, the World Bank and the Nordic Investment Bank, Estonia completed most of its preparations for European Union membership by the end of 2002 and now has one of the strongest economies of the new member states of the European Union, which it joined on 1 May 2004.

The north-west coast of Estonia near Nõva, Lääne.Since January 1, 2000, companies have not had to pay income tax on re-invested income. However, tax is due on profit distributions (including hidden distributions) at a rate of 22%. Despite the fact that only the moment of taxation was shifted from earning profits to their distribution, leaving the rest of the corporate taxation system mostly unchanged, the current legislation is said to be in violation of one of the fundamental freedoms of the European Union — free movement of capital. Estonia is to remove this hindrance by January 2009 when the temporary derogation expires, though Estonia has an option at that point to institute a very low corporate income tax, either 10%, or even 0%.

The Estonian economy is growing quickly, partly due to a number of Scandinavian companies relocating their routine operations to the country and Russian oil transit using Estonian ports. Estonia has a strong information technology (IT) sector. Its GDP PPP per capita is at $17,802, the highest of the Baltic states, while its unemployment rate was 4.2% in July 2006, one of the lowest in the European Union.

Although the annual GDP growth rate in 2006 amounted again 11.4%, some of the leading financial institutions and rating agencies (Dankse Bank, S&P, IWF) expressed serious concerns about possible overheating syndromes of the booming economy. A number of the main economic indicators (e.g. inflation at the 4.5%, significantly negative trade balance and private credit level) partly support this opinion.