Ukraine's adding Estonia to offshore watchlist damaging economic relations

Minister of Foreign Affairs Sven Mikser (SDE).
Minister of Foreign Affairs Sven Mikser (SDE). Source: (Sander Ilvest/Postimees/Scanpix)

Minister of Foreign Affairs Sven Mikser (SDE) said on Thursday that the government has been in touch with the Ukrainian president as well as the finance minister to resolve the issue of the country having put Estonia on a watchlist of offshore countries.

Daily Eesti Päevaleht wrote on Thursday that Ukraine added Estonia to a watchlist of countries it regards as tax havens. The consequence of any country's being added to the list is that any company based in the country concerned has to pay more VAT and income tax, which increases its costs and worsens its competitive position.

Companies of countries on the list are subject to stricter checks and conditions on the part of banks and the Ukrainian revenue service.

Mikser said at the government's Thursday press conference that the decision to add Estonia to the watchlist had been made on Dec. 27 last year. "Ukraine certainly should have informed us about its plans to take this step," Mikser said. Unfortunately the country didn't do that.

The point of view of the Ministry of Foreign Affairs is that Estonia can only have made it on the list by accident, the minister added.

"There are different reasons to enter a country into such a list. One of these reasons is that the country concerned has a corporate tax that is more than 5 percent lower than that of Ukraine. In the case of Estonia, this isn't true. Our understanding is that Ukraine is misinterpreting the Estonian income tax law, just like our corporate income tax rate was zero. In reality our corporate income tax rate is 20 percent, which is even higher than that of Ukraine," Mikser said.

He added that even though this tax was levied only on distributed profits, Estonia's system didn't allow anyone to hide or evade tax.

"We've raised the issue through our embassy [in Kiev] as well as with the Ukrainian president, who has expressed understanding for our situation, and also with the ministry of finance and the prime minister's economic policy advisor," Mikser said.

Latvia is also on the list. Mikser confirmed that the Estonian and Latvian ambassadors to Ukraine are meeting with the secretary general of the Ukrainian ministry of finance on Friday morning.

The whole affair had the potential to damage bilateral economic relations. Beyond Estonia, the current state of the list also affects Latvia, Hungary, Malta, and Cyprus.

Editor: Dario Cavegn

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