Benefits of Making Business in Estonia| Buy & Sell Business

1. BENEFITS OF MAKING BUSINESS IN ESTONIA WWW.MERGERSCORP.COM

2. At MergersCorp M&A International we help our clients confidentially buy and sell privately held businesses, aligning the interests of all parties for mutual success and satisfaction. It is our goal to make the process of either buying a new business or selling your current business as smooth and efficient as possible. We know how important confidentiality is to our sellers and we treat it with the utmost importance. WWW.MERGERSCORP.COM

3. BENEFITS OF MAKING BUSINESS IN ESTONIA WWW.MERGERSCORP.COM

4. Country Overview Estonia, a country in Northern Europe, borders the Baltic Sea and Gulf of Finland. Including more than 1,500 islands, its diverse terrain spans rocky beaches, old-growth forest and many lakes. Formerly part of the Soviet Union, it's dotted with castles, churches and hilltop fortresses. The capital, Tallinn, is known for its preserved Old Town, museums and the 314m-high Tallinn TV Tower, which has an observation deck. Tallinn, Russian Tallin, German Reval, formerly (until 1918) Revel, city, capital of Estonia, on Tallinn Bay of the Gulf of Finland. A fortified settlement existed there from the late 1st millennium BC until the 10th–11th century AD, and there was a town on the site in the 12th century. Situated in northeastern Europe, Estonia juts out into the Baltic Sea, which surrounds the country to the north and west. To the east Estonia is bounded by Russia predominantly by the Narva River and Lakes Peipus, Tyoploye, and Pskov and to the south it is bounded by Latvia. In Estonia, the climate is Baltic, ie slightly continental, with cold winters and mild, moderately rainy summers. Estonia is the northernmost of the Baltic republics, and it is also the coldest. The climate is fairly uniform, but the western coastal areas, west of Tallinn, are a bit milder because they receive a greater maritime influence.

5. Executive Summary Estonia is in Eastern Europe; it has an area of 45,000 sq km and a population of just over 1.3 million. It has coasts on the Gulf of Finland to the north and the Baltic Sea to the west; to the south lies Latvia and Russia is the east. The official language is Estonian. The president is usually elected for a five-year term, although a second term is permitted. Since 2016, the incumbent has been Kersti Kaljulaid, the first female president. Estonia’s five major cargo ports and Tallinn especially are key players in trade in the Baltic Sea region, and in trade between Russia and Western Europe. Business sectors in Estonia include engineering, electronics, wood products, textiles, information technology and telecommunications. The Estonian landscape is largely the product of glacial activity. The south is covered with moraine hills, and the central part of the country abounds in elongated hills with flat tops. Northern Estonia is characterized by long narrow swells consisting of deposits left by glacial rivers that formed during the melting of ice. Estonia abounds in rivers, which flow to the Gulf of Finland, to the Gulf of Riga, and into Lake Peipus. The longest river, the Pärnu, stretches for about 90 miles; other important rivers are the Pedja, Narva, and Kasari.

6. Introduction – Doing business in Estonia Estonians were eager to embrace western ideas and values and were willing to learn a different approach to doing business. Previously, their attitude to doing business was dictated by their experiences during the Soviet era, and was directly opposed to the western style and mindset. The attitudes and values of the Estonia business community are now influenced by the Scandinavian countries. Estonians are patriotic and nationalistic. They want to be winners in business, and to show how competent they are. They understand that to build informal business contacts takes a long time and that it is neither a quick nor easy process. Estonians do not really indulge in small talk. On the contrary, they get straight to the point and get things done. Representatives of Estonian’s companies do business with firms, not so much with people and that is why they do not feel the need to have built up a relationship first in order to do business with you. Many international companies now have branches in Estonia, and their own corporate values run alongside those of Estonian companies.

7. Conducting business in Estonia Starting a business in Estonia is easy: you can do it in person or online. All you need is half an hour of your time. Estonia’s e- Business Register allows you to register a new business online in just minutes, without ever having to go to a notary or a government office. You can register a company with an Estonian e-Residency card, with an Estonian, Belgian, Finnish, Portuguese ID card or with a Lithuanian mobile ID. Estonia has a busy, supportive and open startup ecosystem eager to support ambitious individuals and startups. In total we have partnerships with 110 organisations in Estonia, who provide wide range of services for startups. Check them out from graph below. We have also compiled an overview of the different business service providers in and around the Estonian startup ecosystem. We hope this helps to make the navigation of the Estonian startup scene as easy as possible for the startups already in Estonia as well as for those wishing to relocate to Estonia. If you need professional or expert advice in a particular area such as management, human resources, marketing or any other specialised business fields. The majority of foreign entrepreneurs working in Estonia has no significant difficulties in dealing with the local partners.

8. Taxation in Estonia Estonia, income tax is not assessed on the profit earned every year. Income tax is assessed on a monthly basis and only when profits have been distributed (when you pay out dividends for example). The corporate tax rate is generally a flat 20%, calculated as 20/80 from taxable net payment. Besides corporate income tax, e-residents with businesses in Estonia will also need to consider the following Estonian taxes: 20% income tax from the director's fee; 33% social tax from the director's fee. Estonia has a simple, broad-based value- added tax with a 20 percent tax rate, which is slightly above the OECD average. It also has a relatively flat, 21 percent income tax rate, which is half of the OECD average top marginal tax rate of 42 percent. The value added tax/sales tax rate in Estonia is 20%. Most goods and services are taxed at 20%. There is no corporate income tax on retained and reinvested profits.This means that Estonian resident companies and the permanent establishments of foreign entities (including branches) are subject to 0% income tax in respect to all reinvested and retained profits and a 20% income tax only in respect to all distributed profits (both actual and deemed).

9. Trade Estonia is the 76th largest export economy in the world and the 26th most complex economy according to the Economic Complexity Index (ECI). In 2017, Estonia exported $14.7B and imported $17.1B, resulting in a negative trade balance of $2.38B. In 2017 the GDP of Estonia was $25.9B and its GDP per capita was $31.7k. The top exports of Estonia are Broadcasting Equipment ($1.25B), Refined Petroleum ($607M), Cars ($508M), Prefabricated Buildings ($358M) and Sawn Wood ($331M), using the 1992 revision of the HS (Harmonized System) classification. Its top imports are Refined Petroleum ($1.35B), Cars($1.02B), Passenger and Cargo Ships ($385M), Integrated Circuits ($374M) and Broadcasting Equipment ($342M). The top export destinations of Estonia are Finland ($1.81B), Sweden ($1.69B), Russia($1.46B), Latvia ($1.16B) and Lithuania ($977M). The top import origins are Germany ($1.74B), Finland ($1.74B), Russia ($1.66B), Chin a ($1.46B) and Lithuania ($999M).The most recent imports are led by Refined Petroleum which represent 7.88% of the total imports of Estonia, followed by Cars, which account for 5.98%.

10. Banking in Estonia Estonian banking sector consists of 17 banks of which nine are licensed credit institutions in Estonia and eight are operating as branches of foreign credit institutions. Banking sector assets totalled €25.2 billion, equivalent to 110% of Estonian GDP. The Estonian banking sector is dominated by foreign capital holding 90% of banking sector assets. Swedbank In terms of assets, Swedbank is the largest of the banks in Estonia, with an almost 40% share of the domestic banking market. Headquartered in Tallinn, the bank operates as a subsidiary of Swedish financial group, Swedbank. It offers a full range of individual and corporate banking products and services. Luminor Bank Incorporated in 2017, Luminor Bank,despite being one of the smaller banks in Estonia, offers a full range of financial products and services to all client groups, focusing on high net worth individuals and small- and medium-sized companies. Formerly DNB Bank, Luminor Bank is a joint venture between DNB and Nordea. It also offers retail banking, leasing, and insurance products and services.

11. Our M&A Process NEGOTIATION & CLOSE POST MERGER INTEGRATION (PMI) INTEGRATION (PMI) POST MERGER TARGET APPRAISAL APPROACH DUE DILIGENCE Key Areas  Target & market analysis;  Initial assessment of synergies & value drivers;  Indicative valuation;  Go or No-Go decision;  Preparation of transaction documents (NDA – Non- disclosure Agreement/LOI- Letter of Intent);  Select Transaction team;  Appoint advisors;  Consider funding ability.  Initial approach letter;  Signing of NDA;  Prepare & share initial information requests;  Formulation of LOI (Letter of Intent) & possible negotiations;  Initial meeting and Q&A;  Circulate information on the Target to the Transaction team.  Set scope of due diligence;  Set up VDR (virtual data room);  Coordinating of due diligence, further meetings and Q&A sessions;  Consider points relevant to the Post-Merger (PMI) phase;  Revisit indicative valuation & prepare detailed valuation based on due diligence findings;  SPA negotiations with the seller;  Development of final structure (share/asset deal) and final valuation;  Approvals;  Signing of SPA & Close.  Consider the extent of integration;  Development of 100 Day PMI Plan;  Consider short & long term objectives;  Estimate requirements to capture synergies;  Determine resource needs & optimal allocation. Parties Involved  CFO;  Head of M&A;  Accountants;  Corporate finance advisors;  Consultants.  Senior management;  CEO, CFO, CTO;  Strategy director;  Head of M&A;  Head of Business Development;  Consultants.  Company general counsel;  Lawyers;  Senior management.  Company general counsel;  Lawyers;  Senior management/HR. 11 © Midaxo 2018 www.midaxo.com

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