The Riigikogu concluded the first reading of a bill allowing more instant payments than before
At today's plenary sitting of the Riigikogu, four bills concerning the financial sector passed the first reading, one of which would allow payment and e-money institutions to offer instant payments.
The purpose of the Bill on Amendments to the Payment Institutions and E-money Institutions Act and the Payment and Settlement Systems Act (634 SE), initiated by the Government, is to give payment and e-money institutions access to settlement systems that enable instant payment services.
Currently, only banks offer instant payment services, as only they have access to the necessary current accounts at the Bank of Estonia. The Bill also provides for the possibility for other payment institutions and e-money institutions to participate in the settlement system, so that they can also participate in the instant payments market. An instant payment means a payment where money moves from the payer’s account to the payee’s account within a few seconds.
The regulatory change will increase competition in the payment services market. It can also lead to new and innovative payment solutions, such as mobile payment applications, and increase competition in cross-border payments. In order to participate in a settlement system, a payment or e-money institution must meet certain requirements to ensure the stability and integrity of settlement systems.
The bill will transpose the amendments to the Payment Services Directive and the Settlement Finality Directive and ensure the proper national implementation of these directives.
Three other Bills passed the first reading
The Bill on Amendments to the Securities Market Act and Amendments to Other Acts arising therefrom (regulation of derivatives and repo transactions) (633 SE), initiated by the Government, will improve the regulation of derivatives and repo transactions and bring it in line with international standards.
As a result of the amendments, Estonian banks, financial institutions, and large companies will have better access to international derivative and repo markets which will help increase the international competitiveness of both Estonian companies and the entire business environment.
The Bill will specify and harmonise the netting regime related to derivative and repo transactions and the qualifying parties who may enter into such contracts. The range of persons who can use a special type of collateral such as financial collateral will also be expanded.
The Financial Crisis Prevention and Resolution Act, which provides for crisis prevention and resolution measures applicable to banks, will be amended. The amendments will ensure greater clarity for banks and the Financial Supervision Authority, which carries out supervision, about their rights and obligations. For some banks, the amendments may mean that there will be no need to prepare a contingency plan and the obligation to hold crisis buffers will be reduced.
The bill will make the valuation of real estate collateral for housing loans more flexible. In justified cases, banks can make their assessment on the basis of statistical data, which is why it is not always necessary to order a separate valuation report. This will make it easier to transfer a home loan from one bank to another and will reduce the costs upon taking out a home loan or refinancing an existing one.
In addition, the insolvency regime will be amended to ensure that derivative and repo transactions are more clearly enforceable in bankruptcy and other similar situations. The regulation provides that, in a situation of insolvency, the trustee in bankruptcy cannot intervene in the conduct of such transactions.
The Bill on Amendments to the Money Laundering and Terrorist Financing Prevention Act (640 SE), initiated by the Government, will supplement the data processing functions of the Financial Intelligence Unit database. In order for data processing to be transparent and meet data protection requirements, the Act sets out what data is collected, why it is used, and how and to what extent it is processed. This ensures that the use of the database is transparent and lawful. The Data Protection Inspectorate exercises supervision over the process.
The Bill will improve the supervision of the Financial Intelligence Unit and strengthen the protection of the financial system. A major amendment is the inclusion of a strategic analysis capability in the functions of the Financial Intelligence Unit database. It will process anonymous but, where necessary, reversible data, perform profile analyses, and use text and data mining. These tools help to better prevent and detect risks of money laundering and terrorist financing in a situation where financial crime has become a business with international reach.
It will also update the architecture of the system for combating money laundering and terrorist financing and specify the procedures for setting up and operating a governmental committee and advisory committees.
At the same time, the European Union directive on measures against money laundering and terrorist financing will be transposed into Estonian law. The composition and availability of data on beneficial owners will be specified and minor amendments will be made to specify the monitoring arrangements of the Financial Intelligence Unit. All amendments are in line with international recommendations.
The purpose of the Bill on the Ratification of the Agreement between the Republic of Estonia and the Republic of Botswana for the Elimination of Double Taxation with respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance and its Protocol (641 SE), initiated by the Government, is to eliminate double taxation and to prevent tax evasion and avoidance. The agreement defines how taxing rights are divided between countries, ensures equal treatment, and establishes obligations for the exchange of information on income.
The agreement is based on the OECD Model Agreement but has been adapted to the needs of Estonia and Botswana. The agreement was concluded in 2021 and signed in September 2024 in New York.
According to the agreement, the source country of dividend income may tax up to five percent of the gross amount of dividends and 7.5 percent of the gross amount of interest income. Interest remains tax-free for certain institutions and funds. Upon taxation of royalties, up to five per cent may be withheld on the amount paid for the use of technical equipment and 7.5 per cent on other fees. Estonia uses an exemption or offset method, depending on the type of income, to eliminate double taxation.
As of April 2025, Estonia has such agreements with 63 countries.
The deliberation of a Bill was adjourned
The first reading of the Bill on Amendments to the Simplified Business Income Taxation Act, the Security Tax Act and the Income Tax Act (645 SE) , initiated by the Government, was adjourned due to the end of the working hours of the sitting . The bill aims to repeal the security tax which was planned to be in effect until the end of 2028.
Instead of a security tax, the bill proposes raising the general income tax rate to 24 per cent and the corporate income tax rate to 22 percent from 2026 to ensure stable financing of the state’s defence spending and long-term strengthening of defence capabilities. The VAT rate increase to 24 percent from July 2025, which will become indefinite, will also remain in effect.
A simple, uniform, and more business-friendly income tax will apply to companies, where income tax is to be paid only on distributed, not current, profits. The explanatory memorandum points out that the amendment is also positive for the Estonian people, especially for less well-off taxpayers, as income tax is applied after the deduction of tax allowance. The current solution would have resulted in a two percent tax liability starting from the first euro.
The implementation of the security tax required the development of several services by the Tax and Customs Board, which would no longer be necessary once the Bill is adopted. IT development costs would have been estimated at EUR 950,000 in 2025, EUR 735,000 in 2026, and EUR 525,000 in 2027. The introduction of the security tax also required IT developments in the Social Insurance Board, the Estonian Health Insurance Fund, and the Estonian Unemployment Insurance Fund, which would also no longer be necessary once the Act enters into force.
During the debate, Aivar Kokk took the floor on behalf of Isamaa Parliamentary Group, Andrei Korobeinik on behalf of the Estonian Centre Party Group, Anti Poolamets on behalf of the Estonian Conservative People’s Party Group, Riina Sikkut on behalf of the Social Democratic Party Group and Maris Lauri on behalf of the Estonian Reform Party Parliamentary Group.
After the plenary session, the members of the Riigikogu plan to form a support group for fishermen, led by Riigikogu member Madis Timpson, and an Estonia-Botswana parliamentary group, led by Riigikogu member Lauri Laats.
Verbatim record of the sitting (in Estonian)
Video recording of the sitting will be available to watch later on the Riigikogu YouTube channel.
Riigikogu Press Service
Merilin Kruuse
+372 631 6592; +372 510 6179
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