Ellex Transaction Radar summarises the most important trends of the transaction market in the first half of 2025. The first half of 2025 saw 96 transactions in Estonia, just two more than in the previous half-year. The highest number of transactions over the past four quarters occurred in the most recent quarter (52), but the overall transaction volume has remained at the same low level as at the end of 2024.
According to the Transaction Radar, the European and global transaction markets are paralyzed from the general geopolitical instability. There were certainly other important factors but the main driver was President Trump’s tariff circus which affected the transaction market in the half-year that just ended. In Estonia the scene is still negative due to inflation and economic recession.
In the first half of 2025, a total of 96 transactions were registered in Estonia, divided as follows:
39 venture capital and technology transactions;
43 traditional M&A transactions;
6 major real estate transactions;
8 share issues (incl. OTC issues).
According to Ellex partner Risto Vahimets, the energy, defence, and technology sectors remain in the spotlight. “However, we must seriously address issues that the rest of the world has largely overcome but which still affect both the investment climate and the overall state of the country and society. I’m referring to inflation and economic recession,” Vahimets noted.
Partner Sven Papp added that one positive takeaway from the first half of the year was the sustained interest and presence of foreign investors – a subject that has raised many questions and even concerns in recent years. “Just like elsewhere in the world, turbulent times give local investors a home-field advantage, as they tend to feel somewhat more secure here. Still, we’re seeing institutional investors remaining passive and in a wait-and-see mode everywhere, which will likely continue until the outlook becomes more predictable,” said Papp.
Ellex Transaction Radar has been published since 2020, following the end of each half-year period. It provides insights into the key drivers behind major deals in Estonia and forecasts potential developments for the periods ahead.
In this podcast episode, Ellex in Latvia partner Filips Kļaviņš shares vivid stories about a deal with Donald Trump, his early career in New York, and returning to Latvia during the formative years of its modern business landscape.
⚪️ What was entrepreneurship like in the 1990s?
⚪️ Why is intuition just as important as knowledge?
⚪️ And why are some decisions best made with the heart—not just a calculator?
Many thanks to the Podmedia team for the professional conversation and the opportunity to reflect on the journey from Wall Street to Ellex.
By Anna Mišņeva, Sworn Attorney, Ellex Kļaviņš Nasdaq First North Certified Advisor
New barriers to trade, disruptions to international commerce, financial market tensions and geopolitical uncertainty continue to put pressure on companies. Baltics experienced wake of high-profile bond defaults recently. The high-profile PlusPlus case involving €70 million in secured bonds in Estonia has drawn significant public attention. More recently, Nasdaq Baltic delisted the bonds of Lithuanian UAB “Integre Trans” following the initiation of bankruptcy proceedings. From time to time, we see issuers placed under surveillance or their public trading on stock exchanges suspended.
While no recent defaults have occurred in Latvia involving publicly traded bonds, it is crucial to raise investor awareness about available remedies when an issuer refuses to honour its bond payment obligations.
Limited Legal Framework
Latvia currently lacks specific legislation governing investor rights or enforcement procedures in bond defaults. Therefore, bondholder protection is entirely contractual — based on the provisions included in bond documentation such as the terms and conditions, prospectus, and the related security agreements.
Typically, bond documentation will define what constitutes an event of default — for example, failure to make payment within 20 business days. Upon the occurrence of a default, bondholders are entitled to exercise legal remedies, such as issuing default notice to the issuer, enforcing security, or initiating insolvency proceedings.
Below is an outline of the key steps in this process and practical issues that may arise.
Step 1: Formal Default Notice
The default process is generally initiated by a group of investors issuing a formal notice of default on behalf of the bondholders. Bond documentation typically sets thresholds for representation — e.g., holders of 10%, a majority of 50% plus one vote, or other criteria.
Such a decision may be taken at a bondholders’ meeting (convened by the issuer or in another manner defined in the terms). Proactive investor participation is crucial at this stage. However, in practice, it can be challenging as bondholders often do not know or communicate with each other prior to default.
Latvia does not have a trustee concept in bond transactions. Nonetheless, investors are free to appoint a representative to act on their behalf to initiate and coordinate the process.
Once default is declared, bondholders must determine:
how decisions will be made,
who will communicate with the issuer,
who will lead enforcement actions, and
how associated costs will be covered.
These details are often missing in the bond documents.
Step 2: Restructuring Discussions
Parties frequently attempt to restructure the debt. This may include changes in payment terms, reduction of the principal amount, or exchange offers involving new securities.
As this process is not regulated by law, restructuring outcomes depend on mutual agreement. It is critical to reach consensus among all bondholders, as dissenting investors may delay proceedings through legal actions.
Step 3: Enforcement of Collateral
If no restructuring is agreed, investors typically proceed to enforce the collateral. Collateral may include real estate, assets, shares in related companies, or guarantees — all outlined in bond documentation.
Collateral is registered in the name of a security agent, not the bondholders, to ensure practical enforceability. The agent holds and enforces the collateral on behalf of bondholders.
The agent enforces security upon bondholder instruction and distributes proceeds in line with the bond documents. Individual bondholders do not have the right to enforce security independently.
The agent’s mandate is defined in the bond terms and the security agent agreement, typically attached to the bond documentation. However, the agent may decline to act if, for example:
advance payment for its services has not been made, or
enforcement is not reasonably feasible.
Step 4: Litigation Against the Issuer
If the bonds are unsecured and no restructuring agreement is reached, bondholders may initiate legal action to recover amounts due. This can be done collectively or individually.
Latvia has little judicial precedent in such cases, litigation can be lengthy, costly, and unpredictable.
Step 5: Insolvency Proceedings
Insolvency proceedings may be initiated by any creditor (including a bondholder or a group of bondholders), in cases defined by law.
While insolvency is strictly regulated, bond terms will only apply insofar as they are not inconsistent with the Insolvency Law. Creditors must file claims to participate in the process.
If the bonds are secured, theoretically the security agent should participate in the process as a secured creditor. However, the agent’s role and powers in insolvency remain unclear and would need to be tested in practice.
The issuer’s assets will be liquidated, and creditors’ claims satisfied in the statutory order:
First, costs of insolvency proceedings and certain priority claims (e.g., employees, tax authorities),
Then, bondholder claims to the extent of principal amounts.
If proceeds are insufficient, claims are satisfied proportionally. Assets serving as collateral are sold separately, and proceeds are distributed among secured creditors.
Common Risk Factors That Can Complicate Recovery:
Before investing, it is critical to review bond documentation and identify potential risks, such as:
No decision-making mechanism for bondholders is set in the bond documentation,
No regular reporting obligation by the issuer (especially in private placements),
Collateral located in foreign jurisdictions requiring cross-border enforcement,
Foreign issuer, foreign law and courts applicable — increasing costs and unpredictability,
Vague or ambiguous issuer obligations and representations,
Security agent roles defined too broadly or superficially,
No limits on additional debt issuance or creating new security over existing assets,
No change-of-control restrictions.
Conclusion
The recovery process following a bond default is complex and full of practical and legal challenges. Investors must remain informed and proactive.
Thorough review of bond documentation — especially risk disclosures — is essential before investing, to avoid entering into problematic or high-risk debt instruments.
The ability to assess risks in advance is the best protection against uncertain recovery outcomes.
Attracting and retaining skilled, engaged employees remains one of the biggest challenges for Latvian businesses and organisations. As work models evolve, employees no longer feel tied to a single workplace. They seek not only competitive salaries but also greater flexibility and additional benefits. To meet these expectations, employers need supportive legal framework that allows them to attract and motivate talent effectively.
A number of employment law and tax regulation changes have recently come into force, with more amendments on the horizon. Here’s what employers need to know.
Foreign Language Requirements – Now More Restricted
Amendments to the Labor Act, effective October 2024, significantly limit employers’ ability to require foreign language skills from employees. Under the new regulations, foreign language proficiency cannot be deemed necessary for performing job duties if the work is related to the domestic market, such as manufacturing or local services. Exceptions apply only if foreign language proficiency is an objective and justified requirement, such as roles involving cooperation with foreign business partners, clients etc.
The aim of these changes is to protect the Latvian language and prevent unnecessary foreign language requirements, especially in professions like retail workers, where knowledge of Russian has often been implicitly expected. However, determining when a foreign language is “objectively necessary” remains “a grey area”, potentially creating challenges for employers.
Many businesses in Latvia, especially international corporations, have foreign board members and executives. While these individuals frequently operate in an international setting, not all employees interact with foreign stakeholders. As a result, these amendments may complicate recruitment and operational processes for some companies.
Employers should carefully review internal policies, employment contracts, and job descriptions to ensure compliance with these new language restrictions.
Standardized Personal Income Tax Rate for salaries and increased Tax-Free Minimum
As of this year, a single Personal Income Tax (PIT) rate of 25.5% applies to salaries (previously 20% and 23%), simplifying tax calculations. For foreign employees, who are working in Latvia and paying State Social Security Contributions abroad, the PIT rate has been increased to 33% if their monthly salary exceeds EUR 8,775.
A positive change this year is the removal of the variable non-taxable minimum, which was previously calculated by the State Revenue Service (SRS) based on past income. As of 2025, a flat non-taxable minimum of EUR 510 applies to all employees. This threshold will increase to EUR 550 in 2026 and EUR 570 in 2027.
For employees earning up to EUR 4,000 gross per month, net salaries have increased due to these reforms. Additionally, employees no longer need to update their tax registration details—the non-taxable minimum is now automatically applied based on the employer’s records.
Another significant improvement for pensioners. The pensioner’s non-taxable minimum has been increased from EUR 6,000 to EUR 12,000 per year. Working pensioners can also split their tax-free allowance of EUR 1,000 per month between their pension income and employment income for better tax optimisation.
Increased tax benefits for employee’s expenses and allowances
One of the key tools for attracting and motivating employees is covering expenses such as transportation, meals, healthcare, and other expenses, along with various allowances.
From 2025, employers with a collective agreement can receive significant tax benefits for transport, accommodation, and relocation expenses, including public transport, fuel, and rent costs. These new benefits have been added to previously available PIT exemptions for meal and healthcare expenses.
The total tax-free limit for these benefits is calculated based on the average number of employees in the company, multiplied by EUR 700, the new annual benefit amount per employee (previously EUR 480 per year). This flexible approach allows employers to compensate higher expenses for employees who need it most, using the unused portion from those who do not utilize these benefits.
The previous conditions for applying the exemption have been retained in the law:
The total tax-free benefits cannot exceed 5% of the company’s gross salary fund.
The employer must have at least six employees.
The employer must not have any tax debts.
The company must have been operating for at least one year as of December 15 of the previous tax year.
The employer must not have been found guilty of violations related to employee employment regulations.
The employer must have been engaged in economic activity for at least one year.
Additionally, starting this year, a new requirement has been introduced stating that employers must retain external supporting documents providing the related expenses.
The employer must ensure that these expenses are included in the collective agreement, and the company must have clearly defined conditions for covering expenses (e.g., internal regulations on this matter). Expense reimbursement must be economically justified, and the company must be able to explain and prove it.
The company is required to record these expenses, retain supporting documents, and submit an individual report to the SRS for each employee. Additionally, the employer must monitor the total expense limit to ensure it is not exceeded.
Regarding allowances, the tax-free limits have been increased as follows:
Tax-free employer gifts – increased from EUR 15 to EUR 100 per tax year.
Childbirth allowance – increased from EUR 250 to EUR 500.
Funeral allowance – increased from EUR 250 to EUR 500.
Childcare Leaves Rights Extended to Board Members
Effective from late 2024, amendments to the Commercial Act grant board members leaves related to childcare. Previously, only employees were entitled to leaves related to childcare, leaving board members without legal protection.
Under the new amendments, board members can now take:
Prenatal and Maternity a leave,
A leave for a father, adopter and other person,
Childcare leave,
Child carer’s leave,
As well as a leave without remuneration if an adopted child, foster child or ward needs to be cared for.
During eaves related to childcare, board members’ mandates will be suspended, and a temporary board member can be appointed. These amendments aim to improve work-life balance also for board members.
More Amendments on the Horizon
Additional Labor Act amendments are currently under discussion. Future updates may include:
Mandatory remuneration payments via bank transfers
Clarifications on overtime and idle time pay
Adjustments to flexible work time tracking
Reducing protectionism for trade union members
The possibility of a four-day workweek for employees who accumulate additional work hours over four days working week.
These reforms aim to enhance employee well-being, while also giving businesses clearer regulatory guidelines and some flexibility.
Ellex Baltic Fintech Legal Outlook offers a comprehensive overview of the most significant legal developments and market trends expected to shape the fintech sectorin Estonia, Latvia and Lithuania during 2025. Involving insights from leading legal experts in fintech, this publication highlights key regulatory changes(including MiCAR, DORA, FiDA, PSD3/PSR, CCD II, AI Act) as well as country specific initiatives, and elaborates on their impact to the local fintech markets.
Estonia, Latvia and Lithuania have developed sophisticated and vibrant fintech sector and are go-to jurisdictions for internationally known market participants. While Estonia and Lithuania have sustained their position as key fintech markets for some time, Latvia is also actively reclaiming its spot among leading European fintech markets.
You can start reading or download the full report here.
Estonia: a tech-savvy fintech haven
Estonia enters 2025 as one of the key markets for fintech companies with its robust digital infrastructure and thriving startup culture.
“Well-developed tech sector has played a key role in attracting fintech companies and new innovative solutions to Estonia and, therefore, for shaping the fintech sector. Estonia has kept its vibrant environment for innovative solutions also by refraining, in most parts, from overregulating the fintech sector with additional level of interstate legislations. During 2025 fintech companies in Estonia, as in other EU member states, will continue to be affected by new and more stringent regulations either imposing licensing obligations or insisting a review of existing operations. This requires fintech companies to have a good overview and a clear plan for adopting new requirements in order to stay compliant. In this continuous wave of new regulations it is important that Estonia, as technology flagship, keeps showing as an example of open mind towards digital innovation in financial sector,“ writes Anneli Krunks, Head of Fintech at Ellex in Estonia.
In 2025 the main focus will most likely remain on MiCAR and DORA.
In the light of MiCAR becoming applicable in the end of 2024, it can be expected that Estonian VASPs will start with CASP licensing already in 2025 despite long transition period in Estonia (until 1 July 2026). This would be mainly driven from the fact that the CASP license can be passported throughout the EU and would allow businesses to expand without regulatory uncertainty. However, it shall remain to be seen how many companies intend to obtain the CASP license under MiCAR in Estonia on a first-time basis.
As DORA became applicable in January 2025 and it is expected that the monitoring on compliance with DORA by the competent authorities will become more active in 2025. It is therefore wise for fintech companies to prepare beforehand for such inquiries.
As to the other regulations, 2025 will also shed some light on the plans of transposing CCD II to the Estonian legislation. From the Estonian perspective the CCD II shall play an important role in reshaping the BNPL market in Estonia as the CCD II narrows the scope of BNPL schemes out regulatory scope. Also, in the light of adoption of the EU AML Package, which will have significant effect on the Estonian interstate legislations, it can be expected that the legislator and competent authorities will soon start with the implementation process. The payment and e-money institutions in Estonia are eagerly waiting the release of the new versions of PSD3 and PSR.
Latvia: reclaiming its fintech leadership
After years of plateau, Latvia is striving to become a top fintech destination in 2025, supported by strong political backing and innovative regulatory initiatives.
“Latvia is taking steps to establish itself as a key player in the fintech landscape. Thus, financial supervisory authority – the Latvijas Banka, has opened its retail payments system to fintech, as well as has put in place attractive support mechanisms such as the Innovation Centre and Regulatory Sandbox. We have also seen strong support from politicians, who were willing to adopt the law setting forth arguably the most attractive CASP supervisory fees in the region and introduce amendments to existing laws allowing payment of share capital in crypto. On top of that, we have the availability of a highly skilled tech workforce, relevant educational programmes, well-established startup ecosystem, and robust digital infrastructure,” writes Zane Veidemane – Berzina, Associate Partner at Ellex in Latvia.
In 2025 the focus will most likely remain on MiCAR and DORA.
In the light of MiCAR becoming applicable in the end of 2024 and transition period ending on June 30, 2025, Latvian VASPs are expected to start licensing process shortly. Considering the attractive supervisory fees and supportive attitude of the supervisory authority Latvijas Banka, it is expected that VASPs from other jurisdictions will also consider licensing in Latvia rather than in their current countries of registration.
As DORA became applicable in January 2025, it is expected that the monitoring on compliance with DORA by the competent authorities will become more active in 2025. It is therefore advisable for fintech companies to prepare beforehand for inquiries by the competent authorities.
As to the other regulations, considering the dense presence of non-bank lenders in Latvia, we can undoubtedly expect that transposition of CCD II in Latvia will be in the spotlight despite consumer lending already being very strictly regulated in Latvia. Preparation for application of the EU AML package should also be closely monitored by fintech as establishment of aligned rules and supervisory practices across the EU might result in positive changes locally in Latvia.
Most importantly, though, the fintech companies should actively engage in preparation of the new Latvian FinTech Strategy. The process is coordinated by Latvijas Banka, with the first draft expected by end of Q1 2025.
Lithuania: a resilient fintech ecosystem
Lithuania remains as one of the key players in the European fintech landscape, boasting a high concentration of licensed electronic money institutions and payment service providers. On the other hand, supervisory initiatives and guidance oftentimes precede the regulatory framework in the EU. As MiCAR approaches implementation, Lithuania’s fintech companies are adapting to new regulations while balancing compliance requirements for 2025 with ongoing innovation.
“Lithuania is actively aligning its regulatory framework with MiCAR, allowing current VASPs one of the shortest grandfathering periods to operate under existing licenses until July 1, 2025. CASPs must meet enhanced governance and operational resilience requirements, establish a substantial local presence, and navigate a competitive licensing process. The Bank of Lithuania has published clear guidelines for CASP licensing, encouraging early applications, “ writes Ieva Dosinaitė, Partner at Ellex in Lithuania.
DORA, fraud prevention and even upcoming implementation of the EU AML package set the key challenges for the year. Fintech companies should monitor introduced regulations and proposed amendments closely.
CCD II will reshape the BNPL market in Lithuania, requiring companies to obtain consumer credit provider licenses and apply the same requirements to BNPL clients as to ordinary consumer borrowers. The directive aims to strengthen consumer protections while fostering a level playing field, challenging existing business models and demanding operational adjustments.
About Ellex
Ellex is a leading law firm in the Baltics, providing comprehensive legal services to fintech companies and other business sectors. With a client-focused approach and unparalleled industry knowledge, we empower businesses at the forefront of innovation to thrive in an ever-evolving digital economy. Ellex stands out with its deep expertise and proven track record in navigating the complex legal landscape of fintech, digital assets and IT law.
As our clients say, the team stands out as a premier option in the market, described as “one of the largest specialised fintech teams, having exceptional expertise and attention to details. Its fintech legal team has the full capacity and know-how to handle complicated legal issues.
The Baltic M&A market recorded a total of 231 deals worth €2.1bn in 2024, a significant increase on the previous year, according to a new report published by law firm Ellex in association with Mergermarket.
In volume terms, the 231 transactions recorded by Mergermarket represents a 42% uplift from 2023. Over half (58%) of all deals announced in the Baltics in 2024 were led by domestic bidders, who also accounted for 51% of aggregate deal value – indicative of the growth of strong regional investors over recent years, both corporates and funds. Indeed, the last time that inbound deals outpaced domestic M&A in volume terms was 2018.
The rise in domestic dealmaking reflects the increasing financial strength of Baltic companies, as well as growing local private equity activity. While international investors have been more cautious due to global geopolitical uncertainties, strong local players have seized opportunities to expand regionally and strengthen their positions across the Baltics.
Deal value in the region soared by 76% year-on-year, from €1.2bn to €2.1bn. This surge was fuelled by an increase in big-ticket deals – there were seven transactions valued at €100m or more, versus just three deals of the same size the year prior. Indeed, the region’s largest deal of the year alone was worth almost as much as the 10 largest transactions announced in 2023 combined. This transaction, valued at €670m, saw Estonian investment holding company Infortar acquire 21.71% of all shares in Tallink Grupp from Citigroup Venture Capital, bringing its stake in the Estonian shipping company up to 68.47%.
Overall, Lithuania, the largest economy and most populous country in the Baltics, led the way in deal volume terms, generating 41% of the transactions announced in the Baltics in 2024. Estonia contributed 34% of regional M&A deal volume, with Latvia accounting for the remaining 25%.
“Lithuania’s record-breaking year can be attributed to its strong economic growth and competitive business environment,” said Paulius Gruodis, Partner at Corporate and M&A practice at Ellex in Lithuania. “The Lithuanian government offers a highly favourable business climate, ranking among the top EU countries for ease of doing business. Low corporate taxes, efficient regulations and incentives for foreign investment make it attractive for businesses and investors.”
In terms of sectors, technology, media & telecoms (TMT) has, for several years, been the leading light in Baltic M&A. In 2023/24, the TMT sector accounted for 21% of transaction volume and 30% of all publicly declared deal value in the Baltics. These remain the largest shares across all sectors.
Sarmis Spilbergs, M&A Partner and Head of the Technology, Media and Communications practice at Ellex in Latvia, cited a boom in green tech as one factor behind this trend. “We worked on several solar projects throughout 2024,” he said. “There are a lot of developers putting up mid-sized plants and then selling them to Scandinavian investors who are hungry for green tech. They sell quickly, and there are plenty still being built.”
Baltic TMT companies are likely to remain a point of emphasis for domestic and international investors. According to Mergermarket’s intelligence tool, of the 22 ‘companies for sale’ stories the platform is tracking in the region, four (18%) relate to TMT assets, a high point that the industry shares this year with the Baltic transportation space. Overall, the spread of sectors in the Mergermarket heat chart speaks to the Baltics’ economic diversification and bright near-term prospects.
“Everything seems to be lining up for a very good transaction year,” said Risto Vahimets, Partner and Head of Transactions at Ellex in Estonia. “Private equity cash has been stashed away, interest rates are coming down and the Baltic markets are stabilising. ”Whatever happens elsewhere in the world, the Baltics can surely rely on their reputation for resilience, history of innovation and openness to investment to drive M&A activity in 2025.
Ellex brings together the region’s three strongest and most highly ranked law firms from each of the Baltic states – Ellex Raidla in Estonia, Ellex Klavins in Latvia and Ellex Valiunas in Lithuania. Ellex has the largest and the most recognized Corporate and M&A team in the Baltics, leading for several years in succession by the value and number of transactions in Central and Eastern Europe. Ellex has been named the No.1 Law Firm in the Baltics by Prospera 2024. Among its most recent achievements, Ellex was awarded a Band 1 ranking by Chambers and Partners in their FinTech Guide 2025, recognized as the Baltic Legal Adviser of the Year at the Mergermarket European M&A Awards 2024, and highly recommended as the Law Firm of the Year – Northern Europe at The Lawyer Awards 2024.
About Mergermarket
Mergermarket blends market-leading human insights, advanced machine learning and 30+ years of Dealogic data to deliver the earliest possible signals of potential M&A opportunities, deals, threats and challenges.
Ellex Transaction Radar summarises the most relevant transaction market trends in 2024 in Estonia. The number of transactions in Estonia increased from 137 to 173 over the past year, but Latvia took the lead in terms of the number of first issues in the Baltic stock market.
In 2024, a total of 173 transactions were registered in Estonia, divided as follows:
67 venture capital and technology transactions;
13 major real estate transactions;
7 issues (including OTC issues);
86 traditional M&A transactions.
The total number of transactions in the second half of the year was 78, 49 in the third quarter and 29 in the fourth.
Although the last quarter showed a big decrease, the total result was still even better than in 2022 with 77 transactions. Surprisingly, however, there were no public offerings of shares in Estonia this year, Nasdaq Tallinn Stock Exchange did not welcome any new issuers either, giving the lead to our neighbour Latvia.
According to Risto Vahimets, partner at Ellex in Estonia, energytech remained the hottest sector in Estonia in terms of transactions. There were as many as 12 fundraisings of energy technology companies throughout the year. “Other exciting sectors to highlight are the defence industry technology sector and companies like Wayren, Frankenburg, TechSecIntel, SensusQ and medical technology with 9 funding rounds in 2024,” Vahimets added.
Partner Sven Papp noted that foreign capital interest in Estonia remained small in 2024 and this opened up many possibilities for local capital which it also took advantage of. “For example, the acquisition of the Kristiine Keskus shopping centre from Citycon or the buyout of Technopolis by Mainor Ülemiste as well as the buyout of the Trev 2 from the Vinci Group by the Trev 2 management,” said Papp.
According to Partner Gerli Kivisoo, optimists are calling 2024 the year of bonds. “The main instrument offered on all three Baltic public markets was the bond and for understandable reasons – the interest rates are favourable for the bond market. This included two transactions that are worth highlighting – the public offer of the green bonds of Liven and Eesti Energia’s hybrid bond issue. However, in terms of public offerings of shares, we ended up with zero, so Latvia got ahead of us”, said Kivisoo.
The analysis forecasts a moderate growth in the Estonian transaction market and increased investor interest by 2025.
Ellex Transaction Radar is published twice a year, shortly after the end of each half-year, analysing the background and reasons for major transactions in Estonia and forecasting possible developments in the upcoming periods.
Sustainability and Taxes—two words that can send shivers down the spine of some business leaders. However, in a move to encourage companies to adopt more sustainable practices, new amendments to the Law on Corporate Income Taxtook aneffect on January 1, 2025. These changes increasedcorporateincome tax rate from 15% to 16% and alteredthe rules for attributing costs related to the purchase and rental of passenger cars to allowable deductions.
According to expert Rūta Švedarauskienė and senior associate Laura Navickė from the law firm Ellex Valiunas, the upcoming changes will widen the gap between financial and tax accounting, increasing the workload for accounting professionals and raising the tax burden for companies that purchase or rent less environmentally friendly cars starting from 2025.
Allowable Deductions for the Purchased Car Will Dependon CO2 Emissions
Until the end of 2024, businesses were able to deduct the full cost of purchasing or renting passenger vehicles. However, as of 1 January 2025, only a portion of the purchase price of a newly purchased car will be eligible for the deduction, depending on its carbon dioxide (CO2) emissions. The lower the emissions, the larger the deductible portion of the cost (or the entire cost, if it does not exceed a specified limit):
If CO2 is equal to 0 g/km: allowable deduction is up to €75,000.
If CO2 is between 0 g/km and 130 g/km CO2: allowable deduction isup to €50,000.
If CO2 is between 130 g/km and 200 g/km CO2: allowable deduction isup to €25,000.
If CO2 is above 200 g/km CO2: allowable deduction isup to €10,000.
Additionally, the State Tax Inspectorate clarifies that the non-deductible portion of the car’s purchase price shall be gradually allocatedtonon-deductible expenses over the car’s depreciation period, not all at once.
For instance, if a car emitting 50 g/km CO2 is purchased in January 2025 for €100,000, only €50,000 can be deducted over six years (€8,333 annually), while the remaining €50,000 shall be attributed to non-deductible expenses proportionately over six years.
Sustainability Becomes ImportantEven When a Company Rents a Car
The changes will apply not only to the purchase but also to the rental expenses. Starting January 1, 2025, when a company rents a car under a new or extendedagreement instead of purchasing it, only a portion of the rental expenses will be deductible each month. This deductible portion will depend on the previously mentioned CO2 emission limits and the depreciation rate applied by the lessee, divided by 12.
For example, if a company rents a car emitting 150 g/km CO2 under a contract signed after January 1, 2025, and applies a six-year depreciation rate for passenger vehicles, the amountof allowable deductions per month will be €347 (€25,000 (maximum allowable deduction based on CO2 emissions) ÷ 6 years ÷ 12 months). If the monthly rental expensesexceed this amount, the difference shall be attributed to non-deductible expensesfor corporate income taxpurposes.
As a result, companies looking to minimize non-deductible expenses and corporate income tax will need to choose passenger vehicles more carefully based on their environmental performance.
It is important to note that these restrictions will not apply to light goods vehicles (classified as N1) or to vehicles used for rental services, driver training, or transportation services. Furthermore, the restrictions on rental costs will not apply to rental periods of less than 30 days or to agreements made through electronic platforms (e.g., “Bolt” or “CityBee”).
Challenges in VAT Calculation for Car Purchases
The Law on Corporate Income Tax stipulates that only the portion of non-deductible VAT calculated on the basis of deductible expenses for corporate income tax purposes can be attributed to deductible expenses. Accordingly, if the deductible expense limits for cars are restricted, situations may arise where the VAT calculated on the car’s price cannot be fully allocated to deductible expenses.
For example, if a car emitting 50 g/km CO2 is purchased for €100,000 plus €21,000 VAT, only the VAT calculated on €50,000 can be treated as allowable deductions,amounting to €10,500. The remaining VAT portion (€10,500) should be classified as a non-deductible expenses in the first year of the car’s purchase.
Car Sales and Corporate Income Tax
The Law on Corporate Income Tax stipulates that the income from the increase in asset value is calculated as the difference between the asset’s sale price and its acquisition cost. If the asset is subject to depreciation, its acquisition cost is reduced by the amount included in allowable deductions.
Although it might seem that a company selling a car would have the right to deduct the entire acquisition cost (minus the accumulated depreciation) from the revenue, the position of the State Tax Inspectorate has beenthat only that part of the purchase price which meets the threshold for allowable deductions will be treated as the purchase price.
For example, if a company purchases a car with CO2 emissions of 50 g/km for EUR 100 000 and decides to sell it the following month for the same amount of EUR 100 000, it will be considered that the purchase price of the car for corporate tax purposes equals EUR 50 000 and that the profit on the sale equals EUR 50000.
Business will not always be happy
The change will oblige companies to differentiate the accounting for cars purchased/leased from 2025 onwards, including additional calculations. Accordingly, this will increase time costs and may encourage people to stick to older cars, while forgoing the purchase of newer and greener cars. When these changes to corporate income tax were introduced, it was announced that they would raise (only!) €8 million a year for the state budget. However, these calculations did not consider the additional accounting burden on companies, and it is not clear to what extent the new regulation will actually contribute to the Green Deal objectives.
Notion pro bono (from the Latin pro bono publico) means a delivery of some professional service for common benefit, free of charge. Very often this notion is attributed to law firms as they consult various clients who need legal assistance but are unable to pay for such. This includes matters of public benefit where stakeholders, most probably, would not be able to pay for attorney’s services, while the matter itself is important to the pro bono services provider and may also leave a permanent mark in society. The law firm I represent has carried out pro bono work since its very establishment – since the early 1990s. This is a natural practice for us which we consider mandatory for ourselves. There are constantly lawyers at our office actively providing legal services free of charge on matters which the partners of the firm believe to be significant and therefore should not suffer or disappear from the public agenda simply because legal advice has otherwise been unavailable.
Law firms, and Ellex is no exception here, are of course also involved in charitable projects and donate money, however the pro bono work is a special form of assistance. Why is involvement of legal counsel in pro bono projects so important?
First, our experience and expertise allow us to defend the interests of those individuals who are in no position to do so themselves. Engagement of an experienced lawyer in such cases is more important than a cash donation. One of our examples is the support provided to an oncology patient who had encountered a discriminatory attitude from the state and a refusal from the state to be reimbursed for the expense of vital medicines. We brought an action in court because we were convinced that the competent authorities used formal reasons as an excuse without digging deeper into the substance of the matter. Our view is that the government authorities had breached the principle of equality, the duty to reasonably apply the law and to properly justify an administrative act that is unfavourable for an individual. We have prevailed with favorable judgements for the patient in two levels of court proceedings, and are now awaiting for the final word from the Senate.
Second, certain processes of public significance can find their footing only if active likeminded people are drawn together in support, where each offers their own expertise and capacities to accomplish something worthwhile. One of the first pro bono projects for our law firm was legal support to association Dzīvesprieks [Joy of Life], which provides education and social benefits to orphans and other youth lacking financial means. Dzīvesprieks was founded in Latvia in 1994 and the idea came from Sweden – it needed support from likeminded experts who were ready to contribute in a practical manner at its early stages.
Third, we look to initiatives for preserving cultural and historical heritage, facilitating education and business, where the expertise of a legal practitioner is needed to resolve some complicated issue. For instance, we have for years provided legal support to the Riga Richard Wagner Society with regard to its organization, raising funds and reconstruction work at the Wagner House and former opera house in the Old Town. We have supported and are still supporting Žanis Lipke’s memorial and the oldest Latvian public organisation – Riga Latvian Society. Among these types of projects it is worthwhile to mention the Kiev School of Economics for which we helped to found a support society in Latvia since the start of Russia’s invasion and war against Ukraine. In the area of education there have been significant projects like Iespējamā misija [Mission Possible] and Fonds Augst [Fund To Grow] founded by Swedbank, and Latvijas sociālās uzņēmējdarbības asociācija [Latvian Social Entrepreneurship Association] for facilitation of socially beneficial business. We engage in these initiatives with the work contributed by lawyers of our firm who prepare contracts and other legal documentation, assist in incorporation of legal arrangements and in matters of corporate governance, representing interests of clients in communication with various authorities, general legal advice, and other areas as well.
Fourth, there are a number of international charity and social support projects where involvement of legal counsel is necessary for their adaption to Latvian society, such as the international Ronald McDonald House Charities, which has a representation in Latvia.
I particularly enjoy long-term pro bono projects. With such, the promoters of the project can rely on the constant availability of legal assistance while providing our firm with an opportunity to delve more deeply into the essence of the particular initiative, and to appreciate its growth, achievements and effect on the general society. The best reward for voluntary work is the opportunity to experience hands on that your contribution has reaped benefits and changed something for the better.
The pro bono movement among legal professionals has a long history and, for example, in the USA one way that this tradition is kept alive is by introducing it as early as during the student years. I as a student had an opportunity at one point to undertake a defence, for a public benefit, of those people who could not afford it themselves under supervision of an experienced lawyer (Latvian students, future lawyers, now have similar opportunities). When I participated in the founding of a law firm in Riga, I did not have any second thoughts that pro bono will be one of the cultural dimensions of our work. I know that many legal practitioners in Latvia similarly offer pro bono assistance; however, if we look at the broader picture of the whole of the business environment – then the necessity to help those in need is not a self-evident occurrence. So ultimately, each project which involves voluntary bro bono work is not only beneficial to the particular individual or organization receiving the support, but is also a kind of example for, and encouragement to, others to chip in and to do more.
After two years of downward trends, the transaction market has turned positively into rise – new economic cycle has started and investment courage is back! Ellex Transaction Radar summarises the most important trends of the transaction market in Estonia in the first half of the year, while also offering forecasts for potential developments in the upcoming periods. Transaction Radar is published twice a year.
Situation in Estonia
The recovery seen in the IV quarter of 2023 continues and the trend is clearly positive for the number of transactions – compared to the same period last year, there were 28 more transactions in the first six months of the year (94 vs 68).
In the first half of 2024, a total of 94 transactions were registered in Estonia, divided as follows:
36 venture capital and technology transactions
5 major real estate transactions
4 share issues (incl. OTC issues)
49 traditional M&A transactions
Global situation
Globally there have been several major transactions – five transactions worth in excess of $10 billion have been made in the natural gas and oil sector, which is an indication that although the introduction of renewable energy and a greener worldview are important, we still need fossil fuels to burn or as raw material in the chemical industry. Particularly active is ConocoPhillips who in addition to Burlington is also acquiring Marathon Oil for $22.5 billion.
Main challenges in 2024
The biggest challenge for companies in 2024 seems to be the continued uncertainty in the markets, which forces to caution with expansion plans and investments. Please read more about the challenges here page 10.
In summary, the recommendation would be that if there is intention to sell a company, now is the right time to start preparing. And if the intention is to anticipate the market as a buyer and get something for less money, you should already act quickly. There is still active interest in the renewable energy sector where consolidation as well as the sale of companies can be expected. Estonians have always been a “real estate nation” but it seems that this sector will remain in recession also in 2024. Troubled times have always given the domestic capital an opportunity for transactions over the more cautious foreign capital.
In the latest issue of Competition and Regulatory Law Review (CoRe), Ellex experts Martin Mäesalu and Miikael Tuus discuss a recent case of the Estonian Competition Authority on excessive pricing in the digital sector.
The Estonian Competition Authority (ECA) issued two decisions on April 18, 2024, addressing potential excessive pricing in digital markets. The cases involved real-estate classifieds portals kv.ee and city24.ee, and automotive classified portal auto24.ee, both investigations were concluded with no breach findings.
Existing EU legal practice has developed a framework that could also be applied to digital sector pricing cases – the so-called United Brands test. Although said test has not been developed with digital sector cases in mind, the United Brands test could still provide a preliminary framework for assessing excessive pricing even in so called new economy cases. Developed test still leaves open the (arguably most difficult) question on how to quantify a relative (economic) value of a product or a service. On that there is not much practical guidance from neither the EU nor national level practice.
In determining the economic value of goods, account must be taken of non-cost factors such as: aspects relating to the demand for the goods and the characteristics of the goods which make them valuable. The ECA entered into this landscape with its investigations in the kv.ee/city24.ee and auto24 cases.
Read more in the CoRe issue no 2 of 2024 available here.
The European Competition and Regulatory Law Review reports on key legislative developments in the EU and its Member States and analyses important judgments that shape the field of EU competition and regulatory law, in particular those by the European Courts, international courts and tribunals, and higher national courts.
Lexxion has been offering expertise on various legal topics and niche sectors in English and German since 2000. Their core areas of competence include EU competition law, state aid law, public procurement and public private partnership law, data protection law, life sciences and environmental law, as well as exciting new projects in emerging technologies and digitalisation.
Ellex has the largest and most experienced antitrust/competition/state aid team in the Baltics. Our law experts provide both conventional and innovative legal solutions on a full range of competition, state aid and EU law issues in Estonia, Latvia, and Lithuania, and on EU level. View our experts and relevant projects related to this field here.
The Guide provides a comprehensive information on navigating the complexities of ending employment relationships with executive-level staff.
It underscores the nuanced difficulties inherent in severing ties with senior employees and provides a structured approach to manage these challenges effectively.
Our colleagues Irina Rozenšteina, Ints Skaldis and Katrīna Eimane explore key aspects of the termination process, including legal considerations and best practices in order to ensure a smooth transition. Special attention is paid to the post-termination landscape and the differences with the legal status of management board members.
The guide has been prepared by law firm Shoosmiths and is available here.
The Baltic M&A Monitor, a new report published by law firm Ellex in association with Mergermarket, recorded a total of 134 deals worth €1.1bn in 2023, the third-highest volume since 2008.
While volumes dropped 12% from 152 and values 54% from an aggregate €2.4bn in 2022, that year was an unusually active one, as the European M&A market enjoyed a rebound from the pandemic and related global recession, supported in part by a glut of government financing.
“While 2023 did not break any records, Estonians should still be proud that 6 deals of Baltic TOP 10 deal chart were actually Estonian deals, including the highest value deal of 2023 – the acquisition of Latvian Gaso by Infortar. Also, the only IPO in the Baltic markets in 2023 was an Estonian one as we witnessed the listing of Infortar at the end of 2023. So, not a bad year after all for Estonian businesses” proudly presented Sven Papp, leading M&A partner of Ellex.“
Of all the deals announced in the Baltics in 2023, 43% involved Lithuanian targets, keeping the country at the top of the table in deal volume terms, albeit down slightly from its 46% share in 2022. Estonia’s share of regional M&A volume also slid, from 39% to 37%, while Latvia’s rose by five percentage points to 20%, its highest share since 2018 (24%).
Inbound international investors accounted for 41% of transactions by volume in 2023, down four percentage points from 2022. However, they contributed 59% of deal value, showing that while international investors tend to make fewer transactions, they generally focus on larger targets. Indeed, six of the 10 largest deals of 2023 involved bidders from outside the region.
Rūta Armonė, Partner and Co-head of Corporate and M&A practice at Ellex in Lithuania commented: “When big players come here, they show it’s a stable economy, a safe economy, not threatened by the war in Ukraine. It shows trust and confirms what we’re trying to show people: it’s a great region to invest in.”
In terms of sectors, technology, media and telecoms (TMT) took the top spot in M&A volume and value terms for the period 2022/23, contributing 26% of total deal activity, down only marginally from 28% in 2020/21 and almost half (49%) of aggregate deal value in the region – up from 45% in 2020/21.
TMT looks set to experience further activity in the year ahead. According to Mergermarket’s intelligence tool, of the 45 ‘companies for sale’ stories the platform is tracking in the Baltics, the most (14) relate to assets in TMT.
“There’s always interest in the tech sector,” said Sarmis Spilbergs, Partner, Corporate and M&A, and Head of the Technology, Media and Communications practice at Ellex in Latvia. “Now there is also the health-tech sector. Funds which have an ESG focus are looking into health, research and green technology. Our clients are exploring options to invest in scale-ups that want to grow more strongly.”
As we enter 2024, the global economic outlook is brightening. Inflation is dropping rapidly, with the expectation that interest rate cuts will follow. All three Baltic countries are expected to experience respectable growth in 2024.
Ellex brings together the region’s three strongest and most highly ranked law firms from each of the Baltic states – Ellex Raidla in Estonia, Ellex Klavins in Latvia and Ellex Valiunas in Lithuania. Ellex has the largest and the most recognized Corporate and M&A team in the Baltics, leading for several years in succession by the value and number of transactions in Central and Eastern Europe. No.1 Law Firm in the Baltics by Prospera 2023. The most recent acknowledgment was being awarded as the Baltic Law Firm of the year 2023 and 2022 by IFLR Europe Awards and annually by Who’s Who Legal.
About Mergermarket
Mergermarket blends market-leading human insights, advanced machine learning and 30+ years of Dealogic data to deliver the earliest possible signals of potential M&A opportunities, deals, threats and challenges.
Estonia witnessed a total of 137 transactions in 2023, reflecting a decrease of 54 transactions compared to the previous year, 2022. The Transaction Radar conducted by Ellex M&A experts in Estonia indicates that despite a few noteworthy transactions, caution prevailed in the Estonian transaction market last year, with available capital on standby for investment.
According to Sven Papp, partner at Ellex in Estonia, the transaction world of 2023 will be characterized by prolonged negotiations. “One of the reasons is greater diligence and thoroughness in concluding agreements,” said Papp. He cites the second reason as “the price of money”, because interest has made borrowed money significantly more expensive, and this forces you to consider more thoroughly what you are buying. There is also a significant gap between the price expectations of the buyer and the seller. Papp also cites the tightened regulatory environment as the third reason, because the Estonian concentration control threshold is very low and even a slightly larger transaction requires a merger permit. Furthermore, as of September, a credibility check for foreign investments has been introduced.
Transaction Radar Forecast for 2024: positive advancements expected in defence, technology, energy production, pharmaceuticals, medicine, and entertainment
Macro indicators influencing the transaction market, such as global interest rates and inflation, have reached a stable state. Consequently, a more conducive environment for transactions has emerged, aligning the perspectives of buyers and sellers regarding future cash flows and company valuations. Nevertheless, it’s premature to assert the presence of economic growth.
“Given the backdrop of global events, Estonia’s economic growth increasingly hinges on education and our success in cultivating a smart economy. This trajectory doesn’t require a large population or a central geographical location,” explained Risto Vahimets, partner and head of transactions at Ellex in Estonia.
The technology sector in 2023: corrections and the emergence of the green sector
The year 2023 can be viewed as a phase of adjustments in the technology sector, particularly within the realm of venture capital. There has been a notable decrease in both the number and volumes of investments, resulting in a deceleration of transaction activity. This slowdown has been accompanied by layoffs and corrections in company valuations. Antti Perli, partner at Ellex in Estonia, delves further into these developments in the technology sector in the Transaction Radar report.
In the stock market of 2023: there’s capital, there’s interest, but there’s a shortage of courage
“The year 2023 on the Nasdaq Tallinn Stock Exchange was unquestionably intriguing— the Baltic market witnessed only three new issuers, bond offerings achieved remarkable success, and the First North alternative market experienced its first trading termination due to bankruptcy,” stated Gerli Kivisoo, partner at Ellex in Estonia.
Regulatory whirlwinds prolonged the deals in 2023
“Forecasts for the upcoming year indicate that regulatory whirlwinds are bound to make an already complex transactional environment increasingly difficult to navigate. In a post-inflation world, no significant transactions are expected to evade merger control,” note Martin Mäesalu, partner, and Kevin Gerretz, senior associate at Ellex in Estonia.
Ellex’s Transaction Radar is released semi-annually, providing analysis of the context and motivations behind significant transactions in Estonia, while also offering forecasts for potential developments in the upcoming periods.
EU is placing a stronger focus on the development of technology in the financial sector and this has resulted in a harmonised rules framework that has a strong impact on the sector. The digitalisation of the financial sector has increased security risks, and in order to mitigate the risks, the EU has adopted several new legal acts. Two of the most important legal acts in cyber security are the DORA regulation and NIS2 directive. What do these legal acts regulate and to whom they apply?
The European Union has already drafted regulation No. 2022/2554 (DORA) (available here), which enters into force on 17 January 2025. DORA addresses more specifically the digital operational resilience and establishes rules for the risk management of information and communication technology (ICT), incident reporting, testing of digital operational resilience and risk monitoring of ICT third parties. What makes DORA novel is that until now, the EU had not regulated the ICT risk management of the financial sector on a regulation level but had done it with more general directives, guidelines and standards. Whereas with such legal acts, the EU has tried to harmonise the rules that apply only to some financial institutions. As a result, different member states regulate ICT risks differently, having different requirements as well as subjecting different financial institutions to the requirements. DORA establishes detailed and comprehensive requirements for the vast majority of financial institutions and these requirements are directly applicable under the regulation. It also provides additional technical standards which financial institutions also need to implement when applying the regulation. This way the ICT risk requirements are harmonised in all member states and for the majority of the financial sector.
EU directive No. 2022/2555 (NIS2 directive) (available here) entered into force on 14 December 2022 and addresses measures for ensuring a uniform level of cyber security in the European Union. The NIS2 directive is based on its predecessor, the NIS1 directive, and it expands the scope of this directive. The NIS2 directive applies to critical and essential service providers in various sectors. NIS2 applies to important companies in the energy, transport, health care, water, digital service, postal and other sectors.
What to keep in mind with the DORA regulation?
A. Scope
DORA applies to most financial sector companies (DORA article 2(1)), including credit institutions, payment institutions, e-money institutions, investment firms, crypto asset service providers, central securities depositories, central counterparties, trading venues, trade repositories, management companies, insurance undertakings and intermediaries, crowdfunding service providers, securitisation repositories. DORA also applies to third-party ICT service providers.
B. Key requirements
1) Requirements for an ICT risk management framework. Under DORA, financial institutions must:
set-up and maintain resilient ICT systems that minimize the impact of ICT risks in financial institutions,
ensure the identification of all sources of ICT risk to set up relevant protection and prevention measures,
establish systems to identify anomalies;
put in place business continuity policies and disaster and recovery plans in financial institutions;
put in place mechanisms that allow financial institutions to learn from external and internal incidents.
2) Requirements for ICT incident reporting. Under DORA financial institutions must establish relevant systems and processes to monitor and identify and record ICT incidents according to their classification. Financial institutions must also promptly report ICT incidents to the relevant supervisory authorities. Whereas the reports must include details about the impact of the incident, its root causes and remedial measures. DORA also provides requirements to notifying clients and users.
3)Requirements for digital operational resilience testing. DORA foresees the obligation to carry out regular tests to assess the financial institution’s preparedness for ICT-related incidents and to promptly eliminate the deficiencies identified in the course of the testing or to implement relevant corrective measures to mitigate the deficiencies.
4)Requirements for the use of third-party ICT service providers. In this regard DORA requires financial institutions to:
put in place strategies to manage ICT risks attached to the use of ICT third-party service providers;
maintain a register about third-party ICT service providers;
carry out comprehensive assessments and audits about third-party ICT service providers before the conclusion of agreements;
conclude relevant agreements with third-party service providers;
after concluding an agreement with a third-party service provider, carry out regular assessments and audits with regard to this service provider, including cooperate with the relevant competent authorities who are supervising financial entities;
put in place exit strategies for third-party service providers;
report to relevant competent authorities which third-party ICT service providers the financial entity is using.
C. Impact
Requirements for ICT systems and security have been common for years already at least for a certain part of the financial sector. The requirements were not uniform and were different in different countries – as such it posed a problem for larger financial sector entities which DORA is bound to alleviate. Meanwhile, imposing the new harmonised rules takes considerable effort. On the other hand, DORA has a special impact on smaller institutions who often introduce very specific technological solutions and for whom the basis of the entire business plan is a specific and innovative solution. For these companies a harmonised and detailed framework is in itself a huge challenge – how to fit their innovation in the legislator’s framework. A third and completely separate impact that DORA has is on companies that provide ICT services for the financial sector. In more detail, the impact could be described as follows:
1) Financial sector entities who were previously not subject to EU law governing ICT risks
Although such legal acts did not ensure full consistency between the financial institutions who were subject to them, it regulated at least to some extent ICT risks in a uniform manner. But the financial institutions who were not subject to EU law governing ICT risks or moreover, were not subject to national law either, now need to significantly improve their ICT risk management and administration. This means that the impact of DORA on credit institutions or payment institutions is not as considerable as it is for crypto asset service providers or fund managers.
2) Third-party ICT service providers
The introduction of DORA will thoroughly regulate the contractual relationships of financial institutions with third-party ICT service providers, both before and after the conclusion of the contract. The third-party ICT service provider must also be ready to subject to the supervision by the competent authority that supervises the financial institution and cooperate fully with this authority. This in turn means that third-party ICT service providers must also pay more attention to the services they provide in order to be compliant with DORA requirements and this increases the administrative burden of these parties in the provision of their services.
What are the key obligations under NIS2?
A. Incident reporting requirements. Under NIS2 the obligated entities must report cyber incidents to the relevant competent supervisory authorities. The purpose of the reporting obligation is to minimise the impact of the incident on the provided essential service.
B. Risk management and security requirements. NIS2 obliges entities to apply relevant security measures to minimise risks on the network and information system security. In Estonia it is possible to apply, for example, E-ITS or ISO standards.
C. Business continuity. NIS2 obliges to devise measures that would ensure business continuity in case of major cyber incidents. Such measures should encompass system recovery plans and action plans for crisis situations.
D. Cooperation and information sharing. The objective of NIS2 is to improve cooperation between member states and facilitate information sharing in order to improve cyber resilience.
In order to achieve the main described objective, NIS2 requires the implementation of several security measures. The various security measures include:
application of relevant security measures to prevent and resolve cyber incidents or minimise its impact;
mandatory assessment of risks attached to cyber incidents and carrying out a system risk analysis,
adoption of cyber security policies and procedures;
establishment of multi-level authentication;
training of personnel etc.
What are the main differences between NIS2 and DORA?
Although DORA and NIS2 are both related to ensuring cyber security, they serve different purposes. The purpose of NIS2 is to harmonise more broadly the level of cyber security in EU. The purpose of DORA is to protect the financial sector – ensure the operational resilience of the financial sector, reliability of the digital systems of the financial sector and the availability and integrity of financial services. According to DORA, NIS2 still applies to the subjects of DORA but the overlap of NIS2 and DORA is prevented with the lex specialis provision in DORA, which means DORA prevails over NIS2. Meaning that financial institutions need to be well informed about the requirements under both legal acts.
