As a nation with a small population and limited natural resources, Estonia views trade as a key to economic growth. The nation’s leadership positioned it as a gateway between other former Soviet republics (including Russia) and accomplished economies of Western countries. The government adopted business-protection laws, such as those covering bankruptcy, trademarks, and copyrights, to attract foreign investment. The leadership also negotiated trade and investment agreements with Western countries, and the nation’s trading system became one of the most barrier-free in the world. To further promote investment, the government eased the flow of money across Estonia’s borders by tying its currency to the German mark. The government’s program to put businesses and industry in private ownership also moved quickly, with industrial privatization essentially completed by 1995.

As part of the interrelated Soviet economy, Estonia was basically an industrial region, with agriculture also making a contribution. Industry and agriculture remain valuable components of the economy of independent Estonia, but their portion of gross domestic product (GDP) and the labour force are declining while those of commerce and the service industry are growing. The Estonian economy experienced a downturn during its transition to a market economy (characterized by declining production, inflation, and unemployment), but by the mid-1990s it was rebounding.

In 2000, Estonia rebounded from the Russian financial crisis by scaling back its budget and reorienting trade away from Russian markets into EU member states. After GDP shrank 1.1% in 1999, the economy made a strong recovery in 2000, with growth around at 6.4% - the highest in Central and Eastern Europe. Estonia joined the World Trade Organization in November 1999 - the second Baltic state to join - and continues its EU accession talks. For 2001, Estonians predict GDP to grow around 6%, inflation of between 4.2%-5.3%, and a balanced budget. Substantial gains were made in completing privatization of Estonia’s few remaining large, state-owned companies in 2000, and this momentum is expected to continue in 2001. Estonia hopes to join the EU during the next round of enlargement tentatively set for 2004.
As a member of the European Union, Estonia is part of the world’s largest economic zone. 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 — the second Baltic state to join — and continued its EU accession talks. Privatization of energy, telecommunications, railways, and other state-owned companies is a continuing process. With assistance from the European Union, the World Bank and the Nordic Bank, Estonia completed most of its preparations for EU membership by the end of 2002 and now has one of the strongest economies of the new members states of the European Union, which Estonia joined on 1 May 2004. The Estonian economy is growing fast, partly due to a number of Scandinavian companies relocating their routine operations and Russian oil transit using Estonian ports. Estonia has a strong information technology (IT) sector. GDP PPP per capita is at $16,461, the highest among the Baltic states.

In 1994, Estonia became among the first in the world to adopt a flat tax, with a uniform rate of 26% regardless of the income a person makes. In January 2005 the personal income tax rate was reduced to 24%.

Since January 1, 2000, companies have not had to pay income tax on re-invested income