Free movement of services - cross-border provision of services
The basis for the free movement of services is the EU services directive 2006/123/EU. The General Part of the Economic Activities Code Act, which has entered into force in Estonia sets forth uniformly that a service provider from an EU member state has the right to provide service on a temporary basis in Estonia without establishing a local enterprise or branch.
There are five ways in which cross-border provision of service may take place:
- The service provider establishes a new company in the consumer’s country of location;
- The service provider travels temporarily to the consumer’s country of location;
- The user of the service travels to the service provider’s country of location;
- The service provider and the user are each located in their respective countries and service is provided by way of telecommunications;
- Both the service provider and consumer travel to a third country.
For an Estonian undertaking, this means that a company established in Estonia likewise has the right to provide service in other EU member states. It also grants the service user – either companies or consumers – the right to freely use the services offered by service providers established in another member state.
Temporary provision of service means that the service provider does not take part in a stable and consistent manner in the economy of the other country. For instance, an Estonian architect who designs a building in Germany is engaged in temporary provision of service.
Service provision is not temporary if the service provider takes part on a permanent basis in the economy of the other country, for instance through business activity and procurement of clients via a branch office. For instance, if the same architect were to open a branch office in Germany, hired local residents and serviced local clients through that office, it would no longer be a case of cross-border service provision.
When you provide cross-border services, you must take into consideration general requirements related to provision of service in that country, such as consumer protection, environmental protection, labour law and the circumstances related to the specific nature of the service itself.
If you are engaged in enterprise across national boundaries – i.e. in more than one country – you will also have to pay some of the taxes related to transactions and employees to foreign countries. Tax laws are different in each country, and thus you should familiarize yourself with the local tax legislation before expanding to new foreign countries.
The free movement of services does not cover transport services and financial services and non-economic services of general interest (such as national defence and internal security related services).
In exceptions, countries have the right to impose restrictions on the provision of temporary services. In Estonia, temporary service may not be provided in fields related to handling of explosives and weapons.
In Estonia, an advance notification requirement is imposed on cross-border provision of services in the following professional areas:
- Electrical work;
- Pressurized equipment;
- Lift equipment work;
- Work involving the use of machinery;
- Gas work.