SMEs and the business reality of Estonia's tax regulation environment

Purpose - This article aims to examine academic literature and the taxation regulatory environment in Estonia in relation to small and medium enterprises (SMEs). The objective of the paper is to identify key areas of the taxation regulatory environment which affects SMEs and assess and link important academic literature in relation to those areas with the empirical research. In effect to explore that business reality including Estonia's Soviet historical background and compliance with her EU membership taxation obligations. Design/methodology/approach - This exploratory paper makes use of World Bank Surveys and primary tax law sources, together with qualitative empirical research from an SME manager and a taxation law firm, both from within the country assessed. Findings - It confirms the correlation between economic growth and taxation and identifies the "key" aspects of the taxation regulatory environment for an SME through academic literature reviewed which is linked with the empirical research. This qualitative research provides in-depth information and fills gaps from previous quantitative research. It emphasises a very positive progression including significant electronic development and compliance with EU directives and regulations has been made by Estonia encouraging SME activity. Practical implications - This research demonstrates the business reality of the Estonian taxation regulatory environment. Unofficial costs, a legacy from the Soviet period, are virtually non-existent within the Estonian taxation system. Gaps within World Bank Surveys are filled by the interviews, which give a grass-roots perspective on taxation regulation affecting an SME. Originality/value - The research highlights the importance of the taxation regulatory environment and the reality of the regulation and compliance work for SMEs within a relatively new EU member state. Estonia is an important country within Europe's "Northern Dimension" and a former member of the Soviet Union. Consequently, any assessment of its taxation environment can be used as a guideline/model for others from similar backgrounds with similar aspirations.