Service agreements in Estonia: liability, payment, IP and termination

Which law governs a service agreement with an Estonian company?

So a Germany-based freelancer working for a Tallinn start-up with no governing-law clause will usually be under German law, unless the contract is manifestly more closely connected with another country (Article 4(3)). If both sides expect Estonian law, say so: “This agreement is governed by the laws of the Republic of Estonia.”

A choice of law does not switch off everything else. If all other elements of the deal are located in one country, that country’s mandatory rules still apply (Article 3(3)). Consumer and employment contracts have their own protective rules (Articles 6 and 8): a choice of law cannot take away the protection an employee would have under the law that applies without one.

Choosing the court is a separate clause. Inside the EU, the Brussels I bis Regulation (EU) No 1215/2012 governs choice-of-court clauses in cross-border disputes. An arbitration agreement must be in a form that can be reproduced in writing (Code of Civil Procedure (TsMS) § 719(1)).

Is a limitation of liability clause valid under Estonian law?

Without a clause, liability has no cap. The party in breach compensates the loss, limited mainly by foreseeability: the damage it foresaw, or should have foreseen, when the contract was made (VÕS § 127(3)). That limit does not apply to intentional breach or gross negligence. This is why suppliers add a cap and exclude categories such as lost profit.

If the cap sits in standard terms, VÕS § 42 adds a second test. Standard terms are wording one side prepared in advance and did not negotiate. Terms excluding or limiting liability for death, personal injury, intent or gross negligence are on the statutory list of unfair terms (§ 42(3) point 1). They are void against a consumer and presumed unfair between businesses (§ 44).

A balanced clause is mutual, sets a clear amount or formula (for example, the fees paid in the previous 12 months) and carves out intent, gross negligence, confidentiality breaches and IP infringement.

Check these clauses in your own contract – free summary →

What payment terms and late interest apply between businesses?

Statutory late interest is the VÕS § 94 base rate plus 8% a year (§ 113(1)). The base rate is published by Eesti Pank every six months; for 1 July – 31 December 2026 the statutory rate is 10.40% a year. The parties may agree a higher rate, but an excessive rate in standard terms can be challenged under § 42. Where the creditor acts in the course of business, a clause excluding or limiting late interest is void (§ 113(10)).

The €40 under § 113¹ is a fixed sum for recovery costs. A business creditor can claim it from a business debtor when late interest is due, without proving any actual cost.

Watch long payment terms. Between businesses, a term of more than 60 days can be relied on only if it was expressly agreed and is not grossly unfair to the supplier (VÕS § 82¹, which implements EU Late Payment Directive 2011/7/EU). Also avoid “payment on approval” with no deadline.

Who owns the IP created under a service agreement?

A transfer or licence of economic rights is an author’s contract, and it must be in writing (AutÕS § 49(1)). A non-exclusive licence may also be granted in a form that can be reproduced in writing, such as email. Written form means a handwritten signature, or a digital signature such as one made with an Estonian ID card or an e-Residency digi-ID (TsÜS § 78, § 80). A transaction that ignores a form required by law is void unless the law provides otherwise (TsÜS § 83(1)), so don’t rely on a tick-box or an email chain for a full transfer.

Spell out whether rights are transferred or licensed. Say which rights are covered (reproduction, distribution, adaptation and so on), for which uses, territory and term, and for what fee (§ 48¹). Moral rights, such as being named as the author and the integrity of the work, cannot be transferred at all (§ 11(2)). If you need to change the work freely, get the author’s consent in the contract.

A contractor company can only pass on rights it holds, so ask for a warranty that it has secured the rights of the people who did the work.

How should a service agreement define scope and acceptance?

Estonian law has two main types. Under a contract for services (käsundusleping, VÕS § 619), the provider must act loyally and with professional skill (§ 620) but does not promise a result. The fee is usually payable after performance or period by period (§ 628(1)). Under a contract for work (§ 635), the contractor promises a result that must match the contract (§ 641). What counts is the parties’ real common intention, not the title on the document (§ 29).

Good acceptance wording lists deliverables and measurable criteria, gives the client a set number of days to accept or list specific defects, and says what silence means (for example, deemed acceptance after 10 working days).

If an individual works under your direction and on your schedule, the relationship may be employment whatever the contract is called (TLS § 1).

How can a long-term service agreement be terminated?

If the reason is a breach, the terminating party must usually first give a reasonable period to fix it. It can terminate only if that period passes without result (§ 196(2)), and it must act within a reasonable time after learning of the reason (§ 196(3)). Termination ends obligations for the future only. Rights that already arose remain, and fees paid in advance for the period after termination must be refunded (§ 195(2), (5)).

The contract types also carry their own termination rights: VÕS § 630 for contracts for services, and § 655(1), which lets the client cancel a contract for work at any time. Check how your contract changes these rights and what is paid for work in progress. In standard terms, automatic renewal for more than one year is on the § 42(3) list of unfair terms.