HANSAPANK

ANNOUNCEMENT



EFFECT OF THE NEW LAW ON INCOME TAX ON HANSAPANK'S RESULTS



On December 15, 1999 the Estonian Parliament (Riigikogu) approved the

new Law on Income Tax, which will significantly alter the presently

effective income tax regime and will become into force on January 1,

2000. The new law will abolish income tax on retained earnings for

resident corporate identities in order to promote new investments.

Therefore, starting from year 2000 Hansapank and the other group

companies that operate in Estonia will have an effective income tax

rate of 0%. Companies will pay income tax upon profit distribution

(dividends) and on transactions that may be considered as hidden

distribution of profits (benefits, gifts, etc). In case of profit

distribution the tax rate is 26/74.



So far Estonian companies have operated with a 26% income tax rate and

26/74 tax rate upon distribution of profit. Commercial banks have been

able to form a tax-deductible reserve up to 5% of the loan portfolio.

Appropriations to this reserve can be deducted from taxable income.

Hansapank has made the tax appropriations through the income statement

according to IAS 12 and good accounting practice. However, this

expense is not an actual cash tax, but deferred tax liability. At the

end of November 1999 Hansapank had made such appropriations in the

total amount of EEK 112.6 million. Since according to the new law,

corporate tax on retained earnings is abolished, Hansapank will record

the above mentioned appropriations back as revenue into the profit of

1999.





Mart Tõevere

Analyst

+372 6131 569