There are many types of companies that you can establish in Estonia. Each one of them has their own pros and cons. Some of them require no share capital to begin with, some need €25,000; or multiple shareholders to start. While there are different nuances in every single type, there is a similar line that can be seen in almost every one of them- they can be managed remotely over the internet – submitting annual reports, etc.
Therefore, we have written this article to give you a better overview of what comes along with the business possibilities in Estonia, and how some of them might fit your requirements better than others. By the end of this article, you will have a better understanding of which is the best option for you to register a company in Estonia.
Incorporate is ready to help you! Please feel free to reach out to us if you would like to get more information about any of our company formation & management services or accounting services.
Private limited company (OÜ)
The private limited liability company (OÜ – osaühing) is the most common business type that our clients and e-residents create in Estonia. This is primarily that the Estonian law has been made it easy to form, and easy to manage – can be set up within just one business day, minimum share capital amount is quite low, and can be managed completely remotely – perfect for remote teams and digital nomads. Why most entrepreneurs choose to create an OÜ is because as the name says that it is a limited liability company. This means that the founders and the shareholders of the corporation will not be personally liable for any damages if they have fully paid in their share capital. However, the share capital contribution can be deferred to a later date if it is more suitable for the founders to do so.
All private limited companies can be founded online using your e-residency card, at a notary or via a service provider like Incorporate using Power of Attorney.
Things to keep in mind when forming a private limited liability company in Estonia:
- You need to open a business bank account, where you will deposit your company’s share capital after your corporation’s formation is complete. The bank account can be made at any EEA zone bank or payment institution.
- Alternatively, according to the Commercial Code, if you create your company at the e-Business Register, you can make your share capital deposit on the court’s escrow account. In that case, you must apply for a reimbursement of the money to your corporation’s EEA bank account within one year, or the share capital will be contributed to the state.
- Apply for an activity licence or notice in case you will operate within a government regulated industry. Click here to see our Business Register article and learn about how to use the EMTAK classification tool.
- You can voluntarily apply for an Estonian VAT number or get it mandatorily if your annual taxable turnover will be over €40,000.
- All founding members should have an e-Residency card if the corporation will be created electronically.
Pros and cons of an Estonian private limited liability company:
Pros:
- The owners are not personally liable for any damages to third parties, only with the amount of share capital contributed (if the share capital has been fully paid in).
- Low entry costs – minimum share capital is €0.1 since February 2023;
- No maximum share capital amount
- Share capital can also be non-monetary
- Share capital contribution can be postponed until dividend pay-outs or until raising the share capital amount.
- Has a required management board
- Board members can work according to a board member agreement
- A local or a foreign company can be a founder and a shareholder
- Only one founder required
Cons:
- The owners can be personally liable to the extent of the agreed share capital if the share capital contribution has not been completed.
- Share capital cannot be larger than €25,000 if you defer the contribution to a later date.
- If your share capital will be over €25,000, you must make the contribution immediately.
- All founders must have an e-Residency card to form the company electronically.
- If you wish to sell your shares of the company, you must visit a notary even if you have an e-Residency card.
- If the founder is a foreign company, then the share capital must be contributed immediately.
Public limited company (AS)
The public limited liability company (AS – aktsiaselts) is a business type which can offer their shares of stock to the general public and foreign investors. In turn, the buyers of those shares have limited liability. Because of the high entry costs, this is not the most common type of company in Estonia, and typically the AS companies are quite big in size and revenue. Also, all public limited liability companies in Estonia must be registered via an authorized notary, as registering it yourself with the e-ID card does not work.
Things to keep in mind when forming a public limited liability company in Estonia:
- You must register for a VAT number if your annual taxable turnover in Estonia will be over €40,000 or €10,000 in other EU states, otherwise registering for VAT is voluntary.
- Apply for an activity licence or give notice in case you will operate within a government regulated industry. Click here to see our Business Register article and learn about how to use the EMTAK classification tool.
- The shares of the enterprise must be registered in the Estonian register of securities or in another depository. Upon founding, a notice of the registration shall be submitted for the registration of shares.
- You will need a notice form a bank or a payment institution about the contribution of the share capital. In case of non-monetary funds, documents verifying their value shall be submitted.
- Your company will need an auditor who regularly goes over your documents.
Pros and cons of an Estonian public limited liability company:
Pros:
- No shareholder is liable for any debts or liabilities that the enterprise may have
- The minimum number of founders – one
- The enterprise is typically governed by the shareholders’ general meeting
- Must have a management and a supervisory board which can provide extra security in managing the business
- Is public – private persons and legal entities can buy shares
- Board members can work according to a board member agreement
Cons:
- Must have a management and a supervisory board which may make processes more bureaucratic
- High entry costs – minimum share capital requirement is €25,000;
- Needs a resident board member to register
- Needs a physical visit to the notary in Estonia
Partnership companies in Estonia (TU and UU)
There are two types of partnership companies that you can form in Estonia–a general partnership (TU – täisühing) or a limited partnership (UU – usaldusühing). Both these corporation types are quite uncommon forms of business in Estonia, even though they are quick and easy to form. The difference between the two is the amount of liability one or both owners will have. Both partnership companies, general partnership (TU) and limited partnership (UU), can be founded electronically using your e-Residency card. If you will not use the Estonian digital-ID card, you can form one via a notary or using a service provider like Incorporate with a Power of Attorney.
Things to keep in mind when forming a partnership company:
- In case your partnership company will have an annual turnover over €40,000, your company must register for a VAT number and start paying value-added tax. If you do not exceed the €40,000 threshold, you can register for VAT voluntarily.
- If the company you will create will operate in an industry that has special requirements, remember to apply for an activity licence or give notice. Click here to see our business register article and learn about how to use the EMTAK classification tool.
- In case you register the company with your e-Residency card in the Estonian Business Register, both founders need to have the card.
Pros and cons of an Estonian partnership company:
General partnership (TU)
Pros:
- No minimum share capital requirement (the amount can be established with the partnership agreement)
- Both founders can manage the business by themselves – operations can be more streamlined
- Easy and quick registration
Cons:
- The minimum number of founders – two
- Both founders are personally liable for any debts or damages
- Both founders can manage the company by themselves – this can be a disadvantage if agreements are made without partner’s knowledge or approval
- All founders must have an e-Residency card to form the business electronically
Limited partnership (UU)
Pros:
- No mandatory governing bodies within the corporation
- No minimum share capital requirement (the amount can be established with the partnership agreement)
- Easy and quick registration
- One founder can have limited liability
Cons:
- The minimum number of founders – two
- At least one owner is personally liable for any debts or damages or with the share capital amount
- All founders must have an e-Residency card to form the company electronically
Sole proprietorship (FIE)
A sole proprietorship, also known as FIE (füüsilisest isikust ettevõtja) in Estonia, is the company, which is undoubtedly the easiest to form, as it only needs one person to do so and only a few documents. FIE is the best form of business for individuals, who are doing business on their own (e.g. freelancers), or with their family members (e.g. family-owned restaurant). Because of its low formation costs, it might be an attractive option for freelancers. One thing to keep in mind about FIE companies is that it is not a limited liability company in any form. FIE companies can be found using your e-residency card, at a notary or via a service provider like Incorporate using Power of Attorney.
Things to keep in mind when opening a FIE business:
- In case your FIE company has an annual turnover over €40,000, your company must register for a VAT number and start paying value-added tax.
- If you will do business in an area that is regulated by the government, remember to apply for an activity licence or give notice. Click here to see our business register article and learn about how to use the EMTAK classification tool.
Pros and cons of an Estonian sole proprietorship company:
Pros:
- Easy and cheap foundation process
- No need to have articles of association
- No minimum share capital requirement
- No bureaucratic processes in management – ability to act quickly
- May hire employees
Cons:
- Personally, liable for any unfulfilled obligations to the state and others
- The owner cannot employ or pay salary to herself/himself
- Not able to postpone tax obligations on annual profits/losses and must
- Must pay both social tax and income tax
Branches
In case your foreign company is looking to open a branch office in Estonia to start selling goods or services here, you must register it in the Estonian Business Register. Within the European Union, it is not mandatory to register a branch office in Estonia but is a suggestion as it makes managing them easier. Note that a branch office is not a separate legal entity – the foreign enterprise is responsible for all the liabilities that the Estonian branch has. A foreign enterprise is only allowed to have one branch office in Estonia.
Generally, the application must be done with a notary and the entire process might take time, as all the documents must be submitted in Estonian, with notarial approval and translations by a sworn translator. Sometimes, the documents must also be apostilled or legalised, which depends on the origin of the documents. In case you need help with setting up your branch, you can count on Incorporate’s team to help you out!
Other things to keep in mind when opening a branch:
- Like for other all other companies, if you know that your annual taxable turnover will be higher than €40,000, you must register for a VAT number. Otherwise, you can voluntarily register your company for Estonian VAT.
- In case your branch company will do business in a regulated business area, you must apply for an activity licence or give notice to operate legally in Estonia. Click here to see our Business Register article and learn about how to use the EMTAK classification tool.
- Documents and permission are needed from the company of which’s branch will be set up.
- Documents may be needed to be legalised or apostilled.
- Accounting must be done separately from the head office and according to the Estonian standards.
If you would like to find out the specifics about starting a company in Estonia, please click here!
Incorporate is here for you
Estonia’s entrepreneur-friendly business environment makes it the ideal place to incorporate your company. If you are interested in registering your company in Estonia, let us help you sail smoothly through the process. Reach out to us, and we’ll get you started.
