The most popular corporation type created by our clients and e-residents is an Estonian private limited company, also known as an OÜ (osaühing in Estonian). Why is it so popular, you may ask?
It is popular as it offers the same maneuverability, protection, management style as LLC’s across the world offer in general. The differences between Estonia and other countries come into play when people are looking for a suitable jurisdiction to incorporate in.
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 services.
Benefits of an Estonian private limited company (OÜ)
- Remote company establishment and management – This is definitely one of the biggest benefits of an Estonian private limited company, as it significantly reduces the time and paperwork it takes to get things done. However, keep in mind that one-day remote registrations can be done only if all the founding members are already e-residents. If that is not the case, there are also a couple alternative methods to establish your company.
- 0% corporate income tax on retained and reinvested profits – This means that Estonia does not tax the business income you keep within your corporation and use to grow it. Proceeding to dividend pay-outs, however, will result in a 20% flat CIT rate on all resident companies and permanent establishments.
- All EEA business bank accounts are accepted – The Estonian Tax and Customs Board accepts all corporate bank accounts from the European Economic Area, including PsP accounts, as the official bank account to make your share capital contribution. Most popular foreign banks that our clients use are Payoneer (Get $50 bonus upon registration), Stripe, and Wise (Get first 3 transfers up to €5,000 for free). This change in the Commercial Code came into effect from the 1st of January 2019 and significantly reduced the complications around acquiring a bank account for Estonian businesses.
- Establishment with only €0.01 as share capital – Since February 2023, Estonian private limited companies can be established with only 1 cent share capital. The only downside to having this little share capital is the amount of confidence that other businesses have in you, however, if this is not a concern, there is no reason why it cannot be 1 cent!
- Easy management processes and liability protection – Comparing to other business types that you can establish in Estonia, an OÜ offers better and a more streamlined management style than an AS does for example. The private limited company provides more security in management, compared to partnership and FIE companies, as big decisions must be made by the management board which ensures coordination and mutual planning. Finally, an OÜ provides good liability protection as the shareholders are only liable up to the contributed share capital.
Requirements
Luckily, there are not a lot of requirements to be able to establish the Estonian LLC company, as this can be done by almost anybody and even without having the e-Residency card.
- Only one founding member is required to start an Estonian private limited company. The founder can be a natural person from anywhere in the world or a parent corporation, who wishes to open a branch;
- The minimum share capital is €0.01 and the share capital can be monetary or non-monetary. In case you wish to start your private limited company with non-monetary funds, you cannot defer the payment to a later date in principle, as it is possible with monetary funds;
- An EEA business bank account, where you make the share capital contribution;
- A management board consisting of at least one person, who may be the company’s single shareholder;
- An Estonian contact person if your business is controlled and managed outside of Estonia. The contact person can only be a notary, a notary’s office, a lawyer, a law firm, a sworn auditor, an audit firm, a tax representative of a non-resident within the means of the Taxation Act, or a trust fund and company service provider specified in §7 of the Money Laundering and Terrorist Financing Prevention Act. In this case, the address of the contact person will be considered as the address of the company, where all your mail will be sent as well. At a minimum, we always offer these services to our clients as we are a registered service provider.
Accounting
Along with running a legal entity in Estonia, there comes the necessity for accounting and doing it according to the Estonian accounting standards. This means you must have sufficient knowledge and the proper technique to perform it without errors. That is why many companies that we have helped to create have chosen to use our accounting services as it ensures local compliance and correctness.
If you wish to do it on your own, you must know a couple of things.
Namely, you must keep all of your documents in order. That means keeping them for at least 7 years and being able to present them if there is a need for it. This also means keeping track of all your establishment’s transactions and making financial reports based on them while recording everything in accounting ledgers and journals.
Also, consider that you will have to make monthly salary payments and tax contributions based on employment contracts and management agreements. You may voluntarily apply for an Estonian VAT number or must get it mandatorily if your if your annual taxable turnover in Estonia will be over €40,000 or €10,000 in other EU states.
VAT declarations must also be submitted to the Estonian Tax and Customs Board on a monthly basis.
Finally, every year you must present annual reports to the Estonian authorities. Keep in mind that you must do this, even if your corporation is inactive and has no revenue. The contents and requirements for annual reports vary a bit based on the size and the number of resources your establishment has and/or operates with.
Registration of an OÜ
As mentioned earlier, the company formation process itself is quite simple and can be done online if you are an e-resident. However, it is worth mentioning again that being an e-resident is not a requirement to establish a company in Estonia.
That being said, there are basically three different ways that you can register an Estonian private limited company:
- Using an e-Residency card and using a trusted corporate service provider like Incorporate or doing it yourself via the Estonian e-Business Register. This is the fastest method, however, if you have other co-founders, all of them must have an e-Residency card to establish an OÜ. Also, this method cannot be used in case you wish to open a branch.
- Using a Power of Attorney to establish a company remotely and using a local attorney or a service provider to represent you and establish your company at an Estonian notary on your behalf.
- Establish your company during your visit to Estonia. You can find the list and contact information of Estonian notaries here and set up an appointment with them.
Full suite of business services
Incorporate offers a full suite of corporate services that help you create and manage your Estonian company even with a very complex structure.
Our experienced advisors assist with obtaining licences, accounting, VAT registration, bank account and more so that everything is according to the local law and your company can run as smooth as possible.
If you are interested in learning about the specifics of opening a company in Estonia, please click here.
