If you are thinking about registering a company in Estonia, then you are in the right place.
Estonia has been creating such a buzz all over the world because it is the best location to form a future-facing organisation. The nation’s e-Residency program offers an innovative way for entrepreneurs to establish and manage their digital ventures.
E-Residency enables digital entrepreneurs to start and manage an EU-based company online from anywhere in the world. With e-Residency you have access to the Estonian government’s e-services, which enable you to carry out everyday operations 100% digitally and remotely.
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.
4 major benefits of registering your company in Estonia
There are many benefits to forming your business in Estonia. Below are the four primary ones.
- 100% online formation and management — By far, the most important advantage of forming a business in Estonia is that, once you get your e-Residency card, you can start and manage your company from anywhere in the world. As an e-resident, you can digitally sign documents and contracts, declare Estonian taxes online, and use online banking services in Estonia. You do not need to be present in Estonia to manage your enterprise.
- 0% corporate income tax on profits kept in the company — Estonia has a unique corporate income tax (CIT) system which differs from traditional systems. In Estonia, profits earned by a company are not immediately subject to CIT.
Instead, CIT is only due when you take the profits out of the business (e.g., in the form of dividend). Profits retained in company accounts or reinvested and used for business purposes are not subject to CIT.
This taxation structure means that the shareholders can control when they pay CIT taxes by deciding if, and when they distribute the profits.
- Presence in the European single market — Estonia, as part of the European Union, is part of the largest international single market in the world. Member States and their citizens enjoy the economic benefits of removed trade barriers and the ability to travel freely between the EU countries. A shared currency and harmonised corporate laws between the Member States, among other EU member privileges, and ease commerce and empower businesses to grow.
Further, as a member state of the European Union, Estonia is a part of the Single Euro Payments Area (SEPA). Making electronic payments within the SEPA is as easy as making cash payments. Businesses formed in Estonia can make fast and secure transfers between bank accounts anywhere in the euro area.
SEPA’s guidelines also mean better banking services for all: transparent pricing, valuable guarantees ensuring that you receive your payments promptly and in full, and banks assuming responsibility if something goes wrong with your payment.
- Estonia has a great business environment — Estonia is consistently ranked as one of the world’s best business environments by various international indices. For example, in 2019, the World Bank ranked Estonia as 18th best in the Ease Doing Business. A study published in 2022 by Tax Foundation, which is a US-based think tank, ranked Estonia as having the best tax system in the OECD for the 9th year in a row.
If these benefits have convinced you, launch your digital venture by forming an Estonian company, then your next step is to choose the right form for your organisation.
Choosing between different business types
When choosing an appropriate business form, you must first evaluate your opportunities, risks, and benefits of registering a company in Estonia.
You need to understand what type of company is best for your business, taking your goals and financial position into account. The most widely used business forms in Estonia are sole proprietors (FIE), private limited companies (OÜ), and public limited companies (AS).
The forms of business differ from each other regarding the size of the required start-up capital, the number of parties in the company, the extent of proprietary liability, and type management organisation.
What business form serves your needs best?
We always recommend the private limited company to the majority of our clients because a sole-proprietors are usually local residents and must annually pay income tax and a social tax on the earned profits. And other types of Estonian businesses are often not very beneficial for foreign entrepreneurs.
Furthermore, the owner of a sole proprietor is also personally liable for the obligations and debts incurred by the business, while the owner of an OÜ (or its owner if not paid in full) is liable up to the noted share capital amount.
Comparison of Estonian sole proprietorships and private limited companies
- Sole-proprietors carry personal liability for all the obligations related to the activities of the sole-proprietor. With a private limited company, the business has limited liability up to the capital requirement (the minimum amount is just €0.1).
- Taxation of sole proprietors is more complicated than public and private limited companies. Sole proprietors must annually declare their profits/losses, and their profits are subject to income tax (20%) and social tax (33%). Private limited companies may postpone their tax obligation until distribution (e.g., in the form of dividends), and such distributions are only subject to corporate income tax (not social tax) in Estonia.
- The state fee to register a sole proprietor is €20. The state fee for registering a private limited company is €265 under the urgency procedure (established in 1 business day).
- A sole proprietor cannot employ himself in the company and pay a salary to himself but may hire employees. Whereas an owner of a private limited company may be a shareholder and an employee and can also have only one shareholder.
Despite the lower cost of entry, the tax and personal liabilities of a sole proprietorship make it a less attractive option for many entrepreneurs. Most of our clients choose a private limited company as their Estonian form of business.
Deciding upon the legal aspects of your company
Now that you have selected the form of business that serves your needs the best, proceed with deciding the crucial legal factors in your application process.
No matter which form of legal entity you choose, may it be a limited partnership or private limited company, the need for this information is there.
Choosing the name of your company
One of the most important things that you need to decide during the process of registering your company in Estonia is deciding your company name.
The name you choose here is the legal name that your company will have on all the papers and registers, however you may still use a commercial name for your company and its business purposes.
As general advice, we recommend that you choose a name that is:
- Easily spelled and pronounced.
- Distinctive
- Indicative to the products and services you offer.
- Distinguishable from your competitors
- Memorable
Legal address and contact person/virtual office
Now that you are sure about the name, the next thing you must be sure of is where your headquarters will be.
The law requires a registered office with a legal address and a contact person; it is how people, other companies, or the government can reach you since it will form part of the public record.
If you plan to manage your business while living outside of Estonia, you will be required to appoint a contact person and a legal address which is in Estonia by law even if you are not living in Estonia.
As stated before, it is how your business will be contacted while keeping in mind that the contact person cannot make any decision on behalf of your company. The contact person has the obligation to forward any incoming communications to the owners of the company.
If you form a legal entity that offers products or services in a physical location in Estonia, all you need is to figure out where it will be, then rent the space and register it as the official address.
Alternatively, you can register your legal address at a virtual office, which offers many benefits over having a physical office space which requires day-to-day management and maintenance. Virtual offices are a great way to save money that you can put to better use within your business.
These virtual offices also act as a contact person in a way that they act as a passive representative of the company and will forward all incoming post to you via post or e-mail.
Management board
In this stage, you must decide upon the people and the corresponding positions that you are starting your company with.
Now, if you are starting a sole-proprietor (FIE) business, this is easy–you are the owner and the manager. In the cases of private limited (OÜ) or public limited (AS) businesses, the corporate structure, board members and the articles of associations play a significant role.
This is because the board represents and manages the entire company. Members of the board may do transactions on behalf of the owners and the supervisory board.
In case you will register your business over the internet, there is a pre-made template, which you have to change to suit your business during the registration process and you may be the only shareholder in an Estonian private limited company.
Filing your incorporation documents and registering your company in the business register
To incorporate a business in Estonia, you must be physically present, make use of a proxy, or complete the transaction as an e-resident. For entrepreneurs who plan to build and operate their business remotely, the easiest method is to obtain an e-Residency card and register their business in the Estonian Business Registry.
Once you have an e-Residency card, our team can assist you and establish your corporation directly in your name within just one business day.
If you choose not to become an Estonian e-resident, we can help you form your business in Estonia. Incorporate in Estonia will file the paperwork to the government and create your corporation for you in the Estonian Business Registry, which is the national company registration portal.
Then we will transfer it to you. This transfer may take place in person when you visit Estonia or by using a Power of Attorney. In either case, it requires local notarisation to complete the transfer. It can take up to 5 working days for all the information to be changed and reflected online.
Using an Estonian e-Residency card to register a company in Estonia and to manage
Estonian e-Residency makes your life a lot easier as it provides you an opportunity to administer the corporation from anywhere in the world. You can digitally sign documents and contracts, declare Estonian taxes online, and use online banking services.
The average processing time to get an e-Residency card is one month, but it may vary based on demand and pickup location.
Using Smart-ID to register your company in Estonia
Smart-ID is the easiest, fastest, and safest way to authenticate yourself online. It is a convenient mobile application that works as an identification solution for anyone that does not have a SIM card in their smart device but needs to securely prove their online identity.
By using Smart-ID, you can log into e-services for online banking and signing documents. Using Smart-ID for personal identification is free, unlimited, and you can download the app on all of your Android and iOS smart devices.
Since the signature given by Smart-ID is equal to a signature given by an Estonian Mobile-ID and ID-card, Smart-ID users are now also able to establish an Estonian company online and remotely by using the benefits of Smart-ID. You just need to have an Estonian personal identification code from the e-residence card.
If you wish to use the benefits of Smart-ID and you are not yet an Estonian e-resident (meaning that you do not have an Estonian personal identification code), we can assist you in applying for Estonian e-Residency.
Power of Attorney: an alternative to e-Residency
Power of Attorney (PofA) enables the holder of the PofA to conduct transactions, such as registering a business and acting legally on your behalf at a local notary.
PofAs are often used to conduct business or complete legal transactions through a representative when the natural person or the legal representative of the legal person wishing to conclude the transaction cannot take part in the transaction personally.
For transactions requiring a notarised form, a PoA issued in a foreign country may be used if it is certified or certified by a competent official of the foreign country and translated into Estonian or English.
If you are not an e-Resident yet or in a hurry to establish your business, our team is available to assist you in preparing the PoA and guiding you through the process. Once you notarise and legalise/apostille (if applicable) the PoA in your country, have it translated and sent the document via post to us, we can then conclude your company formation at an Estonian notary.
We also offer tailor-made solutions for more complex incorporation matters and corporate structures, such as setting up a public limited company where a shareholder is a legal entity or a company with from the Estonian government licenses.
In addition, we offer and have companies that are ready-made which we can transfer to our clients using PoA.
How quickly can you register a company in Estonia using Power of Attorney?
Incorporate can register your company as soon as we receive all the necessary documents. During the process, we will provide you with detailed instructions on how to formalise the required documents. Because of our expertise and network of resources, we can establish an Estonian private limited company within one working day.
The timing and necessary steps to transfer control of that company to you depend on many circumstances, such as where you are located, how quickly we can receive an appropriate certified power of attorney, among other factors.
Share capital requirements
On April 13, 2022, Estonia made significant changes to its business regulations by adopting a new Business Register Act. The most significant change is the removal of the minimum share capital requirement for Estonian limited liability companies (OÜ).
Previously, the minimum share capital requirement stood at 2,500 euros, which had been unchanged for 24 years. Starting from February 1, 2023, founders and shareholders must estimate the required share capital for a limited liability company. The minimum nominal value of a share is one euro cent, allowing for a share capital as low as one euro cent for a company with a single founder and shareholder. Additional shareholders would increase the minimum capital accordingly.
Establishing and maintaining your payment and taxation accounts
To operate your Estonian business, you will need to have a business bank account and for better cooperation opportunities, you may apply to get a tax identification number before it becomes a requirement.
Things you should know about opening your bank account
Requirements arising from different regulations have made the process of opening a bank account more complicated and expensive than they were in the past. To assist our clients and new entrepreneurs seeking support for Estonian business formation, Incorporate cooperates with LHV bank, the biggest Estonian-based financial group in Estonia.
We put forth our best efforts and previous experience to achieve your aims. Nonetheless, the bank makes the final decision, and it depends on circumstances that we cannot influence.
Because of their strengthened client acceptance rules, the bank will seek information enabling it to verify the background, origin of assets, and previous transactions of non-residential customers.
As a prerequisite, the applicant’s business must have direct ties with Estonia, and the applicant must explain in detail how the business activity, owner, or management of the company is connected to Estonia. An Estonian company may also choose to have a bank account in a foreign bank.
Payment service providers as an alternative for traditional banks
Opening a business bank account in Estonia is a well-known difficulty if the company has little to no connection to Estonia besides being incorporated there. While it is allowed to open a bank account in another EEA country, as an alternative to traditional banks, it is also possible to apply for an account at a payment service provider (PsP) or virtual bank for your Estonian business.
Here are a few popular ones that e-residents and our clients tend to use:
PsPs and virtual banks are great alternatives for global entrepreneurs as it completely takes away the need to have to travel to Estonia, which must be done at some point to be able to open a local bank account.
Tax considerations for Estonian company formation
Once you form a company in Estonia, it will be liable under Estonian tax rules. In addition, the corporation may be responsible for collecting or paying value-added taxes. The timing and rate of payment of these taxes vary depending on your situation.
Estonian corporate income tax rates
As we previously mentioned, one benefit of company formation in Estonia is that corporate profits are not subject to CIT immediately. Instead, taxation usually occurs when you distribute the profits, such as when a dividend is issued.
Since 2019, the dividend payment tax rate has been 14% on the average regular dividend payments over the last 3 years if the recipient of the dividends is a legal person.
If the legal person who received these lower rate dividends is paying out the received payments to its owners, who are physical persons in Estonia, there is an additional 7% income tax withheld. In case the dividends are not paid on a regular basis, 20% tax will apply.
If the legal person who received these lower rate dividends is a non-Estonian company, the income tax rate is 14%. There is no additional local tax upon forwarding those dividends as this transfer takes place outside Estonian jurisdiction.
However, an important aspect here is that there are numerous double taxation avoidance treaties which will apply if you are a tax resident in another country and which will ultimately determine how your dividends will be taxed and which rates will apply.
VAT
In Estonia, a value-added tax (VAT) number is not immediately given to the organisation. Until the company is not VAT liable, it acts based on a registration number that is also a tax number.
Companies are free to choose whether they will voluntarily register for VAT in Estonia or do it later when they exceed the corresponding threshold. The difference is that a VAT registered company must include VAT on the invoice and declare it on the corresponding declaration.
However, if a corporation is not taxable, the tax is not added to the invoice, and thus the total price of the service or goods for the customer is lower.
EU trade and VAT registration
If an Estonian company sells products or provides services that are not brought to or taken out of Estonia, the products and services are taxed according to the rules of the country where the turnover has arisen.
However, in 2021, the EU launched the VAT OSS Scheme that enables your company to register and pay VAT VAT only in one Member State, avoiding difficulties that came when the distance sale threshold in another member state was reached.
If you register your Estonian company for VAT purposes, it may issue invoices for EU VAT registered companies with 0% VAT. Many of our clients register their companies for VAT purposes because their business partners throughout the EU prefer to cooperate with companies that have a VAT number.
The general VAT registration threshold in Estonia is €40,000 per calendar year after which your business is required to have one. The company may voluntarily register itself for VAT purposes before they exceed the above-mentioned €40,000 threshold or €10,000 in distance sales to other Member States.
To register the corporation for VAT purposes, your company will need to file an application to the local tax authorities. Applications are usually processed within 5 working days. The process may take longer if the authorities require additional documents or information. Requests for additional information are related to the analysis of whether the organisation is engaged, or is planning to be engaged, in actual business activities.
Incorporate in Estonia provides VAT registration for our clients. We also support you throughout the process, including providing legal advice about VAT registration possibilities.
We also provide EORI registration and LEI code registration services. If a company is registered for VAT purposes, then there is a need to compile and submit two (VAT and corporate income tax) declarations every month.
Ongoing accounting services and support for your business from Incorporate
Businesses formed in Estonia should be familiar with Estonian laws and be prepared to communicate with tax and other authorities in the Estonian language. For these reasons, many of our clients engage in our ongoing assistance to fulfill their tax and accounting obligations after their Estonian business formation.
To use our accounting services as an already functioning company, you will need to provide us with all the relevant documents such as invoices and bank statements that are needed to create your financial statements and annual reports.
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. Just contact us, and we will get you started.
FAQ
Is Estonia good for business?
From a general point of view, every country has its own benefits of doing and owning a business there. In Estonia, the benefits are numerous. While Estonia cannot be considered a tax heaven, managing a business here has its advantages over other countries.
Doing things remotely and without physical papers is the key, as e-Residency allows just that – to establish and manage a company remotely. Estonia has many tax agreements and regulations that help business owners take advantage of the business environment.
How much does it cost to open a company in Estonia?
Opening a company in Estonia on itself is affordable, as the state fee to open an OÜ (Estonian private limited liability company) for example is €265, if done via the e-Business Register using the e-Residency card (it is not the only method).
Also, an OÜ can be funded with no initial monetary funds which significantly reduces the entry costs, however, starting one without share capital has its downsides. Also, if you are a non-resident, your company must at least have a resident contact person, who we can help you out with!
What is the recommended company type for incorporating a tech start-up in Estonia?
In most cases, the recommended company type to start a business in Estonia is OÜ (Estonian private limited liability company).
The same applies for tech start-ups as this offers the most amount of protection and flexibility at the same time, which is needed to manage a company that will hopefully grow bigger and better.
What business can I start in Estonia?
Whether or not you are an EU national, you can start about any business that can be established in Estonia – a sole proprietor company, a private limited liability company, a public limited liability company, a partnership company, etc.
However, here you should note that if you are a resident and/or a citizen of a country in the FATF high-risk and other monitored jurisdictions, you might have some difficulties with operating an Estonian company and opening a business bank account.
