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3 reasons why Estonia is one of the best business environments in the world

Estonia is ranked as one of the best places to launch and run your business according to institutions such as the World Bank and the World Economic forum. What makes a small nation with a population of 1.3 million such an attractive environment for businesses?

Below we have listed 3 major reasons why this is the case.

1. Low and competitive tax rates

One of the best ways to determine whether a country has an advantageous business environment is to look at the structure of a country’s tax code. A well structured tax system promotes economic activity and is easy to comply with, whereas a poorly structured tax code can harm domestic economies and be costly for entrepreneurs.

A study published in 2018 by Tax Foundation , a U.S based think tank, ranked Estonia as having the best tax code in the OECD for the fifth year in a row.

The reason Estonia was ranked first is thanks to a combination of 3 main features of it’s tax code:

  • 0% corporate income tax rate on reinvested profits and profits retained in the company
  • Property tax only takes into account the value of the land (rather than the value of the property itself or the capital)
  • Estonia has implemented a territorial tax system that states that all foreign profits earned by domestic corporations are exempt from domestic taxation

Starting from 2019 Estonia has applied a lower tax rate of 14% on regularly paid dividends. For private owners an extra withheld tax applies, which will either be 7% or a % that comes from the Agreement for the Avoidance of Double Taxation between Estonia and the tax residency country of the private owner.

These all make Estonia have one of the most competitive tax systems among nations worldwide.

2. Managing your business is simple and effective

Setting up and managing your business in Estonia is a process that is quick and simple. This is thanks to the Estonian government’s efforts to minimize bureaucracy and the numerous e-services that entrepreneurs can use to keep their business running smoothly.

The government’s plan in the future is to make ALL services offered by the state accessible to entrepreneurs from one single location.

During a round table meeting earlier this year at the Ministry of Economic Affairs and Communication it was discussed on how services aimed towards entrepreneurs could be put together in a single web environment.

The result of the meeting was that Estonia’s information portal (https://eesti.ee) was chosen to become the main environment entrepreneurs can use to manage their business.

Although we’re not there yet, it’s definitely a step in the right direction if Estonia wants to be regarded as one of the best business environments around the world. Even now, most administrative processes can be done online thanks to Estonia constantly striving towards digitalization.

3. e-Residency — a digital identity available for anyone

Estonia is the first country in the world to offer e-Residency.

e-Residency can be described as having a digital identity that grants you access to Estonia’s private- and public sector’s services — no matter where you’re located.

This means that you can establish an Estonian company completely online, digitally sign contracts and documents, as well as have access to banking and online payment service providers in order to accept payments from costumers anywhere in the world.

Nowadays, micro-enterprises have become increasingly more popular. There’s over 162 million self-employed entrepreneurs in the European Union, all looking to register their business in a place where the tax system and business administration would support them. E-residency gives them the opportunity to do just that.

It’s not just individuals located in the European Union that benefit from e-residency, it’s meant for people all around the globe. E-residency makes it considerably easier for someone in India to conduct their business through an EU company that guarantees the free movement of goods and services across the European borders.

The best part is that anyone can apply for e-Residency and it only costs 100 euros.

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By Richard J. Witismann on 7 April, 2019