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Business in Estonia | 2020 Guide

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So far, the year 2020 has been a year full of confusion and uncertainties for everyone all over the world, despite that, doing business in Estonia has only gotten better and safer. This small country has come a very long way since the Soviet Union fell apart and is not being held back by its history. Nowadays, the republic is the birthplace for many global business ideas and is a great environment to start a company in general. This is because of its simple tax system, low tax duties, impressive technology advancements, and the innovative government.

Here are some statistics to give you a general idea and some perspective about the business climate in the Republic of Estonia:

Like we said, running a company in Estonia has never been easier or safer! Follow along as we explain to you in-depth why exactly this small European country has gotten these rankings, and what are the real benefits of having your own company there.

Entrepreneurs' paradise

The Republic of Estonia might be small, but it does not seize to amaze with its innovative ideas and courage to try out new things. In fact, the republic is the first country in the world to offer E-Residency, and the idea is one of a kind. Also, what is amazing about the Estonian infrastructure is how the entire system works - you can do everything online, and there is internet virtually everywhere, even in the forest. It is an ecosystem that is being built brick by brick by the government, and it is collaborating with many independent businesses. You can even run companies there with no actual office space. So, it is no surprise that this republic is home to many giants like Skype, TransferWise, and Bolt. As time goes on, there will certainly be many more corporations to add to the list - maybe even yours!

Take a look at what our CEO, Richard J. Witismann, has to say about Entrepreneurs' Paradise and how the republic has changed over the last decades.

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

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

The Estonian Government launched the e-Residency program in 2014. The program made it easier for people who are not Estonian citizens nor its residents, to join its economy and to start their own companies. The e-residency card enables people to open their very own Estonian business, open an Estonian bank account, and do their taxes completely remotely. It’s not just individuals from the European Union that benefit from being e-residents, it is accessible for everyone around the globe -  creating a gateway for doing business within the EU.

In 2017, the local government launched a startup visa programme that is supporting Estonian startups with non EU founders to start their company there and to ‌run it in Estonia. This led to a massive increase in startups and their impact on the local economy. Now, in 2020, the nation launched a new visa. This time they direct it towards digital nomads, who earn a steady income using the internet and can work remotely.

Click here to find out more information about the e-Residency card and how to get yours at your chosen pick-up location.

2. Starting and managing your business is simple and effective

Like we mentioned before, setting up and managing your Estonian business is a process that can be done online. This is thanks to the Estonian government’s efforts to minimize bureaucracy and the many e-services that entrepreneurs can use to keep their company running smoothly. The E-residency card is the key to the entire system of the republic. Once you have got it, the rest is easy. 

When starting your Estonian company, there are some things that you need to decide. First you must decide on the type of business that you wish to establish. Your options are to start a sole proprietorship (FIE), a private limited company (OÜ) or a public limited company (AS). All these options have different requirements for the minimum share capital, the annual reports, board members, etc. You must think of these details before you can complete your company formation process. Eventually your company is registered on the e-Business Register, where you can see and change data related to it.

If you have your digital identity, you can talk to a banking provider to open a bank account. Though this might be tricky sometimes because of their own strict business regulations. Once you have your bank account, you ‌can pay in your share capital, have your company’s debit card and take part in commerce.

Sometimes these processes can be very complicated and lengthy. Our Incorporate in Estonia team offers services to entrepreneurs like you with setting up and managing your own Estonia company - making it as simple as possible. Feel free to reach out!

3. Low and competitive tax rates

Estonia has become particularly attractive for foreign investors and non-EU businessmen, who are interested in creating their own EU company or expanding their current businesses to Europe. One reason might be that the Estonian business taxes are lower compared to Central and Western Europe countries. 

The country was ranked the first in tax competitiveness thanks to a combination of 3 key features of its tax code set by the legislation and the tax office:

  1. 0% corporate income tax rate on reinvested profits and profits retained in the company.
  2. Property tax only takes into account the value of the land (rather than the value of the property itself or the capital).
  3. Estonia has implemented a territorial tax system that states that all foreign profits earned by domestic corporations are exempt from domestic taxation.

4. Skilled workforce

Estonia believes in lifelong learning, and it begins at an early age. The local children start their learning journey at age 3, when they go to kindergarten. Next they are off to primary school, which the local law requires them to finish. According to the Pisa tests from 2018, which measure 15-year-olds' abilities to apply their learned skills, the country came first in Europe. The government's focus on early years education and its quality has paid off‌. As of higher education, the nation has ‌19 institutions that welcome locals and students from all over the world. Currently, the most popular areas of study are business, law, arts and IT. This makes Estonia a perfect place for you to start your own company and expand while hiring well educated employees. 

5. Strong government and legal system

A country where digital signatures with ID cards and digital residence cards are forms of online identification, there has to be an innovative and flexible government with good legislation behind it. In fact, the local and foreign policies favor entrepreneurship and foreign investors have equal rights with local businessmen. Throughout the past 29 years, the government has concluded 32 investment protection treaties and 53 double taxation avoidance treaties with different countries around the world. These agreements have ‌improved international trade and made the business environment better for all parties present and involved.

The republic divides the local legal system into public and private law. Whereas private law comprises civil law and commercial law. While the public law comprises criminal law, financial law, administrative law, constitutional law, international law, and procedural law. The parliament represents the Estonian people and is the body that has legislative power. Whereas the government has the executive power. The court, and the court only, administers the justice, making it completely separate from other authorities and their potential influence.

6. Estonia is a startup nation

Estonia is a catalyst for the digital revolution, and like mentioned earlier, the support from its government ‌has helped to create it‌. The republic has a strong startup ecosystem that has been molded by their skilled workforce, business friendly regulations, extensive collaborations, and by numerous investors and accelerators. As of 2020, there are around 79.1 Start-Ups per 100,000 people, and their combined revenue in the first quarter of 2020 reached 196,5 million Euros.
Click here to read more about start-ups in Estonia.

7. Advanced cyber security

Obviously, cyber security plays a huge role in the nations’ infrastructure because they store all the government and residents’ data in the cloud. A breach in the system that can easily be accessed with just  ID cards and e-Residency cards might be a major compromise to data protection and fraud. Keeping that in mind, it is no surprise that Estonia has the most advanced cyber security and personal data protection institutions in Europe. The country also ranks 5th in Global Cybersecurity Index, which is very impressive! The country has been successfully defending itself against cyberattacks since 2007.

8. Global fintech center

If you already have heard something of this country, we are sure that you have also heard about some of the famous Estonian companies that are out there in Fintech - ‌the most famous being TransferWise. The country has over 20 years of experience in Fintech and currently there are over 80 FinTech companies/start-ups in the country. All of this has made the country 99% cashless—only 1% of transactions happen using cash.

9. Blockchain economy

Since 2008, when Blockchain launched to the public in its current form, the digital republic jumped on board to integrate this secure system to its information infrastructure. The Estonian IT infrastructure had its beginning in 2001 with X-Road which was the country’s ambition to create a centralized authorization system, which will make data more accessible to the citizens, state officials and entrepreneurs. Since its success, X-Road is what laid the road to the country’s current state of IT.

10. e-Health blockchain ecosystem

Blockchain technology was also integrated into the national healthcare information system and was made part of e-Estonia’s system. The e-Health system, as it is called, enables to digitize all health records and to access them in an instant at all times. Today, 95% of all medical data, that is created at any health institution, is digitalized.

11. Global hub for ecommerce

Not only is Estonia the home for fintech and blockchain companies, it has also become a global hub for many e-commerce solutions. According to Statista, overall revenue in eCommerce in the nation is projected to reach 371 million USD by the end of 2020. This has been made possible by many e-commerce enablers that offer improved security and confidence for customers of online businesses.
In addition, e-commerce providers like Linnworks and Erply, which were born in the digital republic, have now turned into big international businesses that help to create websites for independent freelancers and small businesses. This adds even more value to the local e-commerce scene.

11. Strategic location between Nordic, Baltic, EU and CIS countries

Estonia, with its accessible location in the Baltic countries, is the perfect strategic location for your company. Many big and small business owners may say that the nation offers great physical access to the Nordic, Baltic, CIS, and other European Union countries around it. Thus, improving trade within and outside of the EU borders. 

To compliment your logistical needs, there are many innovative companies from the republic that can help you with your supply chain management, making your business run smoother and more efficiently with the help of analytics, A.I. and robotics.

Disclaimer: This article provides general information, which may or may not be correct, complete or current at the time of reading. No recipients of content from this site should act on the basis of content of the article without seeking appropriate legal advice or other professional counseling.