Company formation in Estonia

Company formation in EstoniaHave you heard about the benefits of doing business in Estonia? Perhaps some of your colleagues, friends or business partners have already managed to register an LLC in Estonia?

One way or another, on this page we will share with you everything that we know about this beautiful country and what horizons will open before you as soon as you decide to open a company in Estonia, and we will also give you step-by-step instructions on how to start a business. in Estonia.

First of all, we will talk about a limited liability company (analogue of LLC in the post-Soviet space, LTD in the UK, LLC in the USA, and in Estonian - simply ОÜ – osaühing).

In our humble opinion, Estonia, if isn't "ahead of the rest of the world", then certainly is in top of the jurisdictions that provide their entrepreneurs with a comfortable environment for:

  • incorporating business;
  • doing business;
  • administration (tax and corporate);
  • interaction with public authorities;
  • and even liquidation of a company in Estonia.

According to the Doing Business rating (business regulation assessment), Estonia is ranked 18th (out of 190) in the Ease of Doing Business category and 12th in the Taxation category. Well deserved, we think.

Benefits of Estonian companies

Benefits of Estonian companies

  1. Its cheap. It is clear that everything in this world is relative. However, if we compare the cost of registering and maintaining a company in Estonia with any other European jurisdiction, then Estonia simply has no competitors;
  2. Remote incorporation. You can register a company without a personal visit to Tallinn, if you get an E-residency card or prepare a power of attorney and send it by courier service to the Republic of Estonia;
  3. Special tax system. The company does not pay corporate income tax in case it does not distribute dividends to shareholders;
  4. The company is really easy to administer. We know from our own experience 😉
  5. No need to hire a Director and pay salary. There is no such requirement in Estonian legislation.;
  6. No problems obtaining a VAT number;
  7. You don't have to pay the share capital immediately;
  8. No problems communicating with the accountant. Estonians know English;
  9. No "offshore" reputation. A company in Estonia sounds solid. This is not somme sorty of island state in the middle of Indian ocean;
  10. A wide network of double taxation treaties. This is rarely thought about when choosing a jurisdiction for setting up a company. However, it will be useful as soon as you decide to distribute dividends.
  11. Estonian companies still have opportunities to open accounts not only in payment systems (PSP's, EMI's), but also in classic banks in Europe;
  12. An Estonian company is a chance to work with PayPal;
  13. Under certain conditions, you can get a residence permit in Estonia;
  14. A wide range of activitiesperfectly suitable for an Estonian company - product IT companies, outsource IT companies, SAAS-services, export / import of goods and mony others;
  15. Estonian tax service is aimed at helping law-abiding taxpayers in proper administration of taxes. The punitive function is used only in extreme cases of obvious abuse by the taxpayer.

Company formation in EstoniaStructure of the Estonian company

  1. Board member (Director) of the Estonian firm

    Minimum one.

    No requirments with regards to residency.

    Only an individual person can be a board member

    Estonian legislation does not oblige the company to pay salary to the director's. This approach is extremely convenient if the founder and director of the company is a foreigner (One Man Company). The entrepreneur himself decides what is more convenient / profitable for him - to pay salary to himself or to direct this money for the needs of business development.

  2. Founder of the Estonian company

    Minimum one.

    No requirments with regards to residency.

    The founder can be an individual or a legal person.

    Many of our clients have previously complained that when doing business through a foreign company, they were required to appoint a local citizen / resident as one of the directors of the company. We are talking about companies in countries such as Finland, Singapore, even Ukraine. As for Estonian companies, a director (in Estonia - a member of the board) and also a founder (in Estonia - a shareholder) can be a citizen and resident of any country. This opportunity has appeared in Estonia since 2011 and has significantly improved the business environment for foreigners.

  3. A contact person in Estonia

    If 50% of the board members are not Estonian residents, then the company must have a contact person in Estonia. We provide this service.

Firm in EstoniaNominee services for Estonian companies

Estonia, as a country with a continental laws has no legal framework for nominee services. This means that the shareholder is considered to be an ultimate beneficial owner of the company. The same applies to director who holds full liability regardless of whether he is acting on his own behalf or by instructions of a third party.

Nonetheless, in a limited number of cases a nominee Director makes sense.

Based on practice, the services of nominee board members and shareholders are not widely used in Estonia.

Share capital of Estonian entity

The minimum share capital of Estonian company is 2500 EUR.

The minimum par value of each share is 1 EUR.

When setting up a company in Estonia the shareholders have no liability to pay the share capital «by cash». You just have to simply declare the amount of share capital. There are cases when the share capital should be fully paid. For example, when the company provides cryptocurrency exchange services click here to read more). The minimum share capital is 2500 EUR. It important to rememeber: despite payment of the share capital, the shareholders are liable in the amount of their share in the company.

One should also note that the share capital of an Estonian company should fully paid up on the moment of distribution of dividends to the shareholders.

How to set up a company in Estonia?How to set up a company in Estonia?

The answer is clear: just take a company and incorporate it 🙂

However, if you want to do it right from the first try - you better call a lawyer who deal with such matters on a daily basis.

And of course, always ask for advise prior to setting up any company. There may be cases when setting up a firm abroad isn't always the best solution. When advising the client, we always lead him in a propper direction, even if it does not bring any profit to ourselves.

Strictly speaking, there are three options of setting up a company in Estonia.

How to incorporate in Estonia via Internet?

  1. What is necessary

    The most common way to set up a firm in Estonia is to incorporate an OU using the E-residency card. In order to get one, you would require 4 to 6 weeks since the date of submitting the application. In this case you will also be able to declare the Ultimate Beneficial owner of the Estonian firm remotely, without issuing any additional documents or POA's.

  2. Pros and Cons

    Pros: no need to get off the couch; the cheapest option if compared to the others; the E-resident card will allow you to manage the company in the most convenient way;

    Cons: the electronic resident card must be at hand, otherwise it will take about one month to receive it.

  3. Pitfalls

    Estonian Police and Border Guard Board may ask additional questions regarding your application for issuing the E-residency card. Such requests should be handled in a proper manner in order not to be denied in issuing the E-resident card.

How to set up a firm in Estonia using Internet?How to set up a company in Estonia by Power of Attorney?

  1. What is necessary

    A faster way to incorporate a company in Estonia remotely is to issue a notarised Power of Attorney. In some cases such POA should be Apostilled depending on the country of issue. Considerning that starting from 2018 you are required to declare the Ultimate Beneficial Owner (UBO) of the Company within 1 month from the date of incorporation, you should also issue the relevant documentation for declaring the UBO by the Attorney. Such option costs more than simply declaring the UBO with the E-resident card;

  2. Pros and Const

    Pros: the speed;

    Cons: you have to pay extra for issuing the POA and courier dispatch to Tallinn; additional disbursements when declaring the UBO to the Registry in Estonia; whenever you need to do any actions with regards to your Estonian firm (e.g. change the Board Member or the legal address), you would require a new POA for such actions.

  3. Pitfalls

    The POA should be carefully checked prior to dispatching to Estonia. The slightest mistake may lead to denial in incorporating a company in Estonia. Also you should check if Apostille is required on the documents.

Setting up a business in EstoniaHow to set up a company with a personal visit?

  1. hat is necessary

    First of all, you need to travel to Tallinn. Due to global lockdowns COVID restrictions, this might not be easy to accomplish. In case you are lucky enough to travel to this beatiful country, pur representative shall guide you during the incorporation process.

  2. Pros and Cons

    Pros the fastest way to set up a company; you will see the process with your own eyes; a good excuse to travel to Estonia as a tourist.

    Cons: you have to get off the couch.

  3. Pifalls

    If you are OK with the cold Baltic climate and lack of sun in the sky, you risk falling in love with Estonia and moving to live there permanently.

How to set up a company in EstoniaHow long will it take to incorporate in Estonia?

If you use the E-residency card, the company will be incorporated withtin 1-2 business days.

If you use the POA, the company will be set up within 5-7 business days from the moment of delivery of the POA to Estonia.

Incorporating a firm in Estonia by personally visiting the country will only take several days.

How much does it cost to incorporate a company in Estonia

The cost of setting up a firm in Estonia starts from 800 EUR depending on the actual amount of services you require.

The final price depends on:

  1. whether you require translation of Articles of Association from Estonian into English by a sworn translator;
  2. whether you require Apostille on documents (Extract from the Registry and Articles);
  3. whether you require obtaining a VAT number;
  4. the procedure of setting up a company (by POA or E-residency card).

If you want to know the exact cost of setting up a firm in Estonia in you particular case just fill in the feedback form on our website.

Cost of setting up a company in EstoniaRequirements to set up a company in Estonia

To start the incorporation procedure of the Estonian firm you will have to provide us with the following:

  • Several name options for the future company. This will allow us to do a name check in the Registry and tell you if the relevant names are available;
  • Scanned copy of the passport of each director and shareholder;
  • E-mail of the company;
  • Personal E-mail of each director and shareholder;
  • Contact phone number;
  • Description of business;
  • Amount of the share capital. Minimum amount - 2500 EUR;
  • Actual address of each director and shareholder;
  • Scan or photo of the electronic resident card.

Based on the data and documents received, we will prepare everything you need to register a company and you will only have to take two steps: follow the link in the letter, and then - sign the document using the electronic resident card.

Language of the documents

Estonia uses English and Estonian languages for corporate documents.

Articles of Association of your Estonian company will be in Estonian. If necessary, it can be translated into English or other language by a sworn translator.

Extract from the Registry can be either in English, or Estonian. The extract can be obtained online at the Register's website.

Estonian Registry of CompaniesRegistry of Companies in Estonia

The Registry contains publicly available information regarding Estonian companies, icluding information аbout:

  • shareholders;
  • board members;
  • beneficial owners;
  • financial accounts.

You can get an extract from the companies' Registry online for a small fee.

Company administration in Estonia

You will be required to pay for the legal address and contact person in Estonia if such services are provided to you.

The contact person is required whenever an Estonian company is incorporated by a foreigner.

Accounting and bookkeeping services in Estonia

The Estonian company shall submit the yearly financial accounts not later than 6 months after the end of the accounting period, i.e. by 30 June.

The first accounting period may be up to 18 months. For example, of a company is incorporated after 30 June 2019, its accounting period starts from the date of registration and is due by 31 December 2020. And the accounts should be submitted by 30 June 2021.

Accounting services in EstoniaWhat type of business you should make in Estonia

  • IT-business;
  • sale of goods (export and import). And it is not at all necessary that the goods pass through the customs zone of Estonia.;
  • Provision of various types of services (for example, our legal business is registered in Estonia).

For a number of reasons, we do not recommend Estonia as a jurisdiction for holding companies. There are better options for such cases.

Benefits of doing business in Estonia

You can spend a lot of time listing the advantages of Estonia (which we did at the very beginning of this page), but it will be easier to say what you will definitely not encounter when working through an Estonian company:

  • absolutely no outrage on the part of the tax service;
  • no one will be able to "squeeze" your business, because in Estonia the right to private property is respected and protected by a strong and independent judicial branch;
  • you will not have a headache about constant changes in legislation, including tax legislation. If something changes in Estonia, then, as a rule, only in favor of the taxpayer.

Taxation of business

The company does not pay corporate income tax at a rate of 20% (it is also called tax on distributed profits or tax on withdrawn capital) until it distributes profits in favor of shareholders.

Reinvested profits are not taxed.

VAT rate is 20%.

From January 1, 2018, Estonia has introduced a number of changes, including:

  • lowering the tax rate on withdrawn capital to 14% if the company distributes profits for three consecutive years;
  • raising the threshold for compulsory registration as a VAT payer from 16 thousand Euros to 40 thousand Euros.

Taxes in EstoniaResidence permit in Estonia when opening a company

Firstly, let's figure out on what grounds you can obtain a residence permit in Estonia:

  • family reunion;
  • becoming a student;
  • marriage with an Estonian citizen;
  • on the basis of an employment contract;
  • based on business activities.

We are not really interested in the first three reasons for obtaining a residence permit in Estonia, and we want to focus your attention on the last two.

Residence permit in Estonia under an employment contract

One of the frequently asked questions we hear from clients sounds like this: "Can I get a residence permit in Estonia after I become an E-resident and register a company in Estonia?"

Our answer to these kinds of questions: "it's not so simple".

The fact is that in order to apply for a residence permit in Estonia on the basis of an employment contract, the employee's monthly salary for the last five months must be at least 1407 Euro gross (that is, before taxes and other mandatory payments).

Accordingly, in order to follow this path, you need to be patient and have a certain amount of money in order to pay your own salary and at the same time pay taxes in Estonia from an official employment.

Moreover, your company must have a salary fund and be registered in Estonia as an employer, which is not always easy for a company registered by a non-resident.

Residence permit in Estonia for entrepreneurs

There are two options

  1. invest at least EUR 16,000 in Estonian business as an individual entrepreneur;
  2. invest at least EUR 65,000 in your own company as a shareholder or director of an Estonian company.

Bank account in Estonian bankHow to open account in Estonian bank

This is a tough nut, to be honest.

Until 2016, opening an account in Estonia was in fact no different from, for example, opening an account in Latvia. The account was opened quickly and easily, and the compliance did not ask too many questions.

Unfortunately, these days are long gone, and after Estonian banks appeared in several scandals related to money laundering by negligent clients of Estonian banks, the Estonian financial regulator actually restricted Estonian banks from working with non-residents if they did not have sufficient economic ties with Estonia. The same also applied to Estonian companies owned by non-residents.

In 2021, in order to open an account in an Estonian bank, it is necessary to organize a set of measures called substance:

  • rent an office in Estonia;
  • hire a local director and staff for an official salary;
  • find suitable contractors in Estonia;
  • draw up a competent business plan, which, among other things, would provide for the economic presence of the company specifically in Estonia;
  • get an E-resident card for the founder of the company;
  • perform any other actions that would confirm the close relationship of the company with Estonia.

It is important to understand that even such a set of measures is not a 100% guarantee that an Estonian bank will accept you as a client.

Where to open an account for an Estonian company

FAQ regarding EstoniaFAQ regarding Estonia

❓What documents will I receive after registering in Estonia?

Charter; extract from the register of companies.

?How to withdraw money from an Estonian company?

By distributing dividends to a shareholder; by paying a salary to the director.

✍Can I get a VAT number for an Estonian company?

Yes, you can. In some cases, it is even mandatory.

?How to get rid of an Estonian company if it is no longer needed?

By dissolution. Alternatively, the company can be sold to another person.

?How often do you need to file financial accounts for an Estonian company?

Once a month if the company has a VAT number. Once a year if the company does not have a VAT number.

?What primary documents does an accountant need to draw up and file the accounts?

Account statements; contracts; invoices.

?Is it possible not to pay the salary to the director of an Estonian company?

Sure.

?Can I Apostille documents in Estonia

Yep, no problem. Estonia is a party to the Hague Treaty.
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