Company formation in Estonia - have you heard about the benefits of doing business in Estonia? Perhaps some of your colleagues, friends or business partners have already registered a company in Estonia?
Anyway, we will share with you everything that we know about this beautiful country and about the horizons which will open before you as soon as you decide to set up a company in Estonia, and we will also give you step-by-step instruction on how to start doing business in Estonia.
Firstly, we will talk about the limited liability company (similar to LLC in the USA or LTD in the UK. In Estonian its called ОÜ – osaühing.
In our opinion, this country is a top-tier jurisdictions with a friendly environment for:
- company formation in Estonia;
- doing business;
- administration (tax and corporate);
- interaction with public authorities;
- and even liquidation of a company in Estonia.
According to the Doing Business chart, Estonia is ranked 18th (out of 190) in the "Ease of Doing Business", and 12th in the "Taxation" category. Well deserved, Estonia.
Company formation in Estonia - key benefits
- It is relatively cheap. If we compare the cost of company formation and maintainance in Estonia with any other European jurisdiction, then Estonia simply has no competitors;
- Remote incorporation procedure. You can form a company in Estonia without travelling to Tallinn. You can get an E-residency card or prepare a power of attorney and send it by courier service to the Republic of Estonia;
- Estonia has a special tax system. The company does not pay any corporate income tax in case it does not distribute dividends to shareholders;
- The company is really easy to administrate. We know this from our own experience;
- No need to hire a local Director and pay any salary. There is no such requirement in Estonian legislation;
- No problems obtaining a VAT number;
- You don't have to pay the share capital immediately during incorporation;
- No problems communicating with the accountant. Estonians know English and some other languages;
- No "offshore" reputation. A company formed in Estonia sounds legit. This is not some offshore island in the middle of the ocean;
- 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;
- Companies formed in Estonia still have opportunities to open accounts not only in payment systems (PSP's, EMI's), but also in classic banks in Europe;
- An Estonian company can give you the opportunity to work with PayPal;
- Under certain conditions, you can get a residence permit in Estonia;
- A wide range of businesses are perfectly suitable for an Estonian company - product IT companies, outsource IT companies, SAAS-services, export / import of goods and many others;
- Estonian tax authorities are aimed at helping law-abiding taxpayers to administer your taxes properly. The punitive function is used only in extreme cases of obvious abuse by the taxpayer.
Company in Estonia - structure
Board member (Director)
Company established in Estonia should have at least one board member.
There are no requirments regarding residency of the board member.
Only an individual person can be a board member. Corporate directors (companies) are not allowed.
There is no requirement to pay salary to the director. 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 or profitable for him - to pay salary to himself or to direct this money for the needs of business development.
Founder of the Estonian company
At least one person can form a company in Estonia.
No requirments with regards to residency.
The founder can be an individual or a legal person.
Some of our clients complained that they were required to appoint a local citizen / resident as one of the directors of the company when forming a company overseas. We refer to the countries like Finland, Singapore, or even Ukraine. As for Estonian companies, a director and also the shareholder can be a citizen and resident of any country. This opportunity appeared in Estonia in 2011 and has significantly improved the business environment for foreigners.
Contact person in Estonia
If 50% of the board members are not Estonian residents, the company must have a contact person in Estonia. We provide this service for you.
Nominee 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 the 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 from 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.
The minimum share capital of Estonian company should be 2500 EUR. Starting from 1 February 2023 onwards the minimum share capital is 0,01 EUR in case of a single shareholder in the company.
The minimum par value of each share is 0,01 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).
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?
The answer is clear: just do it yourself ツ
However, if you want to do everything correctly from the first try - you better call a lawyer who deals with such matters on a daily basis.
And of course, always ask for a legal advise prior to setting up any company in Estonia. There may be cases when incorporating abroad isn't always the best solution. When consulting the client, we always suggest a better solution, if any exists. Even if this results in certain loss of profit for our Firm.
So, there are three options of setting up a company in Estonia.
How to set up a company in Estonia using the Internet?
- What is necessary: The most common way to form a company 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 company remotely, without issuing any additional documents or POA's.
- Pros and ConsPros: no need to get off the couch; the cheapest option if compared to the others; the E-residency card will allow you to manage the company in the most convenient way;Cons: the E-residency takes one month to be issued.
- 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-residency card.
How to set up a company in Estonia by Power of Attorney?
- 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 where it is notarised. Such option is more expenisve if compared to company formation using the E-residency card;
- Pros and Const
Pros: the speed;
Cons: you have to pay extra for issuing the POA and courier dispatch to Tallinn; the procedure of incorporation itself is more expensive; whenever you need to do anything 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.
- Pitfalls: The POA should be carefully revised prior to dispatching to Estonia. The slightest mistake may lead to being rejected in incorporating a company in Estonia. Also you should check if Apostille is required on the documents.
How to set up a company by personal visit?
- What is necessary: First of all, you need to travel to Tallinn. In case you are lucky enough to travel to this beatiful country, our representative shall guide you during the incorporation process.
- Pros and Cons
Pros: the fastest way to set up a company in Estonia; 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.
- 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 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 1-2 weeks from the moment of delivery of the POA to Estonia.
Incorporating a firm in Estonia by personal visit will only take several days. However, a meeting with the notary should be scheduled beforehand.
How much does it cost to incorporate a company in Estonia
The cost of setting up a firm in Estonia starts from 900 EUR depending on the actual amount of services you require.
The final price depends on:
- whether you require translation of Articles of Association from Estonian into English by a sworn translator;
- whether you require Apostille on documents (Extract from the Registry and Articles);
- whether you require obtaining a VAT number;
- 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.
Requirements 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 of 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;
- Actual address of each director and shareholder;
- Scan or photo of the E-residency 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 E-residency 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.
Registry of Companies in Estonia
The Registry contains publicly available information regarding Estonian companies, icluding information аbout:
- board members;
- beneficial owners;
- financial accounts;
- VAT number and validity.
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 on an annual basis.
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 2020, its accounting period starts from the date of registration and is due by 31 December 2021. And the accounts should be submitted by 30 June 2022.
Types of business typical for Estonia
- 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, legal business, consultancy services).
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 quite some 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 and other public authorities;
- no one will be able to steal 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 any 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, corporate income tax in Estonia
The company does not pay corporate income tax (which is 20% and also called tax on distributed profits) 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 distributed profit to 14% if the company distributes dividends for three consecutive years in a row;
- raising the threshold for compulsory registration as a VAT payer from 16 thousand Euros to 40 thousand Euros.
Residence 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.
Lets focus on the last two items as the most relevant.
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 that 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 EUR 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.
Residence permit in Estonia for entrepreneurs
There are two options
- invest at least 16,000 EUR in Estonian business as an individual entrepreneur;
- invest at least 65,000 EUR in your own company as a shareholder or director of an Estonian company.
How to open account in Estonian bank
This is close to impossible nowadays if you are not a resident of Estonia. That is the actual resident who lives in Estonia, not an E-resident.
Before 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 (substance). The same also applied to Estonian companies owned by non-residents.
In 2022, 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 some other staff;
- 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-residency 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 the Estonian bank will accept you as a client.
What documents will I receive upon incorporation?
Articles of Association in Estonian and Extract from the Registry in English. These documents can be apostilled if necessary.
How to withdraw funds from the company?
By distibuting dividends to the shareholder or by paying salaray to the director
Is it possible to register for VAT in Estonia?
Sure! In some cases this is mandatory
How to get rid of the company?
By way of dissolution. Or by selling the shares in the company to a different person.