Company registration in Estonia

Since its independence from the Soviet Union in 1991, Estonia has climbed the economic ladder and established itself as one of the most favorable corporate jurisdictions in Eastern Europe. Relatively low taxation and one of the world’s freest business and trade environments accompanied by a reputation of transparency and integrity make Estonia an attractive jurisdiction for a European business company. Organization for Economic Cooperation and Development (OECD) lists Estonia as one of its leading members due to its competitive tax codes. Estonia offers a corporate tax rate of 20% on distributed profits, which means that taxes are imposed on profits only and not on monthly or annual earnings. This flexibility allows corporations to decide when to pay taxes by deciding the time of profit distribution in the company or alternatively benefit from tax exemption if reinvesting the company’s profits whilst growing the business.

WHY ESTONIA?

WHY NOT?

No taxation on reinvested profits. Income tax is applicable only on distributed profits or profits deemed to be distributed
Digitalized public services
A reduced corporate income tax rate of 14% is applicable for regular dividend distributions.
20% tax on individual income (not applicable in case of distributed dividends already taxed under the corporate income tax)
Property tax is only applicable to land and not to buildings
No property transfer tax
No inheritance, gift or wealth tax
The territorial tax system allows exemptions of taxation on foreign income
10% withholding tax applicable to royalties paid to residents (unless the rate is reduced, or a complete exemption is given under an applicable tax treaty)
10% withholding tax imposed on technical services carried out within Estonia
Residents are taxed on the income earned worldwide while non-residents are taxed on the income earned in the country only
Tax deductions of up to EUR 6,000 depending on the individual’s total qualifying income
EU VAT registration simplifies EU trading (triangular trade)
No import restrictions on goods (some goods may require special importation permission from the relevant authorities)
All custom clearance procedures are done electronically
Three free trade zones where no tax or VAT is charged if goods are in transit and intended for re-export
Double tax treaties with over 50 countries worldwide
No public registry of directors or shareholders
Individuals holding a residence permit in Estonia are allowed to work in the country without the need to acquire an additional employment permit

Relatively high corporate income tax rate of 20%
High labor tax of 39.9 %
20% Capital gains tax
20% VAT
Due to the specifics of the tax regime, dividend distribution should be handled with utmost caution
Due to major financial scandals, Estonian banks and legal entities have a very damaging reputation, which makes bank account opening for an Estonian entity near impossible outside of Estonia, what’s more, any transactions to or from Estonian bank accounts risk being blocked or unaccepted by reputable financial institutions worldwide.
Company documentation and annual reporting is in Estonian language
Domestic market opportunities are limited due to small size of population, lack of high tourism flow and low purchasing capability of local citizens

Estonia is well-known as a frontrunner for e-government solutions and cyber security, hosting high profile internet security centers such as NATO and the IT agency of the European Union. It is also the first country in the world that offers e-residency: a virtual and fully electronic identification process that can provide you with an electronic ID that allows you to digitally manage your Estonian business and legally sign documents electronically within the European Union. The program allows corporations to base and manage their business and finance in the country. An Estonian e-resident has access to the country’s advanced digital infrastructure and can form a company, open accounts in a growing number of European financial institutions, make and accept payments on various online platforms and file taxes electronically. Moreover, a start-up formed through e-residency is taxable under Estonian tax laws.

Estonia is also a very attractive country when it comes to property investment due to the flexibility of its property tax regulations. It is one of the only 3 countries in OECD with a properly defined property tax system. Under this system, only the land is taxable, and no taxes are imposed on the building or structure of the land.

Corporate Features of an Estonian Private Limited Liability Company (Osaühing)

GENERAL	OSAÜHING
Incorporation Time	2 – 5 Business Days
Local Registered Agent Required	No
Local Registered Address Required	Yes
Migration of Domicile Permitted	Yes
SHARE CAPITAL
Minimum Share Capital	EUR 2500 (For certain business activities like insurance and banking higher share capital requirements may be applicable)
Minimum Paid Up	No Minimum if company share capital is less than €25,000. NOTE: A company is not permitted to distribute profits if its share capital is not paid up
Maximum Share Capital	No Maximum
Bearer Shares Allowed	No
SHAREHOLDERS
Minimum number	One
Maximum number	No Maximum
Publicly accessible records	No
Corporate shareholder allowed	Yes
Annual General Meeting Required	Yes
DIRECTORS
Minimum Number	One
Maximum Number	No Maximum
Local required	No but strongly recommended (If more than half of the Board of Directors are not Estonian residents, the company must appoint a local representative)
Publicly accessible records	No
Corporate directorship allowed	No
COMPANY OFFICIALS
Secretary Required	No
Local Secretary Required	No
Other Officials Required	No
COMPANY ACCOUNTS
Requirement to Prepare	Yes
Requirements to File Accounts	Yes
Audit Required	Please see Note* below
OTHER ANNUAL REQUIREMENTS
Government Renewal Fee	No
Annual Return/Report	Yes (Please see Note* below)
Tax Return	Yes
Submission of Economic Substance Report	No

Note* All Estonian companies must submit an annual report in accordance with the Estonian Generally Accepted Accounting Principles (GAAP) or the International Reporting Standards (IFRS) at the Commercial Register within six months after the end of the financial year. If the standard financial year (which starts on 1st January and ends on 31st December) is followed then the last date for annual report submission is 30th June without penalty.

The report should consist of annual accounts and the management report, however the requirements for these reports depend on the size and turnover of the company. For financial reporting purposes, Estonian companies are classified under three categories as follows:

MICRO ENTERPRISE	SMALL ENTERPRISE	MEDIUM SIZE ENTERPRISE
All the Following Criteria is met:	Exceeds the limits of two of the following three criteria:	Exceeds the limits of two of the following criteria:
Total revenue does not exceed EUR 50,000 Total assets do not exceed EUR 175,000 Total liabilities do not exceed total equities One shareholder who is also member of the Board of Directors	Total annual revenue of EUR 1,600,00 Total assets of EUR 800,000 24 employees OR Exceeds the limits of one of the following criteria: Total annual revenue of EUR 4,800,000 Total assets of EUR 2,400,000 72 employees	Total annual revenue of EUR 4,000,000 Total assets of EUR 2,000,000 50 employees OR Exceeds the limits of one of the following criteria: Total annual revenue of EUR 12,000,000 Total assets of EUR 6,000,000 180 employees
Annual Report Requirements:
balance sheet and an income statement	Management Report and full financial statements reviewed by an auditor	Management Report and audited financial statements

For further information on taxation in Estonia and establishing a company in the country, feel free to contact us. Our highly professional team can provide full guidance and can help you set up a corporate business in the country without your presence, assist you with your bank account opening, substance requirements and take on the administration and management of your company. With the help of our trained staff, you will be guided through the whole process and will be guaranteed reliability and honesty.

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