Estonia is known in Europe as a place where you can easily start and do business, keep it running from remote sites using developed IT and banking infrastructures, incur low administration costs compared to other EU countries and enjoy tax reliefs on corporate income.
Take a brief look how to start business in Estonia and what regulation might be applicable:
- You can establish a business in the forms commonly adopted in EU countries from self-employed entrepreneurs to public joint stock companies. The most usual form is Limited Liability Company (LLC or OÜ in Estonian).
- The name of the company should be differentiable from the ones already registered in Estonia or protected by intellectual property rights in EU.
- The minimal share capital for Limited Liability Company is EUR 2,500, however it can be established without instant contribution to the capital. The company with unpaid share capital may not pay out dividends and the owners are liable for creditor’s claims in the amount of share capital.
- The application for registration of company in Estonia and Articles of Association should be notarised in Estonia or in country where the owners are located.
- LLC should appoint at least one member to the Management Board, who can be non-resident of Estonia or EU. The name of contact person and address in Estonia should be submitted to the Commercial Register while establishing company, in case there are no Management Board member who is Estonian resident.
- The share capital can be paid in funds or contribution in kind.
- Company registration will take up to 5 working days, but usually Commercial Register sends decision within couple working days.
- To open a bank account in Estonia takes about one hour, but the representative of a company should visit bank office. Internet bank access and bank cards can be ordered while opening the bank account. Multicurrency bank accounts allows company to make international settlements in all common currencies without converting to euros.
- The company may have to obtain specific licences, if it plans to do business in regulated fields of activity (financial services, wholesale of specific goods and retail in Estonia, accommodation, custom’s warehouses, etc.)
- There are no currency control or currency restrictions in Estonia. However the rules for preventing the money laundry should be strictly followed while submitting and receiving payments to and from foreign countries.
- Because the most government services in Estonia are provided through internet (for example Commercial Register, Tax and Custom Authority, Land Register, Vehicles Register) it’s necessary to enter into an agreement for using such services just after registration of company.
- All businesses are required to keep accounting records and legal entities have to submit annual report 6 months after the end of financial year. The financial year starting and ending dates are stated by company in the Article of Association and can be changed when necessary.
- The company have to follow labour safety, technical and environmental rules while operating in particular industry or speciality.
- The management board members and employed specialists from other countries can apply for residence and/ or job permits in Estonia, if they need to stay more days than it allowed based on visas.
The Estonian tax system is quite simple compared to nearby countries and have advantages for establishment of holdings and entities involved in international business.
- No income tax should be calculated and paid on corporate profit until the retained earnings are distributed to owners in the form of dividends or other kind of pay-outs.
- No additional taxes on dividends would be withhold from non-residents.
- No taxes on capital gains for Estonian entities. Non-resident owners of Estonian entity are liable for income tax only in case, when more than 50% of company assets comprise real estate in Estonia and non-resident owns more than 10% of shares in this company.
- The dividend income received from subsidiaries in EU countries, Norway, Switzerland and Lichtenstein will be excluded from taxable amount on distribution of dividends to owners of Estonian holding.
- The withholding taxes deducted in other countries from income received abroad can be deducted from income tax liabilities, when the corresponding amount of income will be distributed to owners of Estonian company.
- No extra tax obligation will arise from payroll paid to non-residents in Estonia for assignments performed outside of Estonia.
- The taxation regime for corporate income is very liberal and stimulating to reinvest retained earnings, whereas the withdrawing of funds or other forms of assets transferring out of business might be taxed by income tax or even additionally taxed by social insurance on net payments plus income tax. Because of the above mentioned, the existing accounting documentation and expenses receipts that proves pay-outs are related to business activities are essential factor for using tax reliefs stated in Estonian tax legislation.
- The VAT regulation is in compliance with EU VAT Directive, without any significant deviation. The company is required to register as VAT payer if the taxable turnover from beginning of year exceeds EUR 16,000 or can apply voluntary for VAT payer status, if the forecasted turnover will be over this limit during the calendar year.
Estonian tax rates and objects of taxation are published yearly by Crowe Horwath International in Europe, Middle East & Africa Tax Facts