How to Open Company in Estonia with e-Residency [Full Guide]

How to Open Company in Estonia with e-Residency [Full Guide]

e-Residency
7 November 2022

If you're a digital nomad, you're in the right place if you are considering setting up an Estonian company!

The world's fastest-growing corporations began operating in Estonia, a nation in northern Europe.

You can launch and run digital businesses using the country's e-Residency program.

Self-employed individuals can run well-established start-ups, as do freelancers, business owners, digital nomads, and entrepreneurs.

It's easier than ever to start a company in Estonia and take advantage of all the benefits.

You can effectively start an Estonian company by following the advice in this article. With Estonia's strong digital infrastructure, you can do everything online.

 

How to Register and Open a Company in Estonia

Estonia is widely regarded as the world's most advanced digital society. The foundation of Estonia's corporate success is excellent digital infrastructure and no red tape.

With the e-Residency program, entrepreneurs can live anywhere in the world — it's easy to do business, and it's tax-exempt!

The digital infrastructure in Estonia is so refined that it is already self-sufficient.

Including the accounting package as part of the company registration process is always more cost-effective.

There are no limits to becoming an e-Resident or establishing a corporation in Estonia based on your country of citizenship or residency (unless you have an Estonian residence permit!).

Here's how to get started:

Step 1: Apply Online to Become a Resident of Estonia

It is easy to complete the entire process online. First, complete the e-Residents application and get the ID card and reader before starting an Estonian company.

When the digital ID card is ready, you can pick it up at the closest Estonian embassy or a specified collection point.

For a one-time price of €100, you can apply for an e-Residency and have full access to the most cutting-edge digital infrastructure in the world.

The Estonian Police and Border Guard Board evaluates a person's previous compliance with the law and criminal record when they apply for e-Residency.

It's crucial to be upfront about your justification and goals because they have the sole discretion to approve or reject your application.

 

Step 2: Register the Legal Address and Get a Contact Person

The local authorities require a legal address and a contact person inside the nation where the business can be legitimately registered, even in e-Estonia.

You can contact a business service provider if you do not already have a legal address in Estonia.

The Commercial Code mandates that your company have a physical address in Estonia and a specially licensed individual as a designated contact person.

 

Step 3: Establish a Bank Account Online

To manage the business, you will need a bank account. You can therefore choose a digital bank.

If you want to open an account at a physical branch, you must do so there. It would be best if you determined which approach is most practical.

 

Step 4: Work With a Provider of e-Residency Services

You can run your virtual business from Estonia while traveling, working from home, or in a neighboring location.

Important correspondence with the Estonian government, such as the tax office, needs a business address.

Yet, one benefit of having a virtual office in Estonia is that everything is done online, so you don't need to hire someone to open your post!

 

Step 5: Enroll the Business in the e-Business Register

For your e-Resident business, company incorporation is simple.

In its capacity as your designated representative in-country, your provider will handle everything.

This action will also include your new e-Residency company in the burgeoning market of foreign businesses and entrepreneurs, offering you quick visibility and a helpful network.

 

Step 6: Your e-Resident Estonian Company Should Have a Name

An "osaühing" is a private limited company in Estonia.

It is shortened to OÜ at the end of your company's legal name in the same way a limited liability company is written as Ltd. in the UK or LLC in the US.

It is required by Estonian legislation that your company name be spelled in Latin, without any other characters or symbols.

You should also see whether any other trademarks are comparable across European countries because an Estonian company is an EU company.

 

How Much Does It Cost to Open a Company in Estonia?

Entrepreneurs are drawn to the location-independent lifestyle enabled by e-Residency, the low-cost administration, the simplicity of doing business, and direct taxation.

The state charge in Estonia to register a company is €265 or $262.23.

The total cost is €300 if you seek assistance from reputable service providers like 1Office (including the state fee). The service fees are greater for non-residents.

The process requires the power of attorney representation, a scheduled appointment with the notary, and the creation of some additional documents.

This service costs €750 (including the state fee).

 

How Long Does It Take to Register a Company in Estonia?

The company registration process usually takes one business day. In Estonia, forming a business is quick and simple.

Filling out the form online on the company registration portal takes roughly 15 minutes.

It is fast if you have an e-Residency card and have considered all the information you need for company establishment (such as company name, shareholders, share capital, etc.).

In one working day, the application will be transferred to the Commercial Register, where it will be recorded.

The application part takes a little longer if you want to handle everything and fill out the form on the Business Register website. Still, the processing periods will remain the same.

 

Business Formats in Estonia

The Commercial Code lists six different types of enterprises in Estonia:

1) Limited Liability Partnership or Private Limited Company (OÜ)

In Estonia, a Limited Liability Partnership, or OÜ, is the most typical type of company. Owners of an e-Residency card can register and manage private limited companies online.

An LLP's advantages include quick and easy online registration and a minimum share capital requirement (2,500 EUR).

Estonian firms are low-cost to establish and have access to a wide choice of payment processing options in the European Economic Area.

The state fee will be 265 EUR when established electronically and quickly.

The Estonian government fee is then acknowledged as a commercial expense for forming a private limited company.

Private limited companies must electronically file annual reports with financial statements to the commercial registry and tax returns to the Estonian Tax and Customs Board.

 

2) Public Limited Company (AS)

A Public Limited Company (Aktsiaselts) must have a multi-level management structure and meet the strictest requirements for authorized capital (at least 25,000 EUR).

If the planned annual revenue exceeds 40,000 EUR, the public limited company must be registered with the Tax and Customs Board.

Having a public limited company has benefits.

  • Possibility of the company being listed on a stock exchange
  • The capacity to recruit a variety of shareholders
  • Suitable for carrying out major projects
  • The responsibilities of a PLC are not individually responsible to shareholders

 

3) General Partnership (TÜ)

A general partnership must have two or more partners who are unlimitedly jointly and severally liable for the company's debts and conduct business under a common business name.

An association agreement between partners is the foundation for a general partnership's operations.

Unless otherwise stated in the agreement, there is no minimum share capital requirement, and profits are disbursed to shareholders according to their portion.

There is no need to register the association agreement with the Commercial Register or have it notarized.

 

4) Limited Partnership (UÜ)

A minimum of one general shareholder and one limited shareholder using a common commercial name must be present for an Estonian Limited Partnership to exist.

One of them is a limited shareholder with liability limited to the amount of his contribution.

At least one of them is the general partner with unlimited liability for the partnership's debts.

The limited partner's liability is restricted to the amount of their investment, while the general partner will be completely accountable for the company's legal duties.

 

5) Commercial Association (Tulundusühistu)

A commercial association (Tulundusühistu) is an organization whose board members engage in the following actions to support and advance their members' financial interests:

  • As buyers or users of other goods
  • On the part of suppliers
  • Via labor assistance
  • Via the use of additional services
  • Another equivalent method

Only two people can form a commercial association (legal or physical). The benefit of a commercial association is that its members are not personally liable for the association's debts.

By the charter, participants may be fully responsible or only to the extent permitted by the charter.

 

6) Sole Proprietor (FIE)

Individual entrepreneurs (IE, Füüsilisest isikust ettevtja or FIE) run small enterprises alone or with their families. The benefits of being a sole proprietor include the following:

  • Easy registration
  • The required minimum amount of capital is not specified
  • Articles of association are not required for individual business owners

It is crucial to remember that an individual entrepreneur is personally liable for all debts incurred while operating a business.

An individual businessperson may halt operations by informing the Commercial Register and providing a time frame.

A sole proprietor undertaking seasonal labor might communicate the start and finish dates of the Sole Proprietor's business activities.

 

Things to Consider Before Opening a Bank Account

e-Residents can open a business banking account with an Estonian bank, such as LHV, or a bank in another EU/EEA nation or open a business account with fintech companies.

The option you select is determined by your physical location, business needs, and previous experience with payment institution services.

Creating an account is now more difficult and expensive than before due to requirements resulting from various regulations.

Your provider uses their expertise and best efforts to accomplish your goals. Nevertheless, the bank has the last say, and that decision is based on factors beyond your control.

The bank will look for data confirming the history, source of assets, and prior transactions of non-residential clients due to their tightened client acceptance requirements.

The application must demonstrate in detail how the business activity, owner, or management is related to Estonia as a condition of approval.

The applicant's company must have direct ties to Estonia. Additionally, an Estonian company may open a bank account with a foreign company.

 

What You Should Know About EU Brands and Trademarks

Although an existing company with a name similar to yours won't prevent you from using it, it's always a good idea to be aware of it beforehand.

It will help you avoid potential marketing misunderstandings.

It would help if you also thought about how search engine visibility and social media accessibility may affect how you launch your company in Estonia and how people can find it.

You can simultaneously check your chosen company name against other EU trademarks and the Estonian company register.

 

Select the Shareholders and Board Members of the Estonian Company

A management board will be necessary for your private limited company. Although, it can also just be you, which sounds wonderful for some people!

Creating a company in Estonia is a significant accomplishment, after all.

If more than half of the Board of Directors are not Estonian citizens, the corporation must nominate a local representative with a local address.

Many businesses founded by e-Residents have the e-Resident as an employee and management board member.

That's because the program is well-liked among independent freelancers and digital nomads, especially among foreigners or people who desire a location-independent lifestyle.

Some nations make this more difficult by mandating that at least one of the directors must reside locally, while Estonia does not have such a rule.

It's one of the BIGGEST benefits of being an electronic resident of Estonia.

 

What Distinguishes a Board Director From a Shareholder?

If you run a firm as a sole proprietor, you will wear both of these hats, but it is crucial to recognize their differences to practice effective governance.

You own the company as a shareholder, or possibly THE shareholder.

In other words, you own the shares you purchase and the company's assets and earnings. The liabilities are also yours.

For example, if you have an outside investment, your e-Resident business may have more than one owner, but each owner must be an e-Resident in their own right.

Making operational choices for the company falls under the executive competency of the board director function.

Every e-Resident business will require at least one board member or director, though you may have more as your company expands.

The shareholders, or owners, are the ones who theoretically choose the director, and the director is answerable to them.

Once your company expands, this distinction will become important because neither a shareholder nor a director may be a shareholder.

 

Paying the Share Capital for Your e-Resident Estonian Company

The minimal share capital for forming a limited corporation is €2,500.

If the share capital is less than €25,000, you may choose to defer the payment for as long as you like if you're not ready to pay that while the business is still in the beginning stages.

One way the Estonian business environment promotes entrepreneurship is by allowing you to test ideas with less risk and validate your business concept before making a larger investment.

It's a crucial step in the company formation of your e-Resident Estonian company.

You must pay the share capital before issuing dividends, and you remain personally liable for your company up to the unpaid share capital amount.

In Estonia, paying the share capital is a simple process when the time comes.

 

e-Residency Alternative: The Power of Attorney

A power of attorney (PoA) allows the person who holds it to carry out transactions on your behalf, including signing documents at a local notary and registering a business.

When the legal representative of a legal person seeking to finish the transaction cannot participate directly, PoAs are used to complete legal transactions through a representative.

Suppose a PoA issued in another nation is certified or certified by a foreign official and translated into Estonian or English.

In that case, it may be utilized for transactions that call for a notarized form.

Your provider is available to help you with the PoA and can walk you through the procedure if you aren't an e-Resident yet or are rushing to start your business.

They may complete your company formation with an Estonian notary once you notarize, legalize, and apostille the PoA in your nation, have it translated, and mail the paperwork.

They provide specialized solutions for complicated incorporation issues and corporate setups.

Additionally, they provide ready-made businesses that they own and may transfer to their clients through PoA.

Once you have all the required paperwork, Incorporate in Estonia can register your business.

They will give you comprehensive advice on formalizing the necessary paperwork and the procedure.

You can set up an Estonian private limited business in one working day due to your experience and network of resources.

Several criteria, including your location and how soon you can get a suitable certified power of attorney, will decide when and how to transfer the firm's management to us.

 

The Benefits of Opening an Estonian Company Online

The decision to establish your company in Estonia has numerous advantages. These are the four most important ones:

1) 100% Online Business Formation and Management

This is the biggest benefit of setting up a shop in Estonia after you've received your e-Residency card — you may launch and run your firm from any global location.

As an e-Resident, you can access internet banking in Estonia and digitally sign contracts and legal documents, conduct secure e-banking, and declare Estonian taxes fully online.

Estonia is routinely ranked as one of the world's most open and ambitious economies.

Efficiency is provided through e-solutions such as digital signatures, electronic tax claims, the e-Business Register, and the availability of public data online.

 

2) 0% Corporate Income Tax on Earnings Retained by the Business

Estonia has a special corporate income tax (CIT) structure that differs from conventional structures.

Reinvested profits made by a business are not immediately subject to corporate income tax in Estonia.

By choosing whether and when to distribute profits, the company's shareholders in Estonia can select when they are paying taxes.

 

3) Existence in the European Single Market

As a member of the European Union, Estonia is present in the biggest global single market.

The removal of trade restrictions and the availability of free travel inside the EU help Member States and their residents economically.

Among other benefits for EU members, a single currency and uniform corporate regulations throughout the Member States facilitate trade and allow Estonian companies to expand.

 

4) Estonia Has a Great Business Environment

Estonia is consistently ranked as one of the world's best business environments by various international indices.

The US-based research group Tax Foundation produced a study in 2021 that rated Estonia as having the greatest tax regime in the OECD for the eighth consecutive year.

If these advantages have persuaded you to start your digital business by incorporating Estonia, your next step is to select the best organizational form.

 

Additional Business Tips & Reminders for Estonian e-Residents

Additional advice and reminders are provided below for Estonian e-Residents:

#1 Does Running an e-Residency Business Require Learning Estonian?

A basic understanding of the local language is usually helpful when conducting business abroad.

Still, an Estonian firm is global because its clients, suppliers, and investors may be found anywhere on the planet.

Some providers offer comprehensive services in English and take care of your incorporation, accounting, taxes, and compliance.

So don't worry — forming a firm using e-Residency doesn't require learning new words.

 

#2 Recognize Personal and Business Tax Residency

Tax evasion is not among the many great reasons to form an e-resident Estonian firm, though!

Since most Estonian e-Residents under this program are tax residents of their own country, you must get tax counsel in the proper jurisdiction about income and corporation tax.

To avoid double taxation, Estonia has negotiated tax treaties with several nations.

Wherever you live and work, you must consult a certified professional for local tax advice.

 

#3 How Are Dividends and Earnings Taxes Paid in Estonia?

The best news is that Estonian taxation is clear and fair regardless of where you pay it.

If you pay tax in Estonia, you keep a 0% rate on profits within your business, and the digital infrastructure makes it simple to know what you owe.

There is NO withholding tax on dividends in Estonia.

 

Frequently Asked Questions (FAQs)

Can a Foreigner Open a Company in Estonia?

Undoubtedly, yes. For international entrepreneurs looking to launch a business, Estonia is ideal.

 

Is e-Residency Mandatory When Starting a Company in Estonia?

No, it is not required. Without an e-Residency, foreigners can still open a business in Estonia. Although the process is a little more difficult, it is still doable.

 

Can I Open a Bank Account With Estonia e-Residency?

Yes, without a doubt. Remember that you will likely need to go to Estonia and meet with the bank in person if you want to open an account with a conventional Estonian bank.

 

Can I Enter Estonia With an e-Residency?

No. The e-Residency status does not allow you to enter Estonia or the EU. You may still need a visa or travel authorization to enter.

 

Is Estonia Good for Business Startups?

Estonia is indeed ideal for business. The little bureaucracy in Estonia makes doing business very simple and advantageous.

Completing the company registration form takes only 15 minutes, 99% of bank transactions are completed online, and submitting tax declarations only takes a few minutes!

 

Is Estonia Good for Freelancers and Digital Nomads?

Definitely, yes! Since working as a freelancer without a company in the EU is practically impossible, an Estonian corporation is an ideal option for independent contractors.

Most of the foreign entrepreneurs in Estonia are digital nomads. They are drawn to Estonian companies because they allow them to be mobile-friendly.

 

Is Estonia a Tax Haven?

No, Estonia is not a tax haven. Although Estonia often sounds like a tax haven due to its 0% business income tax rate on earned and reinvested earnings, the truth is slightly different.

It's more of a shelter for location independence and bureaucracy. These are the primary reasons many foreign business people have chosen to establish a company in Estonia.

 

Is the Estonian e-Residency Worth It?

Since it allows you to construct your firm digitally, Estonian e-Residency is excellent for people who want to run their business remotely or nomadically. It's definitely worth trying!

 

What Are Estonia's Tax Rates?

Estonia has a flat 20% personal income tax rate. The social tax is 33%, and the value-added tax (VAT) is 20%.

In the nation of fiscal residency, there is no tax exemption. The Estonian social tax exemption will not be available to residents of Switzerland or treaty nations.

An individual is considered a tax resident if they spend at least 183 days a year in Estonia.

 

Is an Annual Report Required in Estonia?

Yes. The annual reports in Estonia are required by law to maintain a transparent business environment.

 

Is Monthly Accounting Required in Estonia?

No, not for all businesses. Monthly accounting is required if the firm has an Estonian VAT digit or the company in Estonia pays the personnel.

 

Final Words

A significant decision that requires careful consideration is where to locate your businesses. We hope this article has clarified the situation for you!

In summary, using an e-Residency and the Estonian tax system is unquestionably one of the best ways to launch and operate a business within the EU.

However, the Estonian e-Residency program is still a work in progress. The requirement for a physical card is the largest barrier to this e-Residency from expanding even more quickly.

When you become entirely mobile and no physical cards are needed, it will be much more convenient. It can be one of the greatest solutions overall for operating an internet business.

We hope this post will help digital nomads create a successful e-Residency business!