How to set up a company in Estonia? Is it a good idea?
Cost optimisation in a company is a basic challenge that every entrepreneur must face sooner rather than later. One of the best and most popular solutions is simply to set up a company in a country where the costs of managing a business are low. Most often, foreign entrepreneurs set up companies in Malta or Cyprus. However, it is worth knowing that among the Baltic countries there is one country that provides many simplifications for entrepreneurs. How to set up a company in Estonia? Is it worth doing that at all?
Who can set up a company in Estonia?
Estonia is one of the many countries that joined the European Union in 2004. For this reason, any citizen of the European Community may set up a business there. Generally, the only requirement in this case is to provide the address where the organisation’s headquarters will be located.
How much does a virtual office in Estonia cost?
A good method to solve this problem is to sign a long-term lease for a virtual address in Estonia. It is a system that you can find in many countries around the world, mainly due to the fact that it makes it possible to reduce the cost of doing business regardless of your home country. How much does a virtual office in Estonia cost? Prices start from EUR 15.00 per month. It is worth looking for a location in a prestigious place, which will further authenticate the new Estonian company in the eyes of future contractors.
What are the forms of running a business in Estonia?
The legal form of the company in Estonia remains a separate issue. As in many other European countries, you have the choice of either one type of company or a business carried out by a natural person (so-called ordinary business, abbreviated as “FIE”). As for partnerships there are five legal options to choose from:
1. Aktsiaselts (AS) – a form of a joint-stock company. At least one shareholder is required and the share capital cannot be lower than EUR 25,000. From the point of view of running a foreign company in Estonia, in the case of AS companies, the limitation is the requirement of functioning of the management board, of which half of its members must have an Estonian residence address.
2. Osaühing (OÜ) – this type of partnership is a limited liability company. There must be at least 1 shareholder and the share capital cannot be below EUR 2,500. An interesting fact, however, is that if a company does not need share capital for operations (e.g. with some type of services), it does not have to evidence it.
3. Täisühing (TU) – a general partnership, whose establishment requires a minimum of 2 shareholders who are equally responsible with their property for the company’s operations.
4. Usaldusühing (UÜ) – a limited partnership. Its establishment requires at least 2 shareholders who specify the amount of share capital in the articles of association. How is the property liability distributed in such a company? One of the shareholders is responsible for its activities without any restrictions, while the other is only responsible for the limited amount referred to in the articles of association.
5. Tulundusühistu (TU / UÜ) – similar to a civil law partnership. Its establishment requires a minimum of 2 shareholders who must contribute a share capital higher than EUR 2,500. A company management board is also required, which can make decisions as a result of a voting procedure.
How to set up a company in Estonia?
The entire procedure for setting up a business in Estonia will vary depending on the form of doing business. The most commonly assumed form is ordinary business activity (FIE), but this regularity applies mainly to Estonians. It is mainly due to the fact that the whole procedure is very simple, and you can fulfil all the formal aspects in person or online. Before you can do this, you must have the following things ready:
• address at which business will be conducted;
• the name of the company, which consists of name and trade name or brand name, which will distinguish your business from the competition;
• company bank account.
You will need an electronic signature to set up a business in Estonia via the Internet. You will receive it on condition that you have previously acquired e-residence. To obtain electronic access to the Commercial Register, you must have a special card that you can apply for online. It is received after approximately 45 days. Alternatively, you can go to a notary public who will assist you with all contacts with Estonian authorities. There is also a third way, which is based on using the services of a licensed law firm, supporting the establishment of a company in Estonia.
How to set up a company in Estonia?
Foreigners, most often set up various types of companies. The road to establishing a company in Estonia will vary slightly depending on which form you choose. However, you must remember a fundamental issue and that is management. Theoretically, half of its composition must permanently reside in this Baltic country, but it can be bypassed in some way. Members of the board may be entirely foreigners, but the company in this case must have a contract with a licensed company that deals with all contacts with the authorities. The “Contact Person” institution is created, which allows lifting the restriction on the address of permanent residence of members of the management body.
Interestingly, establishing a company in Estonia is also possible in several ways and in no case do you have to visit any offices in person. The fastest way is to fulfil all formalities via the Internet, if you have an e-resident card. You can also use the help of a specialised law firm, which will undergo the entire procedure on your behalf. The only thing you need to do in this case is to sign a notary power of attorney in the presence of a notary public, as well as ensure its sworn translation into English or directly into Estonian. The third method is a personal trip to Estonia and finding a notary who will prepare a notarial deed. Then, such a document needs to be signed. That’s all – you formally become the owner of a company in Estonia from the moment you sign documents.
How much does it cost to set up a business in Estonia and how long does it take?
Setting up a company in Estonia alone costs EUR 13.00. You need to pay an additional EUR 12.75 if you decide to register your company through a notary public. However, if the notary public’s duty is also to prepare all the documents, you will need to pay additionally EUR 18.20 plus VAT.
You must also include the costs of notary’s labour if you register any form of company. In addition, add:
1. For aktsiaselts (AS) – EUR 140.00;
2. For osaühing (OÜ) – EUR 145.00;
3. For täisühing (TU) and usaldusühing (UÜ) – EUR 12.78
4. For tulundusühistu (TU / UÜ) – EUR 140.60.
Establishing a company in Estonia takes from 1 to 3 business days. It doesn’t matter what form of business you decide on. Unless you do not have an e-resident card yet, you have to be prepared for an additional 45 days required for obtaining it.
How does income tax work in Estonia?
It is worth knowing that the Estonian income tax system is completely different from what you are probably used to. It was designed to attract as many investors as possible, which, given the size and population of this country, is quite understandable. The nominal rate of income tax is 20% and it is collected only at the time of distribution of income, and not with its generation.
Although it sounds mysterious, the system is extremely simple. The main point is that the obligation to pay CIT does not arise when income is earned. So, as long as the funds are held in the company and allocated for its development, you don’t have to pay CIT. When does such an obligation arise? There are basically three circumstances:
1. Dividend payment to shareholders (the so-called moment of income distribution).
2. Purchase of services and products that involve representing the company.
3. Expenses that are in no way related to the business of the company.
What are the insurance premiums in Estonia?
The Estonian authorities also approached the issue of social security and health insurance contributions in an interesting way. The rate is exactly 33% of the income received. However, if the income does not exceed EUR 390 per month, then there is no obligation to pay the premium.
What’s more, in the case of companies, it is interesting that board members do not have to work on the basis of an employment contract. Therefore, they carry out their activities by appointment and, as a result, they also do not have to pay any social and health insurance contributions. This is particularly useful when the company operates in several different countries, because it creates the opportunity to incur employee costs in a country that is distinguished by the most favourable conditions.
A company in Estonia – is it worth it?
The whole system of business conditions in Estonia is tempting to investors. It is not a tax haven, but system solutions are very innovative when compared to other countries in Europe. For this reason, large technology companies, such as Skype Technologies, have their headquarters there.
However, it is worth realizing one key fact: establishing a company in Estonia is not always profitable. It all depends on what you want to achieve this way. Certainly it is a country that is not afraid of modern technologies and therefore contact with the authorities has undergone a thorough digital transformation. As an entrepreneur, you will not have to personally walk around offices of various institutions, because you will be able to handle all the formal aspects online. Business conditions are therefore very attractive, even if the tax rates are not as low as in typical tax havens.