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To start your business in Estonia, you can become an electronic resident. This is a modern and effective way of doing business, all conditions have been created in the state for the rapid development of the company. There is a leading infrastructure for the electronic management of the organization. With its help, you can perform administration competently. Its activities are monitored online. As a result, it will be possible to manage from anywhere in the world. The system of income tax that Estonia imposes on e-residents deserves special attention. They get certain tax advantages if they are interested in investing profits in business development.
Advantages of company formation in Estonia
- A well-established electronic communication system between the State and business entities.
- Estonia offers a simplified legal system for small and medium-sized businesses.
- Estonia has one of the world’s lowest levels of corruption and a stable monetary exchange rate.
- Tax on retained earnings — 0%, so many often believe Estonia is “offshore.”
- This country is not on the blacklist of any country in the world.
- Right to obtain a work visa or residence permit in Estonia.
- In addition to the company, it is possible to open a bank account remotely on the territory of Estonia, provided that there are partners or communication with the country.
Basic features of company formation in Estonia
All information on Estonian companies, including information on shareholders, board members, beneficiaries, and filed financial statements. You can get an extract of the company for a small fee on the register’s website. It is necessary to renew the rent of the registered office annually and the contact person service on the territory of Estonia if it is provided. The service of a contact person in Estonia is needed in cases where non-residents of Estonia establish the company. The Estonian company must submit annual accounts within 6 months after the end of the financial year, i.e., until 30 June of the year following the accounting year. The first reporting period can last up to 18 months.
E-residency + company solution in Estonia
This option is suitable for an organization that primarily provides intangible services or cooperates remotely. The solution works perfectly in the following areas:
- Dropshipping. This category includes companies that will provide services remotely reselling the goods. In this case, they will never see the product and are not owners, although they sell it. The supplier makes the delivery. The services of logistics companies are used for this purpose. The value of products includes value-added tax.
- Advising. The scheme is suitable for companies or individuals who are professionals in a specific field and are willing to assist customers. Consultations are carried out on finance, legal issues, business, and healthcare. The list of areas is not exhaustive.
- Online sales. This includes organizations that sell online services and physical goods through the Internet.
- Creative. This includes all professionals whose professional activity is based on creative thinking. These are designers, artists, architects, writers. The list of professions is not exhaustive.
Residence permit in Estonia at the opening of the company
For a start, let’s see the grounds for obtaining a residence permit in Estonia based on an employment contract and a business basis. The first three grounds for obtaining a residence permit in Estonia are not of much interest to us, and we want to focus your attention on the last two. The fact is that to apply for a residence permit in Estonia based on an employment contract, the employee’s monthly salary for the last five months must be at least EUR 1407 gross (that is, before the deduction of taxes and other mandatory payments).
Accordingly, to follow such a path, it is necessary to have patience and a certain amount of money to pay your own salary and, at the same time, pay taxes in Estonia with an officially employed employee. Moreover, your company must have a salary fund and be registered in Estonia as an employer, which is not always easy for a company registered by a non-resident. There are two options of residence permit Business activity in Estonia which are investment at least EUR 16,000 as an individual entrepreneur in Estonian business and investment at least EUR 65,000 as a shareholder or director of an Estonian company.
Quick company formation in Estonia
You can open a company in Estonia with a virtual legal address in just a few minutes. In Estonia, it is possible to create a company quickly thanks to the virtual office and the contact person service, which is included in this process. The virtual office service is engineered to meet the requirements of electronic residents who want to find an Estonian company online.
In addition, the service is also available to citizens and residents of Estonia who prefer a professional legal address for their company. Thanks to the virtual office, your business receives the actual address in Estonia and some services that potentially need to be performed by your administrative staff in the office. Individuals can get work done at any location while having the company’s address registered in Estonia with high-quality correspondence processing.
All bank cards and legal documents addressed to your company will be sent to you electronically or physically. The Estonian Commercial Code requires electronic residents who are founders of companies to appoint an authorized contact person responsible for receiving official notices.
Registration of virtual office address
Three great methods are available for attaining the virtual office service. The first is to establish a new limited liability company. You need an Estonian personal identification code and a digital identification document to access our client’s personal office and submit applications to the e-business register. If you live outside of Estonia, then a subscription to a virtual office from the company with a contact person service suits you. The annual subscription with a contact person costs 179, or 99€ without a contact person for founders-residents. A 20 per cent tax would also be added under Estonian law. The second method is when there is already an Estonian company formed yet you want to go to the virtual office service. It’s even easier than registering a new company. After subscription, you need to update your company’s legal address and contact person in the Estonian Business Register.
Activating your service
After registering your company, you will receive an invitation letter to activate the virtual office services. It will acquire further information about your company to be able to serve you. The requirement to collect personal data is based on Estonian legislation governing the activities of such licensed service providers. Saving data will automatically take you to the next form, where you can enter the company’s beneficial owners and download the file with their passports.
Corporate income tax — 0% is applied when the Estonian company does not distribute the profit at the end of the reporting period, as well as if it is decided to invest the profit in the business or reinvest.
If the company fails to prove the reality of the transaction or the enterprise with which cooperation is carried out, the tax authorities of Estonia refer to offshore — from the amount that the Estonian firm transfers to the account of its «offshore» partner, you will need to pay 20% of the tax. This is because such expenses will be considered unrelated to business activities.
The tax rate of 25% (20/80) applies only to the payment of dividends to non-residents and if the company in Estonia operates on the country’s territory. Taxes on dividends paid income tax paid on distributed dividends in Estonia are paid by a legal entity — the dividend payer. The dividend tax must be paid by the 10th day, the next month after the month. Since the tax is paid only at profit distribution, there is no tax on retained earnings. The first payment of dividends must be formed (paid) and registered in the Commercial Register of the authorised capital.
Also, to pay dividends, it is necessary to submit an annual report for the previous year. In addition to the dividend tax, the company may have other taxes in the process of activities, for example, VAT on the import of services (from a non-negotiable VAT company), tax on unrelated expenses, tax on expenses for which there are no primary documents, tax on services received from low-tax jurisdictions. VAT from the import of services arises when non-resident firms and non-resident IPs receive services such as consulting, IT, electronics. Obligation to register — within 3 days after receiving such service, without waiting for the preparation of the annual report.