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Company formation in Estonia

Estonia has several advantages that entrepreneurs from around the world successfully leverage when seeking to do business in this prestigious European jurisdiction. Company formation in Estonia for a non-resident is straightforward: the registration requirements are minimal, and the procedure itself is simple and clear.

Company formation in Estonia

Posted 30 October 2023

Summary

The tax rate depends on whether the profit is reinvested or distributed

It’s 0% on reinvested profit and 20% on distributed profit

    Present; the reporting year aligns with the calendar year

    June 30th of the year following the end of the reporting period

    Relative to other countries

    Thinking about business in this country?

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    Diane

    Diane, partner of GFLO Consultancy

    Advantages of company registration in Estonia

    1. Estonia has no residency requirements for participants, meaning that an Estonian company can be fully owned by non-residents. Only if your activity requires a license in Estonia, you will need a procurator who must be an Estonian citizen.
    2. The tax rate on reinvested (undistributed) company profits in Estonia is 0%. It’s important to emphasize that this zero rate applies only when the company’s profits are reinvested in further business development.
    3. Estonia does not require the payment of share capital during company registration. This allows you to postpone unwanted expenses at the beginning of your business activity, reflecting the country’s favorable attitude toward business development for both residents and non-residents.
    4. Estonia is a prestigious European jurisdiction, trusted by banks.

    Legal forms of business organization in Estonia

    In accordance with Estonian legislation, the following organizational and legal forms of companies are most common in Estonia:

    • Limited Partnership (Usaldusühing or UÜ)
      A Limited Partnership is a company in which two or more partners operate under a common trade name. At least one of them (the general partner) is personally liable for the partnership’s obligations with all of their assets, while another (the limited partner) is liable only to the extent of their contribution to the partnership. Generally, the limited partner does not have the right to manage the partnership unless otherwise specified in the partnership agreement.
    • General Partnership (Täisühing or TÜ)
      A General Partnership is a company in which two or more partners operate under a common trade name and are jointly and severally liable for the partnership’s obligations with all of their assets. Partners can be both individuals and legal entities. All partners act based on a partnership agreement and other conditions not contradicting Estonian law.
    • Private Limited Company (Osaühing or OÜ)
      A Private Limited Company is a company whose share capital is divided into shares, and shareholders are liable for the company’s obligations only to the extent of their shares. Shareholders have no personal liability for the company’s obligations. The company is liable for its obligations with all of its assets. The minimum share capital for a private limited company is defined by law, but there is no requirement to pay it upon registration. This type of company is the most common in Estonia.
    • Public Limited Company (Aktsiaselts or AS)
      A Public Limited Company is a company whose share capital is divided into shares that can be publicly traded. Shareholders, like in a private limited company, have no personal liability for the company’s obligations, and the company is liable for its obligations with all of its assets. The share capital of a public limited company must be at least EUR 25,000.

    The process of company formation in Estonia

    Company registration in Estonia is carried out via the public Business Register – e-Business Register. To start the registration procedure, you will need documents for the founders of the company (get more info from our advisers) in their original form, as well as the following information:

    1. 2-3 proposed names for the future company in order of priority;
    2. The structure of the future company (the director, shareholder, beneficiary);
    3. The intended activities of the future company.

    Company registration in Estonia can be done either with the personal presence of the founders or remotely, with slight differences in the procedure. The entire process, from obtaining the necessary information to preparing the final set of corporate documents includes the following stages:

    1. Verification of company names and selection of an acceptable one. The name verification process takes no more than 1 hour.
    2. Preparation and notarization of a power of attorney, as well as notarization of ID documents for the founders. Sending the original documents and power of attorney to Estonia (this step is skipped if the founders are personally present in Estonia). Depending on the country of issuance, the power of attorney may require notarization only or notarization and apostille (get more info from our advisers).
    3. Notarial transaction for company formation in Estonia.
    4. Submission of the required information to the Business Register.
    5. The company registration procedure itself. This step takes about 3-7 business days from the date of submitting all the required forms and documents to the Business Register.
    6. Appearance of the company’s profile on the Business Register’s website approximately 5-6 days after registration. 1-2 days later the company in Estonia is officially considered registered.
    7. Preparation of corporate documents – the Articles of Association and Extract from the Register, as well as manufacturing a corporate seal.
    8. Notarization and translation of the corporate documents. This step typically takes 1-2 days.
    9. Sending corporate documents and the seal to the address specified by the founder.

    Tips to keep in mind when conducting business in Estonia

    • After registering a company in Estonia, the owners will receive only 2 corporate documents – the Articles of Association in Estonian (which can be translated into English if necessary) and an Extract from the Companies Register in English. These documents contain all the necessary information about the company, making them quite sufficient. The registration process is not complicated as it doesn’t require a large number of corporate documents.
    • Residency is crucial for taxation purposes. In Estonia, determining residency is relatively straightforward. According to this rule, a company is considered a tax resident of Estonia if it is registered in Estonia in accordance with Estonian law. In other words, if a company is registered in Estonia, it means it is a tax resident of Estonia and subject to taxation there.
    • The corporate income tax rate in Estonia is typically 20% and is calculated as 20/80 of the taxable amount (the amount is divided by 0.80). Attention! Since 2019, a reduced rate of 14/86 may apply if regular dividends are paid by the company. Additionally, social tax for directors is levied at a rate of 33%, and a 20% income tax is applied to director’s remuneration.
    • VAT (Value Added Tax) registration in Estonia is not mandatory if the company’s annual taxable turnover is less than EUR 40,000.

    Taxation in Estonia

    Taxation in Estonia is overseen by the Estonian Tax and Customs Board (EMTA).

    The tax system consists of state taxes established and implemented by tax laws and local taxes set by rural municipalities or city councils within their administrative territories in accordance with the law.
    Corporate Income Tax:
    The primary tax that Estonian companies must pay is corporate income tax. A distinctive feature of taxation in Estonia is that only distributed profits of the company are subject to taxation. The basic corporate income tax rate is 20%. Estonian companies are required to pay tax on distributed profits, income and payments unrelated to business activities, as well as gifts, donations, expenses for receptions, and special benefits granted to their employees (if applicable). Furthermore, tax is also levied on the reduction of a company’s capital, share buybacks, and the payment of liquidation dividends that exceed contributions to the commercial association’s own capital.
    Dividends:
    Dividends are not subject to income tax if income tax is paid based on the distribution of profits or if dividends are withheld abroad.
    VAT (Value Added Tax):
    The standard VAT rate in Estonia is 20%. A reduced rate of 9% applies to certain goods and services, such as books, medicinal products, and some services (e.g., hotel and accommodation services). A zero rate of VAT is applied to exports of various goods and services from Estonia, as well as to postal, medical, insurance, and international transportation services.

    Preparation and submission of reports in Estonia

    All Estonian companies are required to maintain and submit annual financial statements.

    Tax returns contain essential information about the operations and transactions of Estonian companies. They are of great significance because tax authorities primarily rely on them, when assessing a taxpayer’s compliance with tax obligations and evaluating taxes. The taxpayer’s accounts and other records and documents are also required. Therefore, these documents need to be well-prepared and must show current information on the company’s operations.

    The deadline for submitting annual financial statements is 6 months. Since in Estonia the reporting period often coincides with the calendar year (unless stated otherwise in the Articles of Association), the deadline for submitting the financial statements can be determined as June 30 of the year following the end of the reporting period. For example, if a company was registered on March 10, 2000, its first reporting period, in most cases, would end on December 31, 2000, and the financial statements for the year 2000 would need to be prepared and submitted by June 30, 2001. There is an option to extend the duration of the first reporting period, as not all companies generate profits and conduct operations in their first months of operation.

    All forms for filing financial statements in Estonia are available on the website of the Estonian Tax and Customs Board.

    Conclusion

    Company formation in Estonia is an extremely advantageous choice. The country offers the opportunity to register a company and conduct business in a prestigious European region without the need for strict requirements and regulations. Estonia company registration process is remarkably simplified, with no residency requirements for participants and minimal corporate document requirements – most essential information about which can be found on the Estonian Business Register website. Additionally, opening a bank account in a European bank is also straightforward.

    GFLO Consultancy experts are pleased to assist and help you with any inquiries, just get in touch or leave a request through the form right below.

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