The national programme of e-Residency offers entrepreneurs an innovative way of incorporating and running digital enterprises, allowing to do it online from anywhere in the world. E-Residency provides access to electronic services delivered by the Estonian government, thus enabling you to carry out daily operations on a fully digital and remote basis.
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Here are the four main advantages of registering a company in Estonia:
If you find these advantages convincing enough, do not hesitate to set up your enterprise in Estonia. The next step is choosing the appropriate organisational and legal form.
When deciding on the form of the business, you should first assess your opportunities and risks, so that you understand what type of company would be the best option, given your objectives and financial resources. The most common legal forms in Estonia are the following:
These types of business differ from each other in the amount of minimum required share capital, in the number of participants/members, in the extent of material liability, and in management arrangements. Which of the legal forms best suits your needs? We often recommend to our clients that they establish a Private Limited Liability Company since a sole proprietor shall pay social tax as well as income tax and is personally liable for debts and obligations of the business. However, some entrepreneurs opt for a Sole Proprietorship because, unlike the case of Private LLCs, there is no initial capital requirement.
In order to carry out business activities in the country, a bank account and a tax identification number are necessary. Requirements prescribed by various legal acts made bank account opening a more difficult and costly process than it used to be. So as to assist our clients seeking support in starting a business in Estonia, we cooperate with the largest financial group in the country.
Once the company is set up, it is subject to the provisions of the corporate taxation rules. Moreover, it may be liable to pay value added tax. Due dates for payment and rates vary depending on the tax.
As mentioned earlier, one of the advantages of establishing a company in Estonia is that the corporate income is not subject to immediate taxation. Instead, the CIT is levied if distributing profits, for example, if paying dividends.
In the general case, the CIT rate is 20%. However, since 2019, the lower rate of 14% is available for the companies that make regular distributions. The corporate income tax of 14% is imposed on the payment of dividends in the amount that is below or equal to the extent of dividends paid and taxed during the three preceding years. Thus, the tax rate on the net distribution is 14/86 instead of 20/80. In the event that the company enjoys the lower CIT rate of 14%, it is additionally obliged to withhold income tax of 7% from dividends paid to natural persons, regardless the residency of the latter. Except as noted above, there is no withholding tax on dividends paid to non-residents (20% or 14% tax on distributed profit is considered as CIT, and not WHT).
In Estonia, enterprises are not assigned a value added tax (VAT) number by default. Unless the company is subject to VAT, it only has the registration code, which is also used for tax purposes. Companies are free to choose whether to register as legal persons liable to VAT at once, on a voluntary basis, or do it later, upon exceeding the predetermined turnover threshold. If registered as a VAT payer, the enterprise shall add value added tax to the invoices and declare it in the relevant tax return. Thus, in the case that the company does not have to pay VAT, its clients may purchase goods and services at a lower price.
If an Estonian company sell goods or provides services that are neither imported to nor exported from Estonia, such goods and services are taxed in accordance with the regulations of the country where the actual trading is performed. In the case that an Estonian company registered as a VAT payer supplies goods to and provides certain services in the EU member states, 0% value added tax rate is applied in Estonia. Many of our clients opt for getting a VAT number since their business partners across the EU prefer to cooperate with those companies that have such number.
The turnover threshold for mandatory VAT registration is EUR 40,000 from the beginning of a calendar year. Companies may register as VAT payers voluntarily, before the above-mentioned threshold is reached.
In order to obtain a value added tax number, the enterprise is to apply to the tax authorities. The applications are generally processed during 5 working days. This procedure may take more time, should the relevant bodies need further documents or information. As a rule, the latter is requested so that to determine whether the company carries out or plans to carry out actual commercial activities.
We offer VAR registration services to our clients and support them throughout the entire process, inter alia by providing legal advice.
Our company will also assist you in getting an EORI number and a LEI code. If the enterprise is registered as a VAT payer, it shall prepare and submit two monthly tax statements (VAT return and CIT return).
Companies incorporated in Estonia have to be familiar with the local legislation and be ready to communicate with tax and other authorities in the Estonian language. For that reason, we help our clients to comply with their tax and reporting obligations upon setting up a business in the country.
Our tariff plans on subscription-based service packages include accounting software licence fee and charge for monthly monitoring of your company’s accounting records (e.g. payment reminders etc.). You may also seek advice from our specialists before conducting various transactions and get consultations regarding which of the enterprise’s costs can be covered without tax consequences and which cannot.
In order to use our accountancy services, you should provide us with all the relevant documentation, such as invoices and bank statements, which is necessary for preparing annual reports.
The cost of such services is dependent on the volume and complexity of the work to be done.
Business-friendly environment makes Estonia an ideal location for registering a company. If you are interested in setting up an enterprise in the country, let us help you with it. Just give us a call, and we will provide all necessary assistance.