Photo 1 - Company registration in Estonia

About Estonia

The Republic of Estonia is a state located in Northern Europe. Estonia joined the European Union on May 1, 2004, and on January 1, 2011,it also joined the Eurozone. Estonia is one of the three former Soviet republics that have managed to integrate into the Schengen area and the European market.

You can often find such a term as "offshore Estonia", which is erroneous. The reason why Estonia sometimes is called as “offshore” is 0% income tax, in case if the Estonian company does not withdraw profit, but invests it further into the business. It is the 0% rate that is very often perceived as tax evasion, although in fact it is not a tax-free jurisdiction or "offshore", because dividends in Estonia are subject to taxation. In our material, the phrases "offshore" are used in quotation marks, showing their figurative meaning in relation to the jurisdiction.

ADVANTAGES OF ESTONIAN COMPANIES:

Well-established electronic communication system between the state and business entities
Simplified legal system for small and medium-sized businesses
Estonia is not "offshore" and not included in the black lists of any country in the world
Estonia has one of the lowest levels of corruption in the world and stable monetary exchange rate
The right to obtain a work visa or residence permit in Estonia
Tax on retained earnings is 0%
In addition to the company, you can remotely open a bank account in Estonia, subject to the availability of partners or connection with the country
No barriers to communication, since the majority of the population knows and communicates in Russian

LEGISLATION

Estonian business registration is governed by the country's Commercial Code.

Company types

The most common and convenient form of setting up a company in Estonia is a LLC (OÜ).

COMPANY REGISTRATION IN ESTONIA: requirements

LIMITED LIABILITY COMPANY (OÜ):

Minimum share capital - 1 euros (can be contributed in cash or property).
Director (board member). At least one natural person, there are no residency requirements (may not be Estonian).
Shareholder (shareholder). At least one individual or legal entity, may be a non-resident.
Secretary is not required.
A company in Estonia must have a registered address and a licensed contact person in the country. If one of the board members is an Estonian resident, then a contact person is not required.
Publicly available information are the following: name and address of the company, director, shareholder, size of the authorized capital. Since 2018, information on beneficial owners is entered into the public Register of Beneficiaries.
“Offshore” companies in Estonia are prohibited from engaging in banking and insurance activities.
Reporting. It is necessary to keep accounting records and, regardless of whether the Estonian company has been operating or not, to submit annual financial statements once a year, and in some cases to undergo an audit (if the annual figures are exceeded). Companies are audited in two forms: audit and review.
An audit is mandatory for those companies that have at least 2 indicators for the reporting year that exceed the following conditions:

1) The company's turnover (sales income) per year is over 4 million EUR.

2) The assets of the company as of the balance sheet date are 2 million EUR.

3) The average number of employees is 50 people.

Or, at least one indicator for the reporting year exceeds:

1) The company's turnover (sales income) per year is over 12 million EUR.

2) The assets of the company as of the balance sheet date are 6 million EUR.

3) The average number of employees is 180 people.

The review is mandatory for those companies that have at least 2 indicators for the reporting year that exceed the following conditions:

1) The company's turnover (sales income) per year is over 1,6 million EUR.

2) The assets of the company as of the balance sheet date are 0,8 million EUR.

3) The average number of employees is 24 people.

Or, at least one indicator for the reporting year exceeds:

1) The company's turnover (sales income) per year is over 4,8 million EUR.

2) The assets of the company as of the balance sheet date are 2,4 million EUR.

3) The average number of employees is 72 people.

PRIVATE ENTERPRISE:

Unlike the reporting of LCC, a private entrepreneur only submits a declaration of income outside the country by March 31 of the year following the reporting year.
If a private entrepreneur operated outside Estonia (for example, in Ukraine or in Russia), then it will not be subject to Estonian tax.
When making an investment of 16 000 euros, a private entrepreneur can apply for a residence permit for himself and his family (the investment for a legal entity is 65 000 euros).

TAXATION

Corporate income tax is 0% (applied if an Estonian company does not distribute profits at the end of the reporting period, as well as if it is decided to invest the profits in the business or reinvest).

If the company fails to prove the reality of the transaction or the company with which it cooperates is classified by the Estonian tax authorities as offshore then in this case from the amount that the Estonian company will transfer to the account of its “offshore” partner, 20% tax will have to be paid.

This is due to the fact that such expenses will be regarded as not related to entrepreneurial activity. Among the states and territories for cooperation with which the Estonian Tax Department may be of particular interest are: Andorra, Bahamas, Belize, BVI, Costa Rica, Gibraltar, Hong Kong, Cayman Islands, Liechtenstein, Marshall Islands, Mauritius, Panama, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Seychelles, etc.

A tax rate of 25% (20/80) applies only in case if dividends are paid to non-residents and if a company in Estonia operates in the country.

The preferential rate for regularly paid dividends is 14/86.

Income tax paid on distubuted dividends in Estonia are paid by a legal entity that is a payer of dividends.

It is necessary to pay tax on dividends by the 10th day of the next month after the month of payment. The tax is paid only when the profit is distributed, there is no tax on retained earnings.

For the first payment of dividends, the authorized capital must be formed (deposited) and registered in the Commercial Register. Also, to pay dividends, you must submit an annual report for the previous year.

In addition to tax on dividends, a company may incur other taxes in the course of its activities, for example, VAT on imports of services (from a company that is not subject to VAT), tax on expenses not related to business, tax on expenses for which there are no primary documents, tax on received services from low-tax jurisdictions. VAT on imports of services arises when you receive services such as consulting, IT, electronic from non-resident firms and non-resident individual entrepreneurs. It is necessary to register it within 3 days after receiving such a service, without waiting for the preparation of the annual report.

Social tax is 33% (deducted when calculating wages and withheld by the company from the payment to the employee).

Personal income tax is 20%.

VAT is 22%, within the EU is 0%. Companies registered in Estonia have the right to obtain the status of a VAT payer. The need to obtain such a number depends on the turnover and territory of the company. A VAT number is required if an Estonian offshore company operates in Estonia and within the European Union, and the turnover in Estonia reaches 40 000 euros.

EXCHANGE CONTROL

Absent.

DUAL TAXATION TREATIES

Today Estonia has an extensive list of signed agreements, including with Ukraine.

If you are planning to open a company in Estonia or buy a company in Estonia, please contact our lawyers for advice: +38 (098) 737-88-88

We will assist you with buying an offshore company in Estonia or any other jurisdiction of your choice. The validity of registering a company in Estonia is determined specifically for each business and its particularity, therefore, deduct the final price from the commercial proposal after clarification of all details by our lawyer.

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