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Company registration in Estonia

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).

Photo 1 - Company registration in Estonia

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 - 0% (applies when an Estonian company does not distribute profits at the end of the reporting period, as well as if a decision is made to invest profits in the business or reinvest).

If the company fails to prove the reality of the transaction or the enterprise with which cooperation is conducted is classified by the Estonian tax authorities as offshore - from the amount that the Estonian company transfers to the account of its "offshore" partner, it will be necessary to pay 22% tax. This is due to the fact that such expenses will be considered as not related to entrepreneurial activity. Among the countries and territories with which the Estonian tax department may be of particular interest in cooperating 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.

The tax rate of 22/78 is applied only when paying dividends to non-residents and if a company in Estonia conducts business in the country.

The rate for regularly paid dividends is 22/78.

Income tax paid on distributed dividends in Estonia is paid by the legal entity - the payer of dividends.

Dividend tax must be paid by the 10th of the month following the month of payment. It is worth considering that the tax is paid only when distributing profits, there is no tax on undistributed profits.

For the first payment of dividends, the authorized capital must be formed (contributed) and registered in the Commercial Register. 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 incur other taxes in the course of its activities, for example, VAT on the import of services, tax on expenses not related to business, tax on expenses for which there are no primary documents, tax on services received from low-tax jurisdictions. VAT on the import of services arises when receiving such services from non-resident companies and non-resident individual entrepreneurs, such as consulting, IT, electronic. The obligation to register is within 3 days after receiving such a service, without waiting for the preparation of the annual report.

From July 1, 2025, an additional security tax of 2% will be introduced, which will affect the overall taxation structure. In particular:

  • The income tax from January 1, 2026 will be 22/78 + 2%.
  • The turnover tax from July 1, 2025 will be 22% + 2%.
  • Dividends will be taxed at the standard rate of 22/78 with the addition of 2% for security, starting from 2025.

From January 1, 2026, a corporate profit tax of 2% will be introduced.

Social tax - 33% (withdrawn when calculating wages and withheld by the enterprise from the payment to the employee).

Personal income tax - 22%.

Turnover tax (VAT) - 22%, within the EU - 0%. Companies registered in Estonia are entitled to obtain VAT payer status. The need to obtain such a number depends on the turnover and territory of the company. A VAT number is mandatory if the Estonian offshore company operates in Estonia and within the European Union, and the turnover in Estonia reaches 40,000 euros.

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EXCHANGE CONTROL

Absent.

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DUAL TAXATION TREATIES

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

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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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