Have you heard about a small country in northern Europe called Estonia? If so, you are probably already considering starting a company in Estonia. Because, well, haven’t most of the success stories like Skype, Bolt, Pipedrive, Wise, Monese, and many more started exactly in Estonia? Yes, right you are, they have!
There are many reasons why more and more entrepreneurs are choosing Estonian companies to be their legal entities. One of them being a special and borderless digital identity program called e-Residency.
In this article, we will give you a full guide about starting a company in Estonia. You will find answers to the most important questions like why and how to do it, how much does it cost, how long it takes and we will also look into some of the most frequently asked questions about e-Residency and Estonian companies that still create a bit of confusion amongst entrepreneurs. So, ready – set – here we go!
1. Why Estonia and e-Residency? Is Estonia good for business?
Estonia, also referring to itself as e-Estonia, is very proud to have built a digital society. Every Estonian person can sign documents digitally and submit the tax return in a matter of minutes.
FUN FACT: The only two things that Estonians are not able to do digitally are getting married and selling or buying real estate. And not only has the digital revolution happened for private persons, but also for businesses.
Forget bureaucracy! Doing business is made really easy and favorable in Estonia.
- Establishing a company is fully online and takes only a few hours
- Almost all of the banking transactions are made online
- The income tax on retained and reinvested profits is 0%
- The economy is small, but growing and hassle-free
- Costs related to maintaining the business are rather low
Take advantage of the e-Residency yourself!
With e-Residency, these business opportunities that only Estonian entrepreneurs were able to enjoy, were brought to all entrepreneurs in the world. Therefore, the e-Residency cardholders have access to the EU business environment and Estonian public services. Basically, people choose to become e-residents so that they can conduct their location-independent business from anywhere in the world with a trustworthy EU company.
Why to consider starting a company in Estonia?
Here are some main reasons why to register a company in Estonia:
- Estonia is one of the most digitally advanced societies
- Stability – membership of the EU, NATO, OECD, Eurozone, and Schengen Area
- Low starting and managing costs
- Low state fees
- Corporate income tax of 0% on retained and reinvested profits
- Low level of bureaucracy
- Access to online services – registering and managing the company online
- Unique share capital rules
So, no wonder, why over 80 000 people all over the world have decided to become e-Residents, and over 15 000 of them have already successfully started their location-independent Estonian business. Convinced to get your company going as well?
But if you need a bit more convincing, keep reading the article.
2. How much does it cost to start a company in Estonia?
All business services are quite reasonably priced in Estonia. As always with starting a business, the costs divide between one-time and recurring costs.
- Applying for e-Residency – state fee 120 €
- Company registration fee – 300 € (including state fee of 265 €)
One-time costs are pretty simple and straightforward. They include state fees for e-Residency and the company registration fee.
- Legal address and contact person
- Annual report
Recurring costs are also quite simple and their prices start from 49 € per month.
The only thing you most definitely need is an Estonian address where your company will be legally registered. This legal address is mandatory for all Estonian companies and it doesn’t mean that you have to start looking for an office space. There are service providers, who offer the address service for a small monthly or yearly fee.
If your company’s management board is located outside of Estonia, it is also mandatory to have a contact person, a local juridical body who acts as the first contact for all public institutions. This service is usually offered together with the legal address service and all the physical letters your company receives will be scanned and uploaded to a secure portal for you to read.
Another thing you should think about is accounting. The rule is – if your company doesn’t have a VAT number or employees, you have to do accounting only once a year as an annual report. If you have a VAT number or have to pay salaries, monthly declarations are needed. But as already mentioned, business services are competitively priced in Estonia, so no need to worry about submitting declarations yourself – you can hire a professional for a small price.
The prices for address, contact person, and basic accounting start from 49 € per month. If you need more options and services, you can opt in for more premium solutions.
3. How do I register a company as an e-Resident?
Company registration as an e-Resident is as easy as ABC! 1Office has made the process so simple that you can even do everything in one place – just follow these easy steps:
- Go to Company Registration Page
- Check if the company name you want to use is available.
- Select a monthly package that suits your company’s needs.
- Register an account in my1Office (a special platform that will become a home for your new business – it will assemble together all the business services and information you need), verify the account, and fill in your contact details.
- Select that you want to establish a company in Estonia and fill in the application with the company’s information. If you are founding the company for yourself, you can fill in both the founder and board member sections with your profile data.
- Select a Wise or Payoneer banking solution if needed.
- Start the digital signing process with your e-Residency card.
- If the signing is confirmed, pay the fee, and your application will automatically move to the Estonian Business Register.
- Congratulations! Your company will be officially ready in 1 business day.
Also check out this thorough blog post about company registration steps with screenshots and explanations.
This process is for you if you already have an e-Residency card. If you are not an e-resident yet, there are also a couple of good options you can use.
Check out this package if you wish to become an e-resident or
this package if you would rather open the company without the e-Residency and through the notary.
4. How long does it take to open a company in Estonia?
In Estonia almost everything can be done online. Therefore, processes are unbelievably quick.
Already an e-resident?
If you already have an e-Residency card, the process times go like this:
- Filling in all the forms for registering a company – 15-30 minutes
- Entering the company to Estonian Business Register – up to 1 business day
So, you can do everything in one day and even without leaving your couch. For some people who are coming from more bureaucratic societies, it’s crazy to believe that establishing a company can be that quick. But for Estonians, it’s regular and nothing to be surprised about.
Not an e-resident yet?
Of course, if you are not an e-resident yet, the process times will be much longer:
- Filling in the forms for becoming an e-resident – 15-30 minutes
- Receiving the e-Residency card to the pick-up location you chose – 4-6 weeks
- And after that, the previously mentioned process times apply.
But waiting for the e-Residency card is worth it, as all the processes in the future (like appointing the beneficial owner, changing the information in the Register, or submitting the annual report) will be done in a matter of minutes.
5. What are the different company types in Estonia?
The main legal business forms in Estonia are:
- Private limited company (OÜ)
- Public limited company (AS)
- General partnership (TÜ)
- Limited partnership (UÜ)
- Sole proprietorship (FIE)
- Commercial association (ühistu)
- Non-profit organization (NPO/MTÜ)
- Branch of a foreign company
These choices can easily confuse starting entrepreneurs, as it’s a bit difficult to understand which one is the best option for your business. Below we will have a look at some of the most common options, but if want to learn more about different company types and see the comparison, check out this blog post about company types in Estonia.
Private limited company OÜ
Usually, the most popular choice while registering a new company is a private limited company (OÜ). It requires a minimum share capital of 2500 €, which can be deferred for up to 10 years and the shareholders are not personally responsible for the obligations of the company.
The management board must include at least one person. This means that you personally can be the management board. As many countries require at least two members to be on the management board or at least one of the directors to be local, this easy rule makes it much easier to start a business in Estonia. Therefore, many companies in Estonia (especially those that are founded by e-Residents) have only one board member and employee, the e-resident himself/herself!
OÜ is a perfect choice when setting up a small or medium-sized business as an e-resident. But remember that when there is more than one founder or board member, all of them must have valid e-Residency cards.
Public limited company (AS)
An option for one or more either natural or legal persons, usually with a share subscription (but also possible without a share subscription). Similarly with the OÜ, the shareholders are not personally liable for the obligations of the company. For the public limited company, the minimum share capital is 25 000 € and it must have a management board and a supervisory board.
The AS is a good option when you have multiple shareholders or investors or if you want to register a larger corporation by going public.
Other company types are less common and are used only in very specific circumstances.
If you are not sure which company type would be the best for your business, there’s always an option to order a legal consultation and let a local professional take a look at your case.
6. How much is the share capital and how to pay it in?
When registering a private limited company (OÜ) in Estonia, the minimum share capital is 2500 €.
If the founders are private persons and the share capital is less than 25 000 €, the founders can decide to defer the payment for up to 10 years. It means that they can decide whether to pay in the share capital right away or to postpone it.
But why has Estonia set this quite unique rule to the share capital? Well, the option to delay the share capital payment means that you can register your company, start business activities, earn profits and pay salaries straight away, but you only have to pay in the share capital once you want to take out dividends. Therefore, the startup costs are even lower, as many starting entrepreneurs decide to pay in the share capital after the first financial year is over and it’s time to submit an annual report.
Another important thing to understand is that the share capital is not a fee in any way. It is your personal money that goes into your company and it is your company’s right to spend it as it chooses as long as it is in support of the business activities.
How to pay in the share capital?
For paying in the share capital:
- Get your company an IBAN account. It doesn’t matter if it is an actual Estonian bank account, as Estonia accepts business accounts from all banks and fintech companies that are based in the European Economic Area. Therefore, you can get the IBAN fully online.
- Pay in the share capital amount from your personal bank account to your company’s business account. To be sure, you can mark the payment as “minimum share capital”.
If you wish to defer paying in the share capital, we recommend reading these instructions about delaying the share capital payment.
7. Is Estonia good for startups, freelancers and digital nomads?
Shortly, yes, of course!
Estonia is one of the friendliest and fastest-growing startup hubs in the EU. It’s really the best place to carry out your original ideas and launch your startup. Actually, EU-Startups.com even ranked Estonia among three of the best European countries to set up a startup. Estonia is known for its exceptional educational system, entrepreneurial visa, vibrant startup community, and highly digitised processes.
We already mentioned a couple of Estonian success stories, but let’s go over some startup success stories again – Wise, Veriff, Bolt, Pipedrive, Monese, Starship, Skeleton Technologies, Fortumo, Cleveron, Bondora, Playtech. Well, you get the point – there are many of them!
But what about freelancers and digital nomads?
Both freelancers and digital nomads can win from establishing a company in Estonia. What you can win the most, is the time! Specifically, the time that otherwise goes to business administration and bureaucracy. No need to fill in any papers or give signatures, everything from starting the business to declaring the taxes is done with a couple of clicks.
Most importantly, if you are a freelancer, then you should know that in the EU it is not possible to issue invoices as a freelancer if you don’t have your own company. So, acting as a freelancer without a company in the EU is basically impossible and registering a low-cost company in Estonia (therefore in the EU) is a perfect solution for freelancers who want to conduct business.
For digital nomads, it’s important that they are not tied down to one place and therefore, an Estonian company and e-Residency are the best solutions you can find. A location-independent company that follows you anywhere you go and is manageable from your mobile phone. Well, sounds like a dream, right? But it’s reality and it’s accessible for everyone who has an e-Residency card.
Favourable Tax System
And of course, something that can’t go unmentioned – if you are a digital nomad you most probably can also benefit from the unique and very favourable tax system of Estonia. That means that you will not pay corporate income tax on earnings that will stay inside the company and that you plan to reinvest. The corporate income tax will only be paid on the money you pay out as dividends. But all the tax topics are very case sensitive, so we recommend contacting a professional to be sure.
8. Can I enter Estonia with an e-Residency card? Is it an actual residency?
E-Residency is not a residency, a work permit nor a permission for anyone to live in Estonia or the EU. It can be used to open a company online and give your company trustworthiness, as it is an EU business that you will be running, but these benefits will not expand to the private persons behind the company.
The e-Residency card is just a tool to help you sign documents and applications digitally. The name can be deceiving as it has nothing to do with your actual residency. It was created to make it easier to start and manage companies remotely and that is exactly what it does.
9. Does e-residency = tax residency?
Unfortunately not. E-residency does not provide tax residency. The thing is that a company registered in Estonia will automatically become a tax resident in Estonia, but e-Residency will not change your personal tax residency in any way. Therefore, your personal residency may trigger tax residency for your company in your place of residence as well.
But Estonia has signed taxation treaties with many countries to avoid double taxation, so dividends distributed in Estonia may be exempted in full from corporate income tax here. So, if you are looking for a tax haven, then Estonia is not it. It’s rather a bureaucracy and location-independence haven.
Of course, there are cases when an Estonian company established by an e-resident also gets to use the benefits of the Estonian tax residency. You can have a look at this full guide to taxes in Estonia. But to determine if your company is eligible or to even make your company eligible before starting the business activities, we really recommend speaking to a local tax advisor who can take a look into your case and bring out the best opportunities.
10. Do I have to travel to Estonia & do I need to understand Estonian to run the company?
No, of course not. It’s location independent which means that you don’t need to travel to Estonia to establish the company. You don’t even need to come later on when something needs changing or submitting. Just give some digital signatures and you are ready. That is the beauty of e-Residency and doing business in Estonia.
When it comes to Estonian language, then of course it’s easier to communicate with the institutions in Estonian, but as Estonia is a small country with a small population then we are used to the fact that we have to speak other languages (because, well, nobody speaks Estonian). So, English is one of the main business languages in Estonia and there’s no need to worry about the language barrier.
After reading this full guide you should be ready to decide if company registration with Estonian e-Residency is a perfect solution for you. If it is, then we are more than happy to help you in the process. Just start the registration process below or contact us if you have more questions.