The world is evolving. New technologies are rapidly gaining ground and finding use in various areas including business, where new technologies may provide considerable advantages. For businessmen, especially those who work online or in the IT sector, this article will be very helpful. Why? Because we will discuss an excellent opportunity to start a business in a respectable, stable, and transparent jurisdiction. Estonia is also friendly to foreign capital and provides a considerable tax-friendly environment for foreign investors, something that can be difficult to find in other EU countries. 

The country we will be talking about is Estonia. This little East European State is currently one of the most advantageous places to do business in the world. Since the beginning of the 21st century, Estonia has been relatively open to foreign investment and business in order to develop its own economy and create better conditions for its citizens.

Estonia is famous for its incredible online infrastructure called e-state (e-riik in Estonian). There is no similar system in the entire world, allowing Estonia to stand out among other larger countries. This country had put great effort into developing its telecommunications, IT sector, and infrastructure, and today we can enjoy the benefits of such an approach. Currently, the Estonian government structure has a full online presence, allowing its citizens to access the state agencies complying with information requests, paying for public services, and even filing taxes and updating company information.

This can be done completely online. One of the key advantages of the whole system is that a person doesn’t need to be physically present in Estonia to access this infrastructure. This is a key element we will analyze to fully understand the advantages of this former Soviet country. 

There are a lot of benefits waiting for those who want to start their own business in Estonia. This country understood the possibilities and advantages of being an attractive jurisdiction for foreign capital holders looking for a reliable country where to invest. Several IT businesses developed their products and services in this country, which is also one of the pioneers in the crypto business. That’s why it is a popular country for investments and startups. Here are some reasons why one would want to incorporate a company in Estonia. 

Advantages of Estonia as a corporate jurisdiction 

-Business-friendly tax regime. The main tax-based advantage of having a company registered in Estonia is a 0% corporate income tax rate on undistributed profits, which means that the company will not be taxed as long as it simply reinvests its own profits into the business itself. The tax on distributed profit is 20%, which is relatively low by EU standards. It is important to know that Estonia is not considered an offshore jurisdiction nor a tax haven, so your Estonian company will be in a fully white-listed jurisdiction.  

-More opportunities for reinvestment. As there is no requirement to pay any taxes on undistributed profit, your company will have more money remaining for reinvestment into the company’s development. This will give your Estonian-domiciled company a serious competitive edge over companies from other countries. 

-The possibility to work in the European market. Estonia is a member of the European Union. This means that an Estonian company can enjoy all the benefits of an open EU market, including the advantages of the 2006 turnover tax directive and the free labor market. 

-Ease of doing business. You can acquire an electronic e-resident card in Estonia, which will allow you to manage and control your company from any place in the world. All the contracts and other documents can be signed electronically, and the annual reports are also submitted through an online system. An audit is mandatory only for large companies that reach certain thresholds.  

-Double taxation treaties. To protect the interests of those who invested in the country, especially foreign investors, Estonia has signed and ratified 58 international tax treaties that aim to avoid double taxation. A double tax treaty allows the tax that was paid in one country to be offset against the identical tax payable in the other country, thus preventing double taxation. The double tax treaties regulate various situations, but their key articles concentrate on three specific tax sources: royalties, dividends, and interest payments. 

-The active “Free Zones”. This is another advantage for those who want to invest in Estonia. Free Zones are specific locations positioned in precise and important infrastructure locations within the country´s territory. These free zones allow goods to be sold or stocked and companies are not required to pay any customs costs and are exempt from certain taxes. Goods brought to the free zone for later use are not subject to VAT, excise, nor customs duties. 

-Excellent option for startups. In addition to the above-mentioned benefits, Estonia is a great location for start-up companies, offering great grant programs for those who want to invest in the country. This includes all companies operating in the digital world developing computer software, engaged in IT consulting, online teaching, design, marketing, and so on. 

-Easy transfer of shares. In the event of company share transfer, a shareholder is able to transfer his shares completely tax-free, as long as the company does not own real estate in Estonia. Additionally, with the development of the Estonian e-residency program, such operations may also be performed online by organizing an online meeting with the notary or through the depository of securities. 

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How easy it is to start a business in Estonia? 

Before starting a new business, the capital holder must not only think about the pros and cons of the business itself but also where to start such a business. It is important to know the nuances of establishing a company in a specific jurisdiction including active tax policies, friendliness to foreign investment, bureaucracy, etc. 

Considering what we have said before, it stands to reason that Estonia is a very good destination for your next investment. Through the Estonia E-Residency program, it is a lot easier and faster to start a business when compared to many other countries in the world. Applying and getting the e-resident ID card is a fairly straightforward process and those who acquire such a status will be capable of creating and managing a new company in Estonia without actually being in the country. 

The following advantages of the Estonian jurisdiction can be pointed out:

• An Estonian company can be established online via the Online Commercial Registry of Estonia. 

• Tax declarations and accounting reports can be presented online through the e-Tax Board. 

• It is possible to gain access to owned bank accounts with a single, smart card. 

• The digital signature is a valid way of signing documents that will be effective in all of the EU. 

• An opportunity to use a free encrypting service with the smart card. 

• Access to the Estonian public services via state portal “eesti.ee”. 

Business owners can delegate the management of their company to an agent in everything that requires physical presence in Estonia. These agents are generally affordable and also support the corporation’s commercial domicile, though in most cases, an Estonian company can be managed online using the e-residency card. In such a case, the company will only require a local contact agent as required by law. The company manager organizes day to day activities of the company and, if required, they can also take care of any necessary accounting matters. 

An Estonian company can even be set up without paying up the share capital and can function just fine with the capital being merely declared. But, should a company decide to distribute dividends, it first has to form the share capital. In order to do that, the company must provide evidence that the full amount of share capital has been paid by the owners into the bank account of the company. Management board members must then apply for the commercial register to finish the procedure. It is also important to note that an Estonian company can open an account in any bank or payment system in the EU. 

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Procedure and requirements for opening a company in Estonia 

Starting a business in Estonia comes with several advantages some of which we have already discussed above. It is also beneficial that Estonia offers low initial and ongoing administrative costs, and has a very high rating (8th) on the 2021 Index of Economic Freedom. The main advantage of this little country is that a company registered in Estonia can benefit from the country being a member of the EU, while also being managed from anywhere in the world. 

The whole process consists of 4 stages. Our experts in Estonia will accompany you all the way with the most suitable course of action for a quick, easy, and successful procedure. The easiest and fastest way to open a company in Estonia is to obtain an E-Residency card. This is a government-driven program which we discussed in the “Estonian E-Residency Program” section of the country page. Having this document significantly reduces the time to open a company, with the whole process taking no more than several hours overall before the company becomes active. 

The main requirements for registering a company in Estonia are as follows: 

• To have a contact person (if the board directors do not reside in Estonia). Our partners from Estonia can provide this service. 

• Have a legal address in Estonia. Our local partners can also cover this service. 

• It is mandatory to extend these services annually. 

Concerning the opening process, our experts in Estonia will help you at every stage of the process. But in any case, once the applicant gets their Estonian E-Residency, they must follow these steps: 

1. Check the Company’s name: It is important to check whether identical or similar company names are already in use. Our partners in Estonia can do this for you. 
2. Get a legal address for the company in Estonia. Our local partners will provide a legal address for your company. Your company doesn’t need to be physically present at the address; this is more of a contact address and is entirely legal. 
3. Online registration: Once all the matters stated above are settled, the application for registration of the company can be submitted online through the Estonia commercial registry. This will take only around 30 minutes. The state fee for applying in Estonia is 190 €. 
4. Open a bank account: After the registration has been completed, the applicant should open a bank account. The law states that this can be an account in any European bank or payment system, making things much easier. With services like Transferwise and Revolut, you can get an account with IBAN and Swift with which you can operate. You can also get a real bank card to make payments or withdraw money. 

The main advantage of such an approach is that the applicant can perfectly operate an Estonian business without a traditional bank account and without the need to travel to Estonia. Still, if you want a traditional bank account, our experts can help you open one in other EU jurisdictions. 

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Type of Companies in Estonia 

Estonia provides a relatively wide selection when it comes to corporate structures of the companies. Different structures are more suitable or designed for certain activities, making the whole system very flexible and easily adaptable to whatever business idea you may have. 

Among the types of companies that can be set up in Estonia, the following are the most widely used: 

-Private Limited Company: This is the most common company type as it is the easiest to establish and operate. The minimum amount of share capital is €2,500, with the lowest amount being €0.01. This company must have a management board, which can be made up of one or several people. The company owner can act as a management board member, though that is not mandatory, and the company may have more than one management board member. 

-Public limited company: This is a company where the share capital is divided by shares. As with a private limited company, shareholders are not liable for any of the company’s debts and other obligations. The minimum share capital is €25,000, and the minimum nominal share value €0.10.

-A public limited company is legally required to have a two-tier management structure, consisting of a management board and a supervisory board. The former may be comprised of several members, none of which need to be shareholders. The supervisory board, which is normally made up of three members, directs and organizes the management board and ultimately makes the key decisions about the company’s running. A shareholder may be a member of the management board or the supervisory board, but no member of the management board may hold a seat in the supervisory board. 

-General Partnership: A general partnership is a company in which two or more partners (can be both natural or legal persons) operate under a common business name and are solidarily liable for the obligations of the general partnership with all of their assets. There is no stipulated minimum capital investment. 

-Limited Partnership: A limited partnership is a company in which two or more persons operate under a common business name, and at least one of the persons (general partner) is liable for the obligations of the limited partnership with all of the general partner’s assets, and at least one of the persons (limited partner) is liable for the obligations of the limited partnership to the extent of the limited partner’s contribution. 

-Sole Proprietorship: Any natural person can register with the commercial register as a sole proprietor. A sole proprietor must submit a petition for his or her entry into the commercial register before the commencement of the activity. The sole proprietor is generally fully liable for his or her business’s obligations by way of his or her assets.

If the annual turnover of the company in Estonia or the EU exceeds €40,000, the company has to register as a VAT taxpayer with the Tax and Customs Board. 

In conclusion, setting up a company in Estonia is a great decision for those who want to enter the EU markets. This little country is not a tax haven, and it has tried hard not to look like one. It is very attractive for foreign investors; the IT sector is one of the most advanced and developed on the planet. Those things alone say much about how far the country has gone from a battered former Soviet republic to becoming one of the world's major global technological powers. 

What can we do for you? 

Starting a company in this country is an excellent idea and here, at Mundo, we are ready to give you all the help you could need in order to start your own Estonian business. Furthermore, Estonia is an excellent destination for creating company groups within the EU and registering a financial or crypto business. Our experts can help you with all main corporate services: 

• Registering your company. 

• Serving as authorized agents. 

• Liaison with public bodies. 

• Opening a bank account in another EU jurisdiction. 

• Helping you obtain Estonian e-Residency. 

Contact us and get to know all the services we can offer. 

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