An important part in the company management in Estonia consists in the compliance with the state authorities. In this sense, the company must register with the Tax and Customs Office for VAT purposes, which means that the company must add sales tax to the final price. From the customer, the VAT can be offset against the company’s own products and services purchased by the VAT paid on. The company must also notify the Labor Inspectorate for each new employee and there must also be paid the tax for Health Insurance Fund and social tax.

Setting Up

To set up a company in Estonia, you have to come to Estonia for 1 day and provide a legal address and a contact person.

The minimum share capital required for establishing an Estonian OU is 2,550 EUR divided into shares owned by shareholders with a minimum value per share of 6.4 EUR. Contributions can also be made in kind and do not require an auditor assessment unless the minimum required capital is exceeded. The shareholders may also register the shares in the Estonian Central Securities Register but this procedure is not compulsory.

There are possibilities to obtain an Estonian AS the public company. The minimum share capital required for establishing an Estonian AS requires a minimum share capital of 25,000 euros. Another difference between the two business forms resides in the fact that in the case of a public company, the director cannot be a shareholder in the business.

Companies are obliged to register VAT in cases when sales in Estonia exceed 40,000 EUR from the beginning of the calendar year. A company can also apply for VAT registration before this threshold value is reached.

Annual reporting is mandatory for all companies registered in Estonia, even for companies that had no activities during the financial year. The annual report shall be submitted within six months after the end of the financial year of the company. Thus, if your financial year ends on December 31, you shall submit the report no later than June 30 of the next year.

EORI is a unique number required for companies engaged in international trade in the European Union. Since July 1, 2009, an EORI number is mandatory for companies involved in international trade in case of import, transit, export or other customs procedures in order to identify the company throughout the European Union. A duly authorized management board member or an accountant of the company can apply for an EORI number.

Estonia offers an E-Residency Program, which enables foreign investors to open companies here without coming to the country. The taxation in such cases will apply to the company registered here, while the business owner will be entitled to repatriate the profits earned in Estonia to his or her home country.

There are also businesses that do not require any actual company setup in Estonia, but rather just a simple method of maintaining communication with their business partners in this country. They could benefit too from the advantages offered by a professional and prompt virtual office in Estonia.

Our clients will receive a prestigious business address which they will be able to safely use for their business correspondence. We will collect their mail and send it to them according to their instructions either by mail, fax or email. They will also have access to a local phone number in Estonia, incoming and outgoing faxes and voice mailbox, so all their voice messages will be forwarded to them by email. 

There are also businesses that do require an actual physical office – for example a Estonian OU Cryptocurrency License. OU is the perfect solution for those operating fintech companies in Estonia.

Among the uses of an OU in Estonia, we emphasize the following:

• It can be used as a shelf company which can be bought by local or foreign entrepreneurs quite quickly;
• It can also be used as a subsidiary company by foreign enterprises interested in having a presence in Estonia;
• It can be used for opening online shops and other types of e-commerce companies in Estonia;
• It can be used for creating joint ventures with foreign or other local companies;
• The OU can be turned into an AS by increasing its share capital if it is to be used for trading on the Stock Exchange.

Any company, regardless of its establishment form , must be managed by an executive board, in charge with the company’s rights, obligations and responsibilities. Board members must do everything to ensure that the company operates and develops its activity ​​in accordance with law provisions. Board members are responsible for all areas (marketing, sales, financial management) and are jointly responsible for the decisions taken in the company’s name, unless otherwise noted.

Holdings and subsidiary companies in Estonia

One of the main uses of an Estonian company is that of serving as a subsidiary for a holding company. The latter can be registered in Estonia or abroad and has the main purpose of owning shares or other assets in the Estonian subsidiary. The holding company will also control the management of the subsidiary.

An important aspect of holding companies in Estonia is that they can be subject to the Parent-Subsidiary EU Directive which allows for a favorable taxation system applied to both the holding and its subsidiary/subsidiaries. We can also assist with EORI registration services in Estonia.

Estonian Holding Company – OU

The holding company is one of the preferred business options of foreign investors coming to Estonia. Because of the many tax advantages the holding company offers, setting it up as a private limited liability company can significantly increase the advantages of overseas entrepreneurs deciding to create it. The holding company is also a good choice for multinational companies seeking to own shares in other companies.

Estonian Subsidiary Company – OU

The OU can be used for various purposes and foreign companies interested in expanding their operations in Estonia will usually choose it to create subsidiaries.

The subsidiary is an independent business entity from the parent company which allows for complete independence and more options in terms of activities to be completed. The OU is the suitable entity for a subsidiary because it requires a small share capital to start with and because the parent company will be the sole shareholder in the company.

The OU can be set up in a matter of a few days. However, it is necessary to keep in mind that the licensing procedure can take longer, especially when special approvals are needed.

If you are interested in opening an Estonian company and need advice, do not hesitate to ask for the support of our team. We can assist with the entire business registration process and we can advise on the licensing procedures.

Verify an Estonian OU

An Estonian private limited liability company must benefit from a supervisory board’s presence if it meets one of the following criteria:

• The total share capital of the company is over 400,000 EEK (approx. 28,000 EUR),
• The management board has less than three members,
• The annual turnover exceeds 10 million EEK and there are more than ten employees in the Estonian OU,
• The balance sheet is over 5 million EEK (approx. 700,000 EUR) and there are more than ten employees of the Estonian OU.

The supervisory board’s duties are to overview the company’s activities and those of its management. The general meeting will receive the results of a review. The supervisory board must have three members unless the Articles of Association prescribe a greater number of members. A member of the supervisory board must be a natural person with active legal capacity.

Estonian portals, KREEDIX and KREDIIDIINFO, can provide the primary information of Partners, board members and their payment behavior.

E-residency in Estonia

Estonia was the first country in the world to create an e-residence program. The novelty of this program consists in the fact that a person from another corner of the world can obtain an electronic identification and signature which can be used to open an Estonian company. It is important to note, however, the e-residency does not replace the regular work and residence permits in Estonia. Estonia is one of the most technologically advanced countries in the world, almost all the residents here having electronic IDs.

E-residents in Estonia can operate their Estonian company even if they are not present in the country and they do not need to deal with company relocation issues. Moreover, there is no need for the company to have a local director, full foreign company ownership is permitted.

E-residents can:

• Open a company in Estonia regardless of where they are in the world,
• Access online banking and online payment options, according to their preferences,
• Sign contracts, authenticate documents regardless of the location in which they are at the time,
• Conveniently manage the tax requirements for their company in Estonia.

Investors who do want to set up their business in the country can request the special virtual office services provided by our company registration agents in Estonia. We can provide the package that offers office space and local secretary services.

E-resident application and company registration in Estonia

The e-residency application is performed online and involves a few steps. The applicant must submit a number of documents, fill in and submit the online secure form and wait for his application to be processed. If the application is approved, the entrepreneur receives a digital ID card.

The documents needed for applying for e-residency in Estonia are the following:

• ID copy;
• Passport photo;
• Motivation statement;
• Valid credit card (card exceptions apply).

The digital ID card runs with a special software that allows its user to perform the needed activities.Repatriation of Profits from Estonia <OPTIONAL CONTENT – ANOTHER PAGE>

Estonia is one of the most prolific economies of the European Union thanks to the recent innovations enabled by the government, such as the e-residency program, which enables foreign investors to open companies here without coming to the country. The taxation in such cases will apply to the company registered here, while the business owner will be entitled to repatriate the profits earned in Estonia to his or her home country. However, there are a few rules to respect when remitting profits from Estonia to another country.

Our company formation specialists in Estonia can provide assistance related to the taxation of companies and foreign citizens doing business here and can also advise on the repatriation of profits. We can also help those interested in setting up businesses in Estonia.

When can a company remit profits from Estonia to another country?

In order to be allowed to repatriate profits, the foreign owners of an Estonian company must first ensure that the whole capital of the business was deposited and that the Companies Register has taken evidence of the deposit. It should be noted that both foreign companies and citizens are allowed to remit profits earned in Estonia

In order to be allowed to distribute these profits, the company must first file the tax returns with the Tax Office in Estonia.

What are the ways of repatriation of profits from Estonia?

Estonia has a one-of-a-kind taxation system, especially when it comes to remitting profits from here to another country. This system implies for the taxes imposed on the taxpayer to be levied at the moment of the distribution of the profits instead of the moment when the tax is imposed.

Foreign investors and companies seeking to remit the profits earned in Estonia to their home countries will be able to do that by distributing the dividends earned from the company or by distributing donations, gifts and other money generated by the company.

Our Estonian company formation agents can offer more information on the taxation system applicable in this country and most of all, the taxation of companies. They can also assist you if you want to open a company in Estonia.

Remitting profits from dividend payments from Estonia

One of the most common ways of repatriating profits from Estonia is through dividend repayment. This implies:

• Paying the corporate income tax on the distribution of dividends at a flat tax of 20%,
• The taxation of dividend payments will be imposed on foreign citizens, but also Estonian branches of foreign companies,
• Starting with 2019, the distribution of dividends will be imposed a lower tax rate of 14%,
• In the case of natural persons, no matter if foreign or Estonian citizens, an additional 7% tax rate will apply upon the distribution of dividends,
• The distribution of profits under the form of dividend payments are linked to the double taxation treaties signed by Estonia.

Capital gains and interests can also be repatriated as profits to another country. In this case, capital gains will be subject to the same corporate tax rate of 14% starting with 2019. When it comes to interest payments, these will be taxed only if they are remitted by investment funds created as contractual funds in Estonia. The tax rate, in this case, will be 10%. Estonia does not levy and branch remittance tax.

Filing tax returns when repatriating profits from Estonia

In order to be able to repatriate their profits legally, both natural persons and companies from abroad are required to submit the following financial documents with the tax authorities in Estonia:

• The personal income tax return in the case of natural persons must be filed,
• Companies remitting profits must file the corporate tax returns with the Estonian Tax Office,
• In the case of subsidiaries and branch offices, the parent companies must also submit audited annual balance sheets,
• After the distribution of the profits, the company must file the corporate tax return by the 10^th of the following month after the remittance.

We mentioned earlier that under Estonia’s Double Tax Treaty payments can benefit from various tax deductions or exemptions. This also applies when foreign companies or citizens remit income earned in Estonia. In most cases, the tax paid in their home country can be deducted from the taxable income which was registered as a profit in Estonia. Also, any tax which has no correspondent in Estonia will not attract any additional income tax here.

Holding company in Estonia

A holding company in Estonia is a group of several businesses under the same umbrella and this structure is motivated by a number of advantages received by the contractor.

An Estonian holding company retains its identity and form of organization, as well as its place in the supply and sales markets. The connection between the main company (parent company) and subsidiaries is made in the financial, technology and investment sectors. In Estonia, a holding company establishes the directives for the companies under its control in the financial, management and marketing of products.

By creating a holding company in Estonia, the founders facilitate the acquisition of smaller companies and even larger enterprises in the sphere of control.

Requirements for setting up an Estonian holding company

Those who want to set up holding companies in Estonia must keep in mind a few requirements imposed by the Company Law in this country. Among these, we point out the following:

• A set of documents which need to be lodged with the Companies Register must be prepared,
• The minimum share capital to be deposited must correspond to the selected business form,
• Residency requirements are no longer required for the shareholders of the company,
• The company must have a management board, however, no residency requirements apply anymore,
• A registration fee must be paid upon the incorporation of a holding company in Estonia.

How to set up a holding company in Estonia

The Estonian law provides that a holding company can be established here only when it is registered or incorporated in Estonia. An Estonian holding company can be shaped in two business forms, as a private limited company (OU) or as a public company (AS).

The minimum share capital that must be deposited in order to open a holding company in Estonia is EUR 25,000 when it takes the form of an OU or EUR 2,500 when it is registered as an AS. The founders must be aware that these amounts must be paid in full before registration.

The registration of a holding company starts with the drafting and notarization of the Articles of Association, followed by:

• The reservation of the company name with the Trade Register in Estonia,
• Filing of the Articles of Association and information about the shareholders,
• Appointment of the company’s management board based on the resolution of the shareholders,
• The opening of the bank account and deposit of the share capital for the company to operate.

There are no specific licenses to be obtained when opening a holding company in Estonia.

The uses of a holding company in Estonia

A holding company can be used for various purposes, which is one of its greatest advantages. Among these, we remind you of the possibility of owning and controlling various types of assets in subsidiary companies. Among these assets, real estate and intellectual property are the most common. For these purposes, we can distinguish between pure holding companies which own shares in other businesses and operating holdings which also control and manage other companies in Estonia. However, most of the time, foreign investors set up holding companies in Estonia with the purpose of owning various types of assets.

Holding companies can also be established with the purpose of reducing certain taxes under the EU Parent-Subsidiary Directive.

Under this directive, a holding company must hold at least 10% of the shares in a subsidiary company, in order for the subsidiary to be liable for paying the dividend tax, which can later be recovered by the holding company.

Taxation of holding companies in Estonia

Unlike other EU countries, Estonia does not have a specific tax regime for holding companies, but is certainly preferred by foreign entrepreneurs interested in innovation, as the taxation of such investments are quite attractive. Starting with 2015, the corporate tax rate in Estonia has been set at 20%, however, Estonian holding companies which have not distributed any profits are exempt from taxation. If the holding company distributes some of the profits to resident or non-resident shareholders, the exemption will be applicable to the remaining undistributed profits.

Another important aspect related to the taxation of holding companies is that non-resident shareholders will not be subject to the withholding tax on dividend payments distributed by the holding.

You can rely on various accounting services for your holding company in Estonia if you are a non-resident.

Fiscal advantages of a holding company in Estonia

The fiscal advantages of a holding company in Estonia are the existence of a favorable tax regime, particularly the taxation of dividends received and /or paid, the possibility of implementation of European directives on the taxation of payments of dividends, interest, and royalties between related companies established in the EU. By a holding company in Estonia, there also exists the possibility of applying the avoidance of double taxation, under which the tax rates on dividends, interest, and royalties may be lower than those provided by law. Moreover, resident companies and permanent establishments registered in Estonia are not taxed on their income. These entities are only charged with the corporate distribution tax.

What are the non-fiscal advantages of a holding company in Estonia?

The creation of a holding company in Estonia also offers non-fiscal advantages, for example, the possibility of paying dividends during the year and also financial market stability. Among other advantages, there can also be considered the potential advantages in terms of the foreign exchange regime and the confidentiality regarding the identity of shareholders. A holding company in Estonia also has easier access to financing and listing on mature financial markets and is more stable and predictable.

Establish a subsidiary in Estonia

A subsidiary is a form of business opened by a foreign company in Estonia with a majority of share capital owned by it.

It is considered a legal entity and has a higher degree of autonomy than a branch. A subsidiary registered in Estonia must keep its own accounts and usually pay the corporate tax on profits in the country of origin.

Types of companies that can act as subsidiaries

The forms that a subsidiary can take in Estonia are the public limited liability company and the private limited liability company.

The name of the subsidiary established in Estonia must be unique. For this purpose, the name has to be checked online in the Estonian Commercial Register and reserved if necessary.

An Estonian public limited liability company must provide a minimum share capital of 25,000 Euros, unlike a private limited liability company which’s capital must be formed by at least 2,500 Euros.

The management of a public limited liability company is assured by a board of managers and a board of supervisors. The private limited liability company is managed by a management board and only optional by a supervisory board.

The management board must be formed by at least one member, if there are more than one, a chairman must be elected. The supervisory board is formed by at least three members. Only the members of the management board may sign in the name of the subsidiary different documents and conclude contracts.

The liability of the company’s members is limited by their contribution to the capital.

The main characteristics of subsidiaries in Estonia

The establishment of a subsidiary in Estonia is governed by the Company Law which applies equally to local and foreign entrepreneurs. The representatives of foreign companies seeking to have a presence in Estonia and deciding for a subsidiary should know that:

1. The subsidiary will be treated just like any other domestic company from a legal point of view,
2. It has complete autonomy in relation to its parent company, therefore it has full decisional power,
3. It requires a single shareholder (its parent company) and it can be registered as limited liability company in Estonia,
4. The registration requirements are easy, while the timeframe for setting it up is reduced;
5. The cost of opening a subsidiary, however, is higher than that of starting a branch office in Estonia,
6. Like any other local company, the subsidiary must have a legal address in Estonia.
7. Our Estonian company formation specialists can offer more information on the characteristics of subsidiary companies.

The subsidiary as a domestic company in Estonia

Often compared to the branch office, the subsidiary company has several advantages over the branch because it will be treated as any other local business. This is because it will complete its activities under one of the most popular business forms in Estonia, the limited liability company, but also because it will benefit from the simplified company registration procedure.

Apart from these, an Estonian subsidiary set up by a foreign company will be treated the same way as all domestic businesses. This means it will pay the income tax on its worldwide income in Estonia and will also benefit from this country’s double taxation agreements in terms of repatriation of profits.

It is possible for local companies to also operate through subsidiaries, however, because the activities of a subsidiary can differ from those of the parent company, which is why Estonian-based companies do not resort to the subsidiary as a means of doing business.

If you need information about the treatment of subsidiaries as local companies, our company registration agents in Estonia can provide you with it. We can also handle the preparations for registering a subsidiary in Estonia without the representative of the foreign companies coming here.

Companies are also required to go through the Estonia VAT registration process upon reaching a certain threshold.

Requirements for registering a subsidiary in Estonia

Foreign companies interested in establishing subsidiaries in Estonia must comply with a set of requirements prior to starting the registration procedure. Among these, it is important for the foreign company to select a business name for the subsidiary. Unlike the case of a branch office, the subsidiary needs not bear the same name as the parent company, thus enhanced flexibility being provided.

The foreign company will need to find a registered address in an Estonian city (usually, the one it intends to operate in) for the subsidiary. Another requirement for the parent company is to prepare the documents required for company registration in Estonia.

It is also the parent company’s duty to select the business activities the subsidiary will undertake in Estonia. These can be the same as the foreign business’ or others.

Subsidiary registration in Estonia

Before starting any activities, certain types of companies must register in the Register of Economic Agency, for example companies which perform activities in the following areas: building, tourism, employment, travel, accommodation services, mining, pest control, industry or liquid fuel.

All the legal entities must register in the Commercial Register after opening a bank account and depositing the minimum share capital so the subsidiaries are no exception. The main difference is that the decision of opening a subsidiary  in Estonia must be attached to the specific documentation (articles of association, list of shareholders and their contribution, details regarding the non cash contribution) and request for registration.

Another requirement for registering a subsidiary in Estonia is to register for VAT and for the Central Sick Fund of Estonia. The last step is only for the subsidiaries which will hire personnel.

Activities completed by subsidiaries in Estonia

The activities of a subsidiary set up by a foreign company in Estonia can be the same as those of the parent company, however, it can also undertake additional activities and thus adjust to the market conditions in this country. From this point of view, the subsidiary is more flexible than the branch office which is bound to complete the same undertakings as its parent company.

The subsidiary can be used for completing trading activities, for operating in the retail sector where it can sell various goods, or it can be used by holding companies seeking to own shares in an Estonian company.

Estonia is a good country for starting an IT company, which is why a subsidiary company can be used for various activities such as fintech and cryptocurrency-related activities. This is because in Estonia cryptocurrencies are recognized and companies can operate under virtual currency services licenses.

Our agents can help foreign investors who want to set up cryptocurrency companies in Estonia.

Licensing requirements for subsidiaries in Estonia

In order to complete business activities in Estonia, a company will need to apply for specific licenses with various authorities, agencies or ministries depending on the industry it will operate. The same requirements apply to Estonian subsidiaries which are required to apply for such licenses through their representative. The licensing procedure will be completed the same way as for any other company in Estonia.

Taxation of subsidiaries in Estonia

Estonian subsidiary companies will be treated just like local companies from a taxation point of view. This means they will need to register for taxation purposes with the Estonian tax authorities and pay the corporate tax on their worldwide income. The Estonian corporate tax is currently levied at a rate of 20%.

The subsidiary is also subject to the same accounting and filing requirements like domestic companies. However, they are entitled to obtain tax deductions and exemptions in accordance with Estonia’s double taxation agreements, provided that the parent company’s home country has signed such a convention with Estonia.

Taxation of the OU in Estonia <OPTIONAL READ – PROVIDE AS A LINK>

The OU will be taxed on its worldwide income in Estonia, however, it is good to know that this country has one of the most advantageous taxation systems in the European Union.

The following taxes need to be considered when setting up an OU in Estonia:

• The corporate tax which is levied at a rate of 20% (the tax is calculated as 20/80 of the net dividends received by the company);
• The dividend tax rate was reduced starting with the 1^st of January 2019 and is now set at 14%;
• The VAT is levied at a standard rate of 20%, however, 9% and 0% reduced rates are also available;
• The social contributions a company must pay are the 33% social tax and the 0.8% unemployment insurance tax on the gross salary of an employee.

Direct and indirect taxes in Estonia

The taxation system of Estonia is made of direct and indirect taxes which are further divided into:

1. The personal income tax which is imposed to natural persons generating money from various sources;
2. The corporate tax which is imposed on the profits of companies based on their residency;
3. Labor taxes which are imposed on both employers and employees in Estonia;
4. The value added tax which is the most important indirect tax as it is a large contributor to the economy;
5. Withholding taxes which is are imposed on various income sources and which can benefit from tax deductions or reductions;
6. Other taxes which comprise municipal levies, real estate taxes and land taxes.

It is important to note that Estonia is among the few worldwide countries that use an electronic tax system which eases the filing of tax forms with the local authorities.

How to determine the taxes to pay in Estonia

Just like in other European countries, the taxation system in Estonia relies on the fiscal domicile of a person or company in order to determine how these will be taxed. The fiscal domicile is directly connected to the residency of natural persons and to companies having a management place or main headquarters in Estonia in order to be taxed on their worldwide income.

There are also special regulations on the taxation of foreigners (persons and companies) with activities in Estonia, the main aspect to consider being if any bilateral treaty is in place between Estonia and their countries of residence. In their case, the income tax will be levied on the profits or other income generated in Estonia.

Based on their residence, both Estonian residents and non-residents can benefit from various tax incentives. This is also the case of companies with operations here.

Corporate tax in Estonia

The tax system in Estonia does not require the payment of a corporate tax for undistributed profits, a characteristic quite unique to Estonia. The exempted undistributed profit covers both active and passive types of income, as well as gains from sales. This tax regime is available for both Estonian companies registered in Estonia.

The corporate tax in Estonia is levied at a rate of 20%, however, in 2019 a few modifications brought to the taxation system provide for a reduced rate of only 14% if a company’s taxable profit in a calendar year is lower or equal to the average taxable profits in the previous 3 years. For 2020, there is a transition period for this lower rate to be implemented. For 2019, the reduced rate is levied on 1/3 of the taxable profit for 2018, while in 2020, the reduced rate will be applied to 1/3 of the taxable profits for 2018 and 2019.

When it comes to the profits falling under the corporate tax in Estonia, the following are subject to levies:

• Dividends;
• Share buy-backs;
• Proceeds resulted from liquidation;
• Capital reductions;
• Distribution of profits.

Undistributed profits of companies are tax-free in Estonia.

If you have questions about the taxation of companies in Estonia, our specialists can help you. We also offer various accounting services to local and foreign investors.

When it comes to foreign companies operating through permanent establishments in Estonia, among which are branch offices, these will be taxed on the profits earned here. Even so, these can benefit from special tax rules in accordance with the provisions of double tax treaties (where these exist). At the moment, Estonia has more than 50 Double Tax Treaty Agreements in place.

Taxable income in Estonia

Estonian Tax Authorities levy a corporate income tax only on profits that are distributed as capital reductions, dividends, share buy-backs, liquidation incomes or profit distributions. This tax is regarded as a corporate income tax in Estonia, and not a withholding tax and therefore it cannot be subject to double tax treaties. The distributed profits are subject to a 21% tax rate.

Other types of taxes in Estonia

Taxation of Dividends in Estonia

Dividends are not subject to a tax rate in Estonia.

Dividends represent a part of the profits of an Estonian company which are distributed among the shareholders after the business has paid all the taxes. Both natural persons and legal entities are imposed with the income tax on the dividends received from an Estonian company.

How are dividend payments taxed in Estonia?

The Estonian taxation system implies for the corporate tax to apply to all types of incomes generated by local companies and foreign companies with activities in this country. Under the current tax legislation, dividend payments imply the following:

• Estonian natural persons can be taxed when receiving dividends from an Estonian company,
• Estonian residents can be taxed when receiving dividends from a foreign company,
• Foreign companies can also be taxed when receiving dividends from an Estonian company,
• An Estonian company can be taxed when receiving dividends from a foreign company.

While the taxation of Estonian companies and natural persons follow the requirements of the local legislation, the taxation of foreigners and overseas companies must also comply with the tax requirements imposed by their home countries. These relations are usually governed by the Double Tax Treaty Agreements.

Taxation of dividends distributed by companies in Estonia

Taxation of dividends in Estonia applies for residents and non-residents that act through their permanent establishment registered in the country. Dividends are subject to income tax as well as other profit distributions received by an Estonian Citizen from a foreign legal person in either monetary or non-monetary form.

If a resident company or a non-resident legal entity receives payment from outside Estonia, the income tax that has to be paid abroad can be deducted from the amount of profit taxable in Estonia. However, if a tax is paid in a foreign state on an income that has no tax applied in Estonia, a deduction will not be taken into consideration.

Undistributed profits are not subject to tax in Estonia, but there is a 21% charge rate on Estonian gross dividends. This tax is calculated as 21/79 of the net dividend, as well as corporate income tax in Estonia, according to the corporate tax system applied here.

If certain conditions are respected, the retribution of dividends is not taxed in Estonia. Dividends received from a subsidiary that is part of the EEA Member State or Switzerland are not taxable if at least 10% of the shares or votes are held by an Estonian company, and if the tax has been paid or withheld. In addition, this exemption method can be applied to paid dividends generated by the profit that is attributed to a resident’s company. If Estonian dividends are received from companies in low tax jurisdictions, the exemption is not applied.

If an Estonian company receives the income and dividends are paid from profit that has been earned until the year 2000, then the company does not qualify for the exemption.

Resident companies, as well as branches in Estonia or permanent establishments of foreign entities, have to pay income tax on all distributed profits, including corporate profits distributed in the tax period, gifts, donations and representation expenses, as well as expenses and payments that are not related to the business.

The corporate tax in Estonia

The Estonian corporate taxation system is unique and shifts the moment of corporate taxation in Estonia from the generation of profits to the distribution. In regards to distribution, there are two possible types of profit distribution, an implicit type, and an explicit type. The explicit type refers to Estonian dividends and other profit distributions, while the implicit type handles the way profits are distributed through fringe benefits, gifts and donations, adding expenses and payments not related to the business activity.

A resident legal person as well as the non-resident legal person that acts through a company registered in Estonia, carrying out profit distribution, must pay 21/79 of the profits distributed.  

New Estonian tax regulations starting with 2019

An important change brought by the Estonian government to the taxation system targets the corporate tax which also comprises the levies imposed on dividend payments. Under the new regulations, the Estonian Tax Office provides for the following:

• Dividend payments subject to a reduced rate of the corporate tax will be applied a 7% withholding tax when distributed to natural persons – Estonian or foreign citizens;
• The distribution of dividends will be subject to a reduced rate of 14% if they do not exceed the average taxable amount of money distributed in the last 3 years;
• In order to benefit from a reduced tax rate of dividend payments, the distribution must represent 1/3 of the profits of the company distributed in 2018;
• The participation exemption will apply just like before when it comes to the Parent-Subsidiary Directive.

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Double tax treaty agreements in Estonia

Estonia is among the countries which have signed many double tax treaties in order to attract foreign investors by avoiding the double taxation of their incomes and capital.

The regulations of the double tax treaties may be applied only if the legal entity can prove his residency in another country. In order to do that a certificate of residency must be issued by the foreign tax authority and deposited at the custom centre of the Estonian Tax and Customs Board. Along with the certificate of residence, the applicant must submit the tax return.

The Estonian tax and Customs Board offers on its website the form available for certifying the foreign residency and the recipient of income. These certificates must be used no longer than three years by corporate bodies and one year by natural persons. After this period, it becomes invalid.

If the retained income tax is higher than what is stipulated by the double taxation treaty, the legal entity may apply for refund at the Estonian tax and Customs Board no longer than three years after discovering this situation. In the application, the payer’s bank account and the total amount of the refund must be stipulated.

The withholding taxes on dividends, interests and royalties applied to the treaty countries starts with a rate of 0 % that can grow to 10%.

Usually, a non-treaty country has its interests taxed at a rate of 21% and royalties taxed at a rate of 10%.

Here are the signatory states and jurisdictions: Albania, Armenia, Azerbaijan, Austria, Belarus, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, Ireland, Isle of Mann, Israel, Italy, Kazakhstan, Korea, Latvia, Lithuania, Luxembourg, Macedonia, Moldova, Malta, Netherlands, Norway, Poland, Portugal, Romania, Serbia, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom and the United States.

The withholding taxes on dividends, interests and royalties with the Isle of Man and Georgia are 0% regardless of the situation.

The dividends are not taxable in Estonia for both treaty and no treaty countries. The interests are also taxed only if the interest rate is above the market rate.

As a particularity of the treaties concluded by Estonia is that the majority of them stipulate that the foreign tax is relieved by exemption and rarely through the credit method.

Fringe benefits for employees in Estonia

Companies that employ in Estonia are liable for taxation on any fringe benefits granted to any of its employees, including directors. Only the employer has the obligation to pay taxes on the fringe benefits given to the employees. These benefits are subject to 21/79 corporate income tax and 33% social tax. Please address our company formation specialists for more details on these types of  taxes in Estonia.

Foreign exchange taxes in Estonia

Gains from foreign exchange gains are tax neutral because in Estonia there are no taxes levied on undistributed corporate profits.

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VAT registration in Estonia

The Estonian taxation system is made of direct and indirect taxes. The income tax which is imposed to individuals and companies is the most important direct levy, while the value added tax (VAT) is the most important indirect tax.

The value added tax is collected by Estonian companies producing and supplying goods and services, however, it is charged on the final consumer, which is why it is called an indirect tax. In order to collect the VAT, companies must first register with the tax authorities and obtain VAT numbers.

VAT in Estonia

The standard VAT rate in Estonia is 20% from 1 July 2009 and applies for a wide range of goods and services. A reduced rate of 9% applies to several products like books, newspapers, accommodation and medicine. Intra-community supply of goods and export of goods are subject to a zero-rated VAT in Estonia. The same is available for services like health, insurance or postal services. 

Estonia applies an extended VAT reverse charge mechanism. If an Estonian VAT taxable person wants to conduct B2B transactions with a foreign entity it can issue an invoice with a zero VAT rate  that must contain an explanation or a reference to a legal norm that allows for zero rate application.

Register for VAT in Estonia

If the total value of taxable supplies for a company in Estonia, either foreign or local, exceeds 16,000 EUR that the respective company is required to register for VAT. Voluntary registration is also possible even if the threshold is not reached. Usually, the presence of a VAT representative is only required for the registration of non-EU businesses.

When registering a non-EU company for VAT in Estonia, the company owner must be present, since options like e-mail, post or fax registration are not available. However, if the respective person cannot be physically present, it is possible to use either an authorized person or a tax representative appointed by power of attorney. This person will submit an application for VAT registration in Estonia with the Northern TAX and Customs Center. They will register the new company as a taxable entity. 

VAT registration thresholds in Estonia

As mentioned above, when opening a company in Estonia, the respective entity does not automatically become liable to pay the VAT. If the business does not register for VAT voluntarily, upon the reaching of a certain turnover, it is required to apply for a VAT number in Estonia.

Once the following thresholds are reached, VAT registration becomes mandatory:

• 40,000 euros for companies with a turnover at the beginning of a calendar year;
• 35,000 euros for foreign companies selling goods over the internet to Estonian customers.

VAT registration must be completed with the Estonian Tax and Customs Board, just like when applying for an EORI number.

In Estonia, the standard VAT rate is 20%, but there are also some exceptions. For example, a 9% VAT rate applies to books, newspapers, medicine and accommodation, while postal, health and insurance are exempt from VAT altogether.

Companies with VAT numbers can also apply for EORI registration in Estonia.

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EORI registration in Estonia

Upon its admission in the European Union in 2004, Estonia obtained various rights among which easy access to the Intra-community market. The access to the EU came with simplified customs procedures which require companies established in Estonia to obtain EORI numbers. EORI stands for Economic Operators Registration Identification and was introduced in 2009 as a replacement of the Trader’s Unique Reference Number (TURN) system.

Individuals and companies engaging in customs operations on Estonian territory are required to apply for EORI numbers in Estonia.

EORI number requirements in Estonia

The EORI system became mandatory in 2010 in this country and ever since all companies involved in import-export activities required EORI registration in Estonia. The main important aspects to consider when it comes to registering for EORI is that this is a mandatory requirement for:

• Individuals (natural persons),
• Sole traders,
• Local companies,
• EU-based companies,
• Non-EU based companies.

Estonia EORI registration must be completed upon the first interaction with the customs authorities in the case of local entities and citizens. EU companies will obtain their EORI numbers with their home country customs, while foreign companies can apply for EORI registration with the Estonian authorities if this is the first country in the EU they engage in customs activities with.

The main advantage of EORI registration is that no matter the country of provenance of the applicant, the procedure is the same.

In the case of Estonian citizens or residents and companies with management or legal seats here the procedure is completed in a very short period of time.

Documents required for EORI registration in Estonia

The documents required when applying for an EORI number are the same for both Estonian and foreign entities, the main requirement being for the entity to have a VAT number. In other words, a company must be registered for VAT in Estonia or its home country in order to be able to access the EORI system.

The following documents must be filed with the Estonian Tax and Customs Board in order to obtain EORI numbers:

1. The application form issued by the Board (it should be noted all forms are issued in Estonian),
2. A copy of the identification document of the person applying for the EORI number,
3. A document indicating the identification data of the company (the VAT number is mandatory),
4. Holders of TIR Carnets must also submit a copy of their carnets with the Estonian authorities,
5. Other documents could be required for non-EU companies applying for EORI via email.

As mentioned above, all documents released by the authorities here are in Estonian, which is why if you are a representative of  a foreign company you can rely on our company registration agents in Estonia for help in completing all the formalities.

Appointing a representative for EORI registration in Estonia

Business owners do not need to apply in person for EORI numbers in Estonia, as they can appoint representatives to act on their behalf. Apart from the documents mentioned above, a power of attorney and identification papers of the representative will be required. The procedure will then be completed the same way as if the owner requests the number. Applications for registering for EORI in Estonia are filed via email for local and foreign operators.

The issuance of Estonian EORI numbers is completed in a matter of days for both local and foreign economic operators.

The VAT number as part of EORI registration in Estonia

Registering for VAT is a mandatory condition to obtain an EORI number in Estonia, therefore, no matter if a business or natural person has made taxable supplies that meet the mandatory registration threshold or not, will be required to apply for a VAT number before requesting the EORI number.

We remind investors that if they want to open trading companies in Estonia, they can rely on us for complete assistance in obtaining the necessary licenses for their activities. These include VAT and EORI registration.

Foreign operators applying for EORI registration in Estonia

EORI registration is not required for companies and natural persons acting as economic operators and located in the European Union alone, but also to foreign companies and sole traders or other business forms from non-EU countries. In their situation, the procedure must be completed prior to arriving in the EU. A foreign economic operator can apply for an EORI number in Estonia if this is the first EU country it trades in.

The documents required for EORI registration for non-EU operators are the same as for EU-based traders, therefore there is no need to complete other additional steps to obtain this number. Just like in the case of local operators, foreign ones need to register for VAT in their home countries before applying for EORI numbers in Estonia. However, it is important to note that the number issued will start with Estonia country code, EE, and will be available and recognized by all other member states.

The documents required to register for EORI in Estonia can be sent via email and the number is issued within a matter of days.

Our Estonian company formation consultants can guide foreign investors who want to apply for EORI numbers here.

Activities associated with EORI numbers in Estonia

Obtaining an EORI number has many advantages for Estonian companies which will benefit from streamlined customs procedures within the EU, but also for the local customs authorities which will be able to process and obtain information about traders in a fast manner.

There are various activities which can be completed based on EORI number and among these we mention the following:

• Filing of various customs declarations with the Estonian and other EU customs authorities,
• Filing of Entry Summary Declarations and Single Administrative Documents (SAD) declarations,
• Filing of temporary storage declarations and warehousing declarations for such activities,
• Acting as carriers for transporting goods by sea, air or land within the EU territory,
• Receiving various notifications and information from other EU customs offices.

Our Estonian company formation consultants can offer more information on the activities to be completed based on EORI numbers. They can also help you open a company in Estonia.

Importing and exporting in Estonia based on the EORI system

One of the main reasons the EORI system was introduced at the level of the EU is to simplify the import-export and customs procedures companies needed to go through when entering the European Community.

Even if the EORI number can be used for completing various actions, most Estonian companies and foreign ones take advantage and use it when importing or exporting goods into/outside Estonia. With the EORI number, the procedure is simplified a lot by the need to submit fewer documents when the products are originated in another EU country.

It should be noted that when importing goods from non-EU countries, specific licenses, including import permits are required. Apart from these, documentation related to the transportation and origin of the goods is required.

Among the papers that need to be filed with the Estonian Customs Board when importing certain goods are:

• The Single Administrative Document (SAD);
• Invoices and documents which must be completed in accordance with the EU’s Customs Code
• Certificates of origin, packaging list, etc.

When importing food products of animal origin, firearms, tobacco and cigarettes, special conditions apply.

De-registration from EORI in Estonia

It is possible to de-register from the EORI system in Estonia voluntarily, if a company ceases its trading activities or if it terminates its activities for good and is also de-registered from the Trade Registrar. Foreign companies can also renounce the EORI number, however it is important to understand that they can come back and reapply for it. The former EORI number will be reassigned. The EORI number has no expiration date.

Another important thing to consider is that economic operators can have their data and EORI numbers published with the European Commission with the purpose of easing the interaction with all EU states’ customs authorities.

If you want to open an Estonian company, do not hesitate to ask for our support.

Trading in Estonia

Estonia is a very prolific economy within the European Union and trading is one of the most important supporters of the economy. According to data released at the beginning of January 2020:

• Between November 2018 and November 2019, Estonian exports represented 1.2 billion euros of the economy.
• During the same period of time, the Estonian imports amounted to 1.3 billion euros.
• The Netherlands was one of Estonia’s most important export partners; exports here rose by 32 million euros last year.
• 74% of the goods existing in the country were locally produced goods.

The personal income tax in Estonia

The personal income tax in Estonia applies to residents on salaries, wages, bonuses, business incomes, interests, royalties, rents, capital gains, pensions. Residents are exempt from paying the income tax on dividends for Estonian or foreign companies when profits have already been taxed.

Non-residents will only pay the income tax if the money is earned on Estonian territory and it includes employment contracts or business conducted in Estonia, royalties, leasing or vending of properties in Estonia, pensions.

Social tax in Estonia

The social tax in Estonia is 33% for employers and it is divided into 20% for social security and 13% for health insurance. Employers will pay this amount on all payments made to employees except for those exempt by law. Fringe benefits and the income tax are included too. Only employers and persons engaged in business have to pay social tax.

Salaries are subject to unemployment insurance premiums of 2,8% of the employee gross salary and 1,4% paid by employers of monthly gross salaries and the funded pension payment of 2% of the gross salary of a resident employee.

Local taxes in Estonia

There are some local taxes imposed by the municipality in certain areas in accordance with their Local Taxes Act, however these cases are very rare. The few municipalities that actually impose taxes, refer to sales and advertisement taxes, road and street closure taxes, parking charges and vehicle taxes, taxes on keeping animals and entertainment taxes.

Real estate and land tax in Estonia

Land owners must pay a tax on an annual basis that is calculated based on the land value and rates between 0.1% and 2.5%, depending on the local authorities. The land taxes can be paid in three instalments, by 15 April, 15 July and 15 October. There is no tax on the value of buildings. Transfers of properties are generally subject to state and notary fees.  If you need more information about these types of taxes in Estonia, you can rely on our incorporation agents.

Benefits for foreign investors in Estonia

Even though there are no special tax benefits for foreign investors in Estonia, the tax system is rather unique and very favorable for any type of investments. The lack of corporate tax for certain profits is very attractive, together with economic stability, excellent location and well developed infrastructure. 

Why invest in Estonia?

Foreign investors are attracted to Estonia, the country occupying the 18^th position in the 2020 World Bank Doing Business Report. From a foreign direct investments (FDIs) point of view:

• In 2018, Estonia’s net FDI inflow was 1,3 billion US dollars,
• The total FDI stock was 24,3 billion USD, which represented 80.3% of the country Gross Domestic Product (GDP),
• The financial and insurance services attracted the majority of foreign investments – 28.6% out of all sectors,
• Sweden was the most important FDI investor in Estonia with a percentage of 27.7.

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Repatriation of profits from Estonia

Estonia is one of the most prolific economies of the European Union thanks to the recent innovations enabled by the government, such as the e-residency program, which enables foreign investors to open companies here without coming to the country. The taxation in such cases will apply to the company registered here, while the business owner will be entitled to repatriate the profits earned in Estonia to his or her home country. However, there are a few rules to respect when remitting profits from Estonia to another country.

Our company formation specialists in Estonia can provide assistance related to the taxation of companies and foreign citizens doing business here and can also advise on the repatriation of profits. We can also help those interested in setting up businesses in Estonia.

When can a company remit profits from Estonia to another country?

In order to be allowed to repatriate profits, the foreign owners of an Estonian company must first ensure that the whole capital of the business was deposited and that the Companies Register has taken evidence of the deposit. It should be noted that both foreign companies and citizens are allowed to remit profits earned in Estonia In order to be allowed to distribute these profits, the company must first file the tax returns with the Tax Office in Estonia.

What are the ways of repatriation of profits from Estonia?

Estonia has a one-of-a-kind taxation system, especially when it comes to remitting profits from here to another country. This system implies for the taxes imposed on the taxpayer to be levied at the moment of the distribution of the profits instead of the moment when the tax is imposed.

Foreign investors and companies seeking to remit the profits earned in Estonia to their home countries will be able to do that by distributing the dividends earned from the company or by distributing donations, gifts and other money generated by the company.

Our Estonian company formation agents can offer more information on the taxation system applicable in this country and most of all, the taxation of companies. They can also assist you if you want to open a company in Estonia.

Remitting profits from dividend payments from Estonia

One of the most common ways of repatriating profits from Estonia is through dividend payments. This implies:

• Paying the corporate income tax on the distribution of dividends at a flat tax of 20%,
• The taxation of dividend payments will be imposed on foreign citizens, but also Estonian branches of foreign companies,
• Starting with 2019, the distribution of dividends will be imposed a lower tax rate of 14%,
• In the case of natural persons, no matter if foreign or Estonian citizens, an additional 7% tax rate will apply upon the distribution of dividends,
• The distribution of profits under the form of dividend payments are linked to the double taxation treaties signed by Estonia.

Capital gains and interests can also be repatriated as profits to another country. In this case, capital gains will be subject to the same corporate tax rate of 14% starting with 2019. When it comes to interest payments, these will be taxed only if they are remitted by investment funds created as contractual funds in Estonia. The tax rate, in this case, will be 10%. Estonia does not levy and branch remittance tax.

Filing tax returns when repatriating profits from Estonia

In order to be able to repatriate their profits legally, both natural persons and companies from abroad are required to submit the following financial documents with the tax authorities in Estonia:

• The personal income tax return in the case of natural persons must be fileda
• Companies remitting profits must file the corporate tax returns with the Estonian Tax Office,
• In the case of subsidiaries and branch offices, the parent companies must also submit audited annual balance sheets,
• After the distribution of the profits, the company must file the corporate tax return by the 10^th of the following month after the remittance.

We mentioned earlier that under Estonia’s double tax treaties certain payments can benefit from various tax deductions or exemptions. This also applies when foreign companies or citizens remit income earned in Estonia. In most cases, the tax paid in their home country can be deducted from the taxable income which was registered as a profit in Estonia. Also, any tax which has no correspondent in Estonia will not attract any additional income tax here.

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Cryptocurrency exchange license in Estonia

Estonian cryptocurrency exchange license applies to transactions with funds that are recognized by the society and can be converted into a fiat currency. This license allows providing services for exchanging, circulating, transferring and storing virtual currency and cryptocurrency to their customers in local offices and worldwide using digital channels for transferring information. For example, Estonian license allows you to carry out operations with Bitcoin cryptocurrency. With cryptocurrency exchange license, you may receive funds from third parties as well as transfer them.

The company application can be submitted electronically using an e-residency card. After the company is registered, the following will be required: to rent a physical office, open a bank account, shareholder(s) are required to pay capital according to the owned percentage of company shares. Capital must be paid from a personal account. After that, the share capital must be registered with Estonian Business Registry. Then follows the preparation of business plan, employment of one Estonian local director, Estonian local legal representative and an AML officer.  In order to obtain the Cryptocurrency License, you will be required to prepare all sets of documents and execute POA to the Corporate Provider for submission of the application on your behalf to Estonian Ministry of Finance. Approval from the AML data office, an independent entity of the Police and Border Guard Department, takes approximately 60 days.

Requirements for obtaining of Estonian Cryptocurrency License:

• Business Plan,
• 12,500 EUR share capital must be deposited to the account of the company,
• At least 1 shareholder,
• 1 Estonian Local Legal Representative of the company,
• 1 Estonian Local Director,
• 1 AML/KYC, International Financial Sanctions Officer responsible for the communication with the state authorities https://www.riigiteataja.ee/en/eli/517112017003/consolide,
• Bank account – can be opened in Payment system,
• At least one contact person who is responsible for AML, International Financial Sanctions and for the communication with the state authorities,
• Annual rent of the physical office,
• Annual accounting and audited financial reporting required,
• Shareholders of the company have the right to simultaneously act as members of the board. A key requirement for the person responsible for AML is the continuous monitoring of clients’ activities with an objective to prevent money laundering and the financing of terrorism. In case of revealing suspicious activities, it is necessary to notify the state authorities of Estonia.
• Taxation of companies who deal with cryptocurrencies,
• Financial services of joint-stock companies are not subject to VAT. For companies, there is a zero income tax rate. The following taxes are compulsory:
  • 25% when dividends are withdrawn – the company itself decides how to distribute dividends,
  • 33% – the social tax on the personnel,
  • 20% – income tax;

1. When buying/selling cryptocurrency, taxable profit shall be calculated using the following formula:
   1. sale price – purchase price – costs directly related to the sale = profit subject to income tax in case of profit distribution.
2. When exchanging cryptocurrency, taxable profit shall be calculated using the following formula:
   1. market price of the property acquired by exchange – purchase price of the asset being exchanged – costs directly related to the exchange = profit subject to income tax in case of profit distribution.

Mining taxation

Mining as such (activity) is not subject to taxation, and the registration of a person liable to taxation is not required. If an individual is carrying out virtual currency mining or data processing independently and the received income is tax free, the individual shall declare his/her income as a business income and pay taxes on the basis of the tax statement.

An individual carrying out virtual currency mining shall be registered as an individual entrepreneur or as a limited liability company (OÜ). The registered individual entrepreneur or OÜ can deduct the expenses incurred to obtain business income (for example, the cost of farms, the cost of renting premises for mining, the electricity costs, etc.) from the business income and declare such expenses.

The VGV Global Team provides the following comprehensive support:

• Full consulting support during registration of the company,
• Assistance in composition of Business plan and all KYC documentation,
• Assistance in preparing and filing an application for a license,
• Interaction with the state authorities in the process of considering an application for a license,
• Registration of a legal address,
• Payment of state duties,
• Registration / transfer of powers of attorney
• Assistance in renting of office & provision of Officers required for the operation of the License,
• Opening bank account,
• Translation of legalization of the set of corporate documents,
• Accounting & auditing and legal assistance;

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Residency in Estonia

Investment

Business

Residency is granted to foreigners who participate in a company or operate as sole proprietors, or invest in a business activity in Estonia with at least €65,000 (€16,000 if self-employed). The capital stock, the subordinated liability and the amount of the fixed assets registered can be considered as investment.

Temporary residence permits usually have a validity of 5 years. After that, you may renew the permit or apply for permanent residency. Provided that your place of residence has been entered in the Estonian population registry, you have health insurance, permanent legal income (€260 / month) and an Estonian language B1 level.

After living in Estonia for 8 years, 5 of which must be holding a permanent residency permit, you may be eligible for naturalization. To become a citizen, Estonian language proficiency, passing an exam of the Constitution and the Citizenship Law, a permanent legal income (over € 570 / month) and loyalty to the Estonian state are all required.

Estonia does not recognize dual citizenship for naturalized citizens. Anyone who is granted Estonian citizenship by naturalization must renounce their previous nationality. We can help you form a UAE company quickly and efficiently starting today. Contact us now by calling +971 4 246 9700 for a free consultation or further details. Alternatively, send us a message through our contact us page. A member of our Dubai team will get in touch with you as soon as possible. To learn more, please visit our Why Work With Us page and our Clients’ Testimonials.