Estonian company incorporation is a simple and efficient process that can be completed entirely online. This makes it an attractive option for EU citizens looking to set up a business in Estonia. This article will outline the key steps involved in incorporating an Estonian company.
A private limited company can be created fully online by anyone who has an Estonian ID card or e-Residency card. If an ID or e-Residency card is not accessible, a notary in Estonia must be consulted to confirm the foundation papers.
To incorporate a daughter company in Estonia, you will need to submit the following documents to the Commercial Register:
- The articles of association
- The certificate of incorporation
- The memorandum of association
- The name and registered office of the company
- A list of the directors and their addresses
This list can vary depending on the jurisdiction of a parent company.
If you have an e-Residency, the entire process can be completed online in just a few days. However, online incorporation is accessible only for incorporating a company on behalf of a natural person.
You will also need to appoint a local representative to act on behalf of the company and to carry out certain administrative tasks, as well as set a local address for your company. This can also be achieved completely online if you are a holder of an e-Residency card.
Once your company is incorporated, you will need to register for value-added tax (VAT) if you plan to offer digital or electronic services, engage in cross-border trade, or your annual turnover is expected to exceed €40,000. The standard rate of VAT in Estonia is 20%, although a reduced rate of 9% applies to certain goods and services. Income tax in Estonia is levied at a flat rate of 20%.
It is important to be aware that, as an EU citizen, you will be subject to taxation in your home country on any income or profits earned through your Estonian company. You should contact your local tax authority for more information.
Which Taxes does a Company need to Pay in Estonia?
Personal taxes: income tax and social tax
In Estonia, your employer deducts taxes from your gross salary on a monthly basis. This eliminates the need to pay additional sums or submit monthly tax returns.
Your employer is also required to pay the 33% social tax from your gross income. This is the employer’s social tax, which is calculated according to your actual gross earnings rather than your salary. Income taxes come in at 20%.
In Estonia, employers pay taxes for their employees. Taxes withheld from employees’ gross salary constitute the following:
- Income tax: 20%
- Unemployment insurance premium: 1.6%
- Contributions to Mandatory Funded Pension for tax residents: 2%
Taxes that are paid on top of the gross salary of an employee are shown below:
- Social tax: 33%
- Unemployment insurance premium: 0.8%
There is also a flat corporate income tax of 20% on the taxable income of the company, and the value-added tax (VAT) rate in Estonia is 20%, although a reduced rate of 9% applies to certain goods and services.
Please note that this is a general overview of the tax regime in Estonia. You should contact a local tax adviser for more specific information relating to your situation.
How Are Dividends Taxed in Estonia?
You don’t have to disclose the obtaining or ownership of Estonian equities as an individual. The capital gains tax is only triggered when you sell your assets and make a profit. Transfers of securities (or other financial assets) are subject to a 20% income tax rate.
In Estonia, corporate earnings are taxed in a very unique way. Rather than taxing profits when they are earned, the tax liability only arises when those profits are distributed to shareholders. This means that there is no income tax liability incurred simply from earning profits. However, if dividends received from a subsidiary or permanent establishment in another country are distributed to shareholders, then tax will be due on those profits.
Also, as a natural person, you have the right to postpone taxation of investment income by utilizing an investment account. To do so, transactions with financial assets must be conducted exclusively through an investment account.
Lastly, if a company shareholder is resident in another EU country, they may be able to claim a credit for the withholding tax against their income tax liability in their home country. Please contact your local tax authority for more information.
What are the Advantages of Estonia’s E-Tax System?
One of the main advantages of Estonia’s e-tax system is that it is fully integrated with the EU. This means that you can file and pay your taxes online using a single portal, regardless of which country you are resident in. The e-tax system is also very user-friendly and easy to use.
Another advantage of Estonia’s e-tax system is that it is based on a self-assessment model. This means that you are responsible for declaring and paying your taxes online, and you are also responsible for reviewing your own tax return. This gives you greater control over your financial affairs and helps to ensure that you are fully compliant with the tax laws in Estonia.
Please note that this is a general overview of the e-tax system in Estonia. You should contact a local tax adviser for more specific information relating to your situation.Estonia is an excellent location for setting up a company and doing business. The country’s e-tax system is one of the most advanced in the world, and it is fully integrated with the EU. The tax regime in Estonia is transparent and straightforward, and the flat rate of income tax of 20% makes it the most competitive jurisdiction in the world. Additionally the corporate tax of 20% is only paid upon distribution of dividends. If you have legal questions concerning taxation in Estonia, sign up for LEGID and obtain expert legal advice: www.legid.app