Incorporate in Estonia

Key Features of Estonia’s Low Tax Company Formation

• Corporate Income Tax (CIT) System:

One of the most appealing aspects of setting up a company in Estonia is the unique corporate tax system. Estonia operates a deferred tax system, where businesses are not taxed on profits unless they are distributed as dividends. This means that as long as the profits are retained within the company, they are not subject to corporate income tax, making it highly favorable for reinvestment and growth. The tax rate on distributed profits is 20%, but this is applied to the net dividend amount (meaning the effective tax rate is 20/80 or 25%).

• Simplified Company Formation Process:

Estonia has streamlined the process for starting a business, and it can often be done in a matter of days. Entrepreneurs can form a company remotely using Estonia’s e-Residency program, which allows foreign nationals to establish and manage a company entirely online. This innovative system eliminates the need for physical presence, making it an attractive option for international entrepreneurs.

• VAT (Value Added Tax):

Estonia has a relatively low VAT rate of 22%, which is applied to most goods and services. There is also a reduced VAT rate of 9% for certain products such as books, medicines, and accommodation services. For companies with an annual turnover below €40,000, there is no obligation to register for VAT, which can simplify the administration for smaller businesses.

• No Withholding Tax on Reinvested Profits:

Estonia does not levy a withholding tax on reinvested profits. This is a significant advantage for businesses focused on growth and expansion, as profits can be reinvested into the business without incurring extra tax burdens. The tax is only triggered when profits are paid out as dividends or other distributions.

• Double Taxation Treaties:

Estonia has signed numerous double taxation treaties with other countries, which helps to reduce or eliminate the risk of being taxed twice on the same income. This is beneficial for companies operating internationally or dealing with cross-border transactions.

• Digital Infrastructure and Ease of Doing Business:

Estonia is known for its strong digital infrastructure, allowing business owners to access a range of e-services. Through the e-Residency program, company founders can manage everything from signing documents to filing taxes, all digitally. This makes it easier for foreign business owners to manage their Estonian companies without being physically present in the country.

• Low Operational Costs:

In addition to the favorable tax rates, Estonia offers relatively low operational costs compared to other EU countries. The cost of office space, wages, and utilities are generally affordable, which makes it an attractive destination for startups and small businesses looking to minimize overhead.

 

Steps to Form a Low Tax Company in Estonia

• Obtain e-Residency:

To start a business in Estonia, foreign entrepreneurs can apply for e-Residency, which gives them access to Estonia’s e-government services.

• Choose a Company Type:

The most common business structure for foreign entrepreneurs is a private limited company (OÜ – osaühing). This type of company offers limited liability, meaning that the owners’ personal assets are protected.

• Register the Company:

After obtaining e-Residency, entrepreneurs can register their company online through the Estonian Business Register. This process includes choosing a company name, registering the company’s address, and appointing directors.

• Open a Bank Account:

Although there are options to use electronic payment providers, most businesses in Estonia still need to open a bank account with a local bank or an Estonian fintech company to manage finances.

• File Annual Reports and Taxes:

Once your company is formed, you’ll be required to file annual reports and manage tax payments. As the tax system is based on the distribution of profits, businesses can plan their financial strategy to minimize tax burdens efficiently.

Conclusion

Estonia’s low-tax environment, coupled with its digital innovation and business-friendly policies, makes it a prime location for entrepreneurs seeking to establish a company with minimal tax obligations. Whether you are looking to reinvest profits, manage a business remotely, or take advantage of Estonia’s double taxation treaties, this country offers one of the most attractive business environments in Europe. With the added convenience of the e-Residency program, forming and managing a company in Estonia is easier than ever before.