Estonia Business Guide
Whether you want to start a company, get e-Residency, or open a bank account, this is your guide to everything business-related in Estonia.
Despite its small population and landmass, Estonia has become a European e-residency and remote business hub—a new digital nation for global citizens powered by the Republic of Estonia. If you want to start an online business in Estonia, there’s no better time than now. And registering a company in Estonia is easier than you think.
Whether you’re interested in starting your own Estonian company or expanding into the European Union through their business environment, here’s our essential business guide to Estonia. This hub covers everything you need to know, from registering a company in Estonia, getting digital citizenship and banking in Estonia.
👋 Don’t put your head in the sand: This is a friendly reminder that the information in this article should not be viewed as a substitute tax or legal advice. This guide meant to be an general introduction to the country and its taxation system. Always talk to a certified specialist to figure out what you should do based on your specific situation.
Estonia is one of the three Baltic countries in the European Union. It’s situated in Northern Europe between Finland and Latvia, with Russia to the East. Over a million people live in this tiny Baltic Sea country that is approximately 45,000 square kilometers (17,000 sq mi) in size. Estonia has a free market economy with fair taxes, high-income equality, and highly developed IT infrastructure. Although most Estonians speak Estonian, Russian is widely spoken as well.
Estonia may be tiny, but it’s known for its openness to business and innovation, making it an attractive place to do business in Europe. It’s no surprise that many American and Asian companies have set up remote branches in Estonia as their EU base. The country has a warm and welcoming business culture, with many opportunities for foreign entrepreneurs looking to start or extend businesses into Europe.
Digital nomads have been flocking to registering their business in Estonia as well. With a robust digital infrastructure and the ability to start an Estonian limited company from anywhere in the world, it’s easy to see why many remote workers are making use of this opportunity.
Estonia has a digital citizenship program known as e-Residency. The primary purpose of e-Residency is to allow entrepreneurs to establish and manage a location-independent EU company online. More than 83,000 e-residents and 17,449 Estonian businesses were established by e-residents as of August 2021.
👀 Fun fact: Former chancellor of Germany Angela Merkel and former president of the United States Barack Obama are among Estonia’s most famous e-Residents.
With e-Residency, you can have an EU company ready within one or two business days, apply for a business banking account and debit card, conduct online banking and accounting, access payment platforms, sign documents and contracts digitally, and declare taxes – all online from anywhere on the planet.
E-residents are anyone who registers for the e-Residency digital ID card. E-Residency is open to individuals from all over the world, from Portugal to Ukraine, and South Africa to Singapore. It’s an attractive program for entrepreneurs around the globe looking for a direct gateway to the European single market while at the same time not having to live in Estonia. In fact, most e-residents are entrepreneurs who work remotely and want to operate a fully compliant EU company with as little bureaucracy as possible.
Some of the benefits of becoming an Estonian e-residency are that you can register a company in Estonia and have an EU bank account without ever having to visit the country. The e-Residency card also gives you access to other Estonian government services, such as signing documents digitally.
The process of applying for e-Residency is simple and takes just minutes online. You will need to provide some personal information and upload a photo of yourself. Once approved, you will receive your digital ID card within a few weeks by mail.
Registering a company in Estonia
Registering a company in Estonia is straightforward and relatively budget-friendly if you use a company formation agent. You can now perform all the required paperwork virtually. There’s no need for you to visit Estonia at any point during the entire process if you don’t want to. The application process has been entirely digitized in spirit with the e-Residency program. You can find an overview of the entire process on the official e-Residency website of Estonia.
Estonia’s e-Residency program has made it possible to start an EU company from anywhere in the world. In this guide, we’ll go over the practical steps on how to open a business in Estonia.
The most common type of business is a private limited company (OÜ or “osaühing” in Estonian). An Estonian limited company is easy to set up and has a low minimum share capital requirement of €2,500. The company’s liability is limited to its share capital, which helps protect the shareholder’s assets if anything goes wrong.
If you are the single shareholder (owner) and already have your e-Residency in place, the process of incorporation an Estonian company can take as little as one to two business days. Everything can usually be done online without the need for calls or visits to Estonia.
By establishing an Estonian company, you will have an EU entity with the ability to trade freely throughout the single market of the EU. Estonian business can be managed from anywhere in the world. You can have local accounting services and a business address in Estonia without having to live there.
Business taxation in Estonia
Estonia is not a tax haven, but it does have a unique corporate tax system. Whereas most countries tax business entities on their profits, Estonian companies are taxed on distributed profits (income that is paid out to shareholders). Put differently, a business does not pay any corporate income tax if it does not pay out dividends to its owners. So, as long as profits are retained within the company, the company can essentially be run tax-free.
Estonia’s unique taxation system encourages companies to reinvest their profits back into the business, which can be done tax-free—a boon for entrepreneurs who want to build a personal piggy bank or scale their business. The corporate tax code is designed to assist new companies in getting off the ground and promoting entrepreneurship.
Unlike their friends in the Nordics and Germany, the Estonian tax administration is not known for being incredibly hardheaded or unfair when it comes to tax. In fact, the country has a good reputation for being business-friendly and pro-growth. If it didn’t, it’s unlikely that anyone would bother incorporating a business there.
Although the corporate tax code sounds very favorable, it’s important to understand the nuances. Only businesses that are effectively managed, operated, and controlled from Estonia are eligible for the tax-free regime. If your business is managed abroad, then the tax situation for your Estonian company is most likely different.
E-Residents who perform work and manage an Estonian company in another country will most likely still be taxed in that other country. For example, if the company is incorporated in Estonia but is 100% operated from Spain, the double tax treaty between these two countries will likely state that you will need to pay business taxes in Spain, not Estonia.
However, there are solutions to this problem. Suppose you are a digital nomad who does not have a permanent tax residency. In that case, you may fall into a loophole where you don’t have to pay personal income taxes on these dividends. Another interesting case is if you live in a country with a special tax regime where foreign-sourced income falls into an exemption regime.
You must work with a qualified tax professional to ensure you’re paying the correct taxes in all applicable jurisdictions.
Banking services available to Estonian businesses
Estonian businesses have access to a wide range of modern banking services. However, the selection available for remotely operated companies is slightly less than what’s available to companies with owners who have a physical presence in Estonia.
LHV Bank, Wise, and Revolut are the three banks most frequently chosen by e-residents, while SEB and Swedbank are popular alternatives amongst locally operated companies. If you have an Estonian company that wants to open a real bank account in another country, your chances are slim. Most traditional banks will require your business to be physically located in the country where you want to open a bank account.
Fortunately, the number of online business banks supporting Estonian companies is growing all the time and provides good alternatives to consider. You can find a selection of the banks available on the official e-Residency Marketplace (the list is not exhaustive). These fintech banks often provide multi-currency functionality, the ability to send and receive payments in multiple currencies, as well as excellent integration with popular accounting software.