Despite its small population of 1.3 million people, Estonia is home to one of the most advanced digital societies in the world. The government is pro-business, the tax system is easy to understand, and there’s an excellent infrastructure in place to manage everything through the internet. The best part is that registering a company in Estonia only takes around one to two business days and can be completed 100% online.
If you’re thinking of registering a company in Estonia, this guide is for you. We’ll go through the process of how to open an Estonian company step-by-step, from e-Residency to choosing a company formation agent and setting up a business bank account. By the end of this article, I hope you’ll be ready to take your business dreams global from wherever you are in the world right now.
Why start a company in Estonia?
Before you move into the practical aspects of registering a company in Estonia, let’s cover some of the benefits this jurisdiction offers. If you’re already familiar with these, feel free to jump ahead. If not, here are a few reasons why more than 85,000 global entrepreneurs have decided to establish their business in Estonia:
- The government is pro-business. The Estonian government has removed the bureaucracy and red tape associated with registering a company in most countries. This makes it an attractive destination for entrepreneurs who want to get their business up and running quickly and without too many headaches.
- Everything is done online. In Estonia, registering a company and maintaining it is done completely online. You can open your Estonian company without ever stepping foot into the country. From signing documents to finding an accountant and paying taxes, you can do everything from your laptop wherever you are.
- The tax system is simple and transparent. The Estonian tax system is one of the simplest and most attractive in Europe. Businesses only pay taxes on distributed profits (i.e., profits paid out to shareholders), and there’s a flat corporate tax rate of 20% on those distributions. In other words, profits kept within the business are almost entirely tax-free. Dividends paid to shareholders also don’t incur a withholding tax.
- Quick and affordable access to the EU. Businesses outside Europe can use an Estonian company to quickly get access to the EU market. Estonia is one of the easiest places to incorporate a European subsidiary of a foreign parent company. By registering in Estonia, you can trade freely throughout the Single Market without having to worry about tariffs, customs, and be fully compliant with VAT, One-Stop-Shop, and other EU compliance issues.
Now that you have a better understanding of some of the benefits of registering a company in Estonia, let’s move on to the practical steps, from idea to execution.
Remember that this is meant as a general overview. You still need to consult with a professional based on your circumstances. Fortunately, many of the business service providers listed below have experts who are used to dealing with international clients with unusual tax situations. They can assist you with registering your company in Estonia and provide you with the best advice for your specific situation.
Step 1: Do your research
The first step to registering a company in Estonia is to do some fundamental research. A quick Google search will show you the pretty picture of opening an Estonian business but will not give you the nitty-gritty of what is actually involved.
You need to understand a few basic things before registering your Estonian company. You must pay attention to these concepts because you want to make sure you’re setting it up the right way when setting up your business. Estonia is lightweight on bureaucracy, but it can still be costly and time-consuming to make amendments later on. That’s why you want to get the details right from the start.
In 2014, the Estonian government introduced a new program called E-Residency (also called digital residency). The program allows non-Estonians to apply to become “digital residents” of Estonia. E-residents can use their digital identity card to access Estonian business services such as registering a company, banking, accessing government portals, and signing documents.
The program has been a big success and has attracted 85,000 people from all over the world. As a foreigner who intends to open a company in Estonia, you’ll quickly find that the e-Residency card is the key to everything business-related in Estonia. From registering your company to filing taxes and accessing your business bank account, the e-Residency card is your way to get everything done as a non-Estonian.
What e-Residency isn’t
There’s naturally been a lot of buzz on the internet about the e-Residency program. Still, it’s important to clear out some of the misconceptions.
- The most common misconception is that e-residents can live in Estonia. This isn’t true. The e-Residency program is often mistaken for a residency visa or work permit. It’s important to understand that the e-Residency card is not a visa. It doesn’t allow you to stay or work physically in Estonia if you are not from the EU. It’s a form of digital identification that will enable you to create a company.
- E-Residency is not a legal travel or internationally accepted identification document. The e-Residency card does not grant you the right to enter or stay in Estonia, and it doesn’t replace a local passport. You still need your own valid travel document (e.g., a passport) to enter Estonia. If you are an EU citizen, you don’t need a visa to enter Estonia.
- E-Residency does not make you an Estonian tax resident. You do not become an Estonian tax resident after being granted e-residency. To be a tax resident as a natural person, you must live in Estonia or spend at least 183 days in Estonia during the course of a year. There are, however, exceptions to this rule, and you may be a tax resident in more than one country under certain conditions.
- e-Residency is not a legal requirement to start an Estonian company. This is perhaps the biggest misunderstanding of all. You can register or own a private or public limited company without registering for e-Residency. The e-Residency program was invented to make registering a business more manageable and facilitate business services, but it’s not mandatory.
e-Residency is a digital ID with a set of passwords that grants you access to Estonia’s government portals, lets you sign important papers digitally, pay taxes, and much more without relying upon a local representative.
For example, e-Residency would allow an Argentinian entrepreneur to create a company in Estonia, sell to her customers in the European Union and the rest of the world, and run the business remotely while she travels in Asia. It lets her do all of this without ever having to set foot in Estonia.
What kind of company should you register in Estonia?
Never start a business that you’re serious about as a “sole proprietorship” or “sole trader .”Instead, always register your business as a limited company. It will cost you a little more and involve a little more paperwork, but it will help protect you from personal liability.
A limited company is a legal entity that is separated from you as a person. And as such, your personal assets are protected from the debts and liabilities of your company if something goes wrong with your business.
The good news is that you can’t become a sole proprietor in Estonia without a residency permit and personal residential address residence in the country. So, unless you’re planning to move to Estonia and live there for a while, registering as a limited company is the best and only option.
What is an Estonian private limited company?
The vast majority of companies in Estonia are private limited liability companies, known as osaühing or OÜ in Estonian. In many ways, registering an Estonian OÜ is analogous to registering a US LLC or UK limited company. As discussed above, the benefit of registering as an OÜ is that your personal assets are protected from the liabilities of your company.
An Estonian OÜ is easy and quick to set up online and has a low minimum share capital of €2,500 (although it can be more than this). Compared to the UK’s £1 minimum share capital, this amount may seem like a lot if you’re just starting out. However, it’s important to remember that contribution is not a fee but belongs to your company and can be used to pay for company expenses.
Step 2: Get Estonian e-Residency
e-Residency is the easiest way to start a business in Estonia. Most company formation services in Estonia require that you have e-Residency ready before registering a company. e-Residency makes registering an Estonian company easier and grants foreigners access to many other services, including Estonia’s government online services. Here’s how you apply for an e-Residency card online.
A. Visit the official e-Residency website
Explore what Estonia’s digital identity is about, who it’s for, and get a general overview of the program. Read some real-life stories of entrepreneurs who have taken advantage of e-Residency to start and grow their businesses.
B. Gather the necessary documents
Before you start the application process, it helps to have all documents ready. By having everything prepared beforehand, the application itself only takes 30 minutes. This way, you won’t have to close and log in again if you forget something.
To apply for Estonian e-Residency, you’ll need:
- Statement of motivation. This short paragraph tells the Estonian government why you want to become an e-Resident. It’s important that this statement is well written and detailed because it will be read by an Estonian official.
- CV. Your resume should list your education and work experience. Make it as relevant as possible to the business you intend to start in Estonia.
- Proof of identity. This could be a copy of your passport, driver’s license, or another identity card.
- A selfie. Officially, a photo of your face. There are some formal requirements you can read about here.
- €120. This is the fee to the state of Estonia for registering as an e-Resident. You can only pay by credit or debit card (VISA and MasterCard)
C. Create an account and submit your application
Visit the e-Residency registration page. The website is run by the Estonian Police and Border Guard Board, which sounds scary but isn’t. It’s the national government agency within the Estonian Ministry of Interior.
Create an account using your email. Check your inbox and follow the instructions to activate your account.
Once you’ve activated your account, you can begin your application.
You’ll need to upload the documents mentioned above during the application process.
You’ll also need to select a place to pick up your card. This will be at an embassy or consulate. If you choose a country where you are not a citizen, make sure you can legally enter the country and that your visa is not expired.
Finish the application by paying the state fee.
D. Pick up your e-Residency kit
After you’ve submitted the correct application, it will take around 30 days for the Estonian government to process it. If there are any issues with your application, you’ll be contacted by email.
It will take 2-5 weeks for your e-Residency kit to reach your pickup location once your application is accepted. Your pickup location will send you instructions per email on how to arrange for collection.
You are not able to receive the kit through your home address. You’ll need to come to the pickup location as your fingerprints will be taken.
E. Activate your e-Residency
Inside your e-Residency kit are a digital ID card, card reader, and two pin-codes.
To begin using your Digital ID, you’ll need to download the ID software, called DigiDoc4, to your desktop first. Once installed, Insert the card reader with your e-Residency card into your computer’s USB port and launch DigiDoc4.
That’s it. With the two pin-codes and the ID software, you’re now ready to launch your Estonian company.
Step 3: Pick a company formation agent
Assuming you secured your e-Residency, it’s time to register your Estonian company. This might sound technical and difficult, but luckily it’s not. In fact, the whole process has been made effortless thanks to local Estonian business platforms specializing in helping foreign entrepreneurs.
To get your Estonian company up and running, you need three things:
- A formation agent (also known as a business service provider)
- Accounting software
- A business bank account
The good news is that these typically come packaged together.
A company formation agent, often known as a business service provider, is an Estonian firm specializing in assisting foreign entrepreneurs in establishing and running their businesses. These service providers have web platforms in English where they help take care of the entire process, from registration to running the company in compliance with Estonian law.
What services do they offer?
A good business agent will take care of almost everything for you. Most of them have user-friendly online dashboards where you can find everything you need to run your business. They also have a team of support specialists to assist you with the entire company launch process. Once you’ve got your business up and running, they’ll look after your accounting, taxes, and compliance for you.
Some of the services these business platforms offer include:
Company establishment and management
- Company formation
- Web-based platforms to your business finances
- All-in-one systems for invoices, receipts, sales invoices, travel, and expense reports
- Business address (virtual or physical office space)
- Legal contact person
- Assistance in opening a bank account
- Mail scan and forwarding
- VAT registration
- Business banking account opening assistance
- Business development
Financial, tax, and legal services
- Bookkeeping and accounting services
- Annual reports
- Tax reporting
- VAT reporting
- Tax consulting
When selecting a company formation agent, it is essential to do your research. Ask around for recommendations and read reviews online. Ensure the service provider you choose has good customer service and responds promptly to emails or phone calls. Also, be sure to ask about their fees and what services are included in their package.
The company formation agent we recommend
More than 50 companies of varying quality offer formation and e-Residency services in Estonia. It’s up to you which one you pick, but we recommend Xolo. It’s the one with the most ratings on Estonia’s official e-Residency Marketplace and also the one that has been around for the longest time. They have been thoroughly vetted by the Estonian Government’s e-Residency team, so you can be confident that their services meet the highest standards.
Xolo launched in 2015 and was one of the first companies to offer a one-stop-shop registering your company in Estonia, opening a bank account, and getting started with e-Residency. Xolo is recommended because:
- They’re the largest platform and have over 100,000 customers, so you can be sure they know what they’re doing.
- They offer an all-in-one package with a flat-fee pricing structure, so there are no nasty surprises further down the road.
- The price includes everything you need to launch and run a remote business, including registration, a bookkeeping system, a business address, VAT reporting, annual reports, payroll, and dividends distribution.
- They take care of all the bureaucracy and red tape for you, so you can focus on your business. Xolo helps you handle your accounting and VAT obligations.
Registering a company with Xolo typically takes 24 hours, so you can get started quickly. Once your company is ready, you’ll have access to their self-service dashboard, where you can manage your business and finances. They’ll also provide you with a proper business address in Tallinn that you may use on invoices and official papers.
Why it’s recommended to use a business formation agent
Many entrepreneurs mistakenly believe they can do everything themselves and save on costs. They don’t realize that attempting to do so can often lead to more expenses and headaches in the long run.
It’s tempting to try and save a few euros, but your time and energy are better spent on doing what you’re good at–growing your business. Not on trying to understand and comply with a foreign country’s complex business laws.
Estonia’s business service providers offer some of the best-developed and cost-effective package solutions in Europe. In addition to incorporating the company, they can provide:
- Estonian business address. Having a registered business address in Estonia is a requirement for all companies. Most non-Estonian business owners choose to use a virtual address provided by their formation agent. This will typically be a prestigious downtown address in Tallinn and will usually include mail-forwarding services. You can use this business address on all your company documents, including invoices and marketing material.
- Formal point of contact. In Estonia, it’s required by law to have a local contact person for your company. This is the person or company who will be receiving requests from the local authorities and mediating with them on your behalf. Your representative can act as your company’s local representative, but they will have no more power to act on behalf of the company than you allow.
- Accounting, taxes, and compliance. Very few entrepreneurs enjoy the administrative side of business, but it’s a necessary evil. When setting up an Estonian company, it’s critical to get the accounting right. If you fail to file your taxes and financial statements on time, you could be fined or even have your company closed. A good service provider will take care of your accounting, tax reports and payments, payroll, dividends distribution, and VAT reporting.
- Tax and legal advice. Many internet entrepreneurs don’t plan on living in Estonia but would like to reside somewhere else or travel the world. In this case, it’s more than a good idea to some professional legal advice on what you need to consider. For example, many entrepreneurs who want to live abroad and set up an Estonian company are unaware of the tax implications. There are unique situations where digital nomads are not liable for personal taxes anywhere because they have no fixed residence. But most people who open a company in Estonia do so while being liable for taxes somewhere else. A good legal advisor can help you structure your business in the most tax-efficient way.
- Business banking. An online bank is suitable for most digital businesses. You can open an online business bank account for an Estonian company yourself. There’s no need to pay someone to help you do this. However, many business service providers integrate real-time bank transaction data into the company platform they provide. So you need to make sure the bank account you open is compatible with the platform they offer. Suppose you want to open an account in a traditional Estonian bank (for example, LHV, SEB, or Swedbank). In that case, you’ll need to go to Estonia in person for a formal face-to-face interview. A good business formation agent will assist you with this process.
An accountant or lawyer can help evaluate your personal situation and provide tax and legal advice. While many e-Residency/business websites offer this as part of their package. That said, it’s not a bad idea to get a second opinion from someone with no financial interest in whether you sign up for a full service.
Do I really need a business formation agent?
It’s technically possible to register a company in Estonia on your own. You can find the necessary steps on the official Company Registration Portal. But registering a company is not as simple as filling in some paperwork and paying the state fees. There’s more to it than that.
Unfortunately, doing things yourself comes with a high risk of making mistakes, which could lead to your company being closed down by the authorities. This is why it’s a good idea to use a professional platform. These websites have years of experience registering companies in Estonia. They can help you every step of the way, from forming your company to opening a bank account.
Step 4: Register your Estonian business
Whatever agent you choose to help you set up your Estonian company, the actual process of registering it will be very similar. The following steps are a general overview of what you can expect.
A. Choose a business name
The first step is to choose a name for your company. The name must be unique and not include restricted words such as “bank,” “insurance,” or other legal titles. You can check the availability of a business name on the Company Registration Portal or during the registration process with the agent.
Make sure that the company name isn’t already taken. Also, check that no European Union trademarks have been registered for a similar name. It suffices to say that you shouldn’t name your company after someone or something else, even if you have their permission.
If you’re completely blank on what to name your company, you can use a business name generator. It’s also possible to change the company name later on while keeping the same registration number.
B. Identify shareholders
A shareholder is a person or company that owns at least one share of the company. An Estonian OÜ limited company is typically founded by one to five shareholders. Shareholders are the people who legally own the company. A shareholder can also be another company, typically called a holding company.
When registering your Estonian company, you must identify all of its shareholders. The majority of companies are owned by single individual shareholders (human beings). This is the simplest and most common structure. However, it’s also possible to have a company with multiple shareholders. In this case, the shares are usually owned in different proportions.
An Estonian OÜ requires €2,000 in share capital. This is the amount of money the shareholders must invest in the company. The shares are paid for in cash or in-kind (e.g., services, products, real estate). The amount is divided across the shareholders in proportion to their shareholding. For example, a single shareholder would own 100% of the stock in the company worth €2,000. A multiple shareholder structure would divide the shares into, for example, 50%/30%/20%.
C. Complete the registration
There are most steps involved depending on the provider you choose. Generally, you will need to provide the shareholders’ names, addresses, and a copy of their ID. You’ll also have to identify a director and the board members for your company. This is the person or persons who will be responsible for making decisions on behalf of the company.
At the end of the process, you’ll need to pay the fees associated with registering your company. This will include fees to the Estonian State for registering the company and the agent for their services.
How long does it take to set up an Estonian company?
If you have all the necessary documents ready and e-Residency, registering a company in Estonia can be done on the same day. The company is fully incorporated within 1-3 business days. Getting a bank account for your company can take longer, especially if it’s a traditional bank. However, registering an account with an online bank usually takes 24 hours to a couple of business days.
How much does it cost to set up an Estonian company?
The cost of registering a company in Estonia depends on the service provider you choose. However, registering an Estonian OÜ usually costs between €50 to €400. The monthly cost of a full-service company management package will be between €70 and €200, depending on the services you need.
You need to research what the packages include to see if they include everything you need, such as a business address, banking integration, accounting and payroll services, and so on. Some companies occasionally provide discounts, so keep an eye out for them. But setting up the company is not the only cost
Step 5: Get a business bank account
Once your company is registered, you’ll need to open a business bank account. This will allow you to start doing business and accepting payments. The process of opening a bank account with an Estonian bank can be lengthy, as the banks typically do a thorough background check on all directors and shareholders. If you do not intend to live in Estonia, you may find opening a local bank account impossible.
Wise (an online bank), Revolut (a global bank), and LHV (an Estonian bank) are the two options most e-residents choose. They work with directors/single-shareholders that do not intend to live in Estonia and offer a high degree of flexibility. For example, Wise allows you to open an account without ever visiting Estonia or providing proof of address in the country. LHV is the more conservative option and requires you to visit one of their branches in person.
How much does the bank account cost?
Comparing bank account costs between banks is difficult because they use different pricing models. Some banks charge a flat fee per transfer, while others have a one-time registration fee, monthly fees, or fees for different types of transactions. However, you’ll find that most banks with multi-currency functionality have a minimum monthly fee of €5-€25, which isn’t too high. The competition is growing in the online banking sector, so we can hope that prices will come down in the future.
Protect your bank account by avoiding odd transactions
Estonian banks are, unfortunately, a conservative bunch. The same goes for payment processors. If your company makes too many large transactions that don’t look like typical business-to-business payments or typical payments from retail customers, they may scrutinize your account and, in the worst case, close it. This can be a hassle, and luckily it rarely happens, but it’s still something to be aware of.
Make sure all of your company transactions align with what would be expected from a legitimate business in your industry. Of course, if you’re a company that deals in large transactions, this isn’t an issue for you. The same applies if you make a lot of transfers to accounts in high-risk countries (typically everything besides Europe, North America, Australia, and New Zealand).
Cryptocurrency-related transactions are something you typically want to avoid as well. Banks don’t like anything that smells of risk or compliance issues.
Step 6: Set up a bookkeeping system
You’ll need to establish a bookkeeping and accounting system to keep track of your finances, income, costs, payroll, profit, losses, and so on. This is essential for both financial and tax-filing reasons. As a foreigner with an Estonian company, you have three options:
- Using the integrated solution of your service provider. This is the easiest and most common option. Service providers usually have their own in-house accounting software built into the platform. You’ll get an all-in-one, self-service dashboard where you can see your company’s finances at a glance, bank transactions, produce invoices, and upload receipts to record expenses. There’s usually a bookkeeper and accountant attached to the platform who will book and review your transactions and make sure they’re booked correctly.
- Bookkeeping in Estonia through an Estonian bookkeeper or accountant. This is the most common option for foreigners, as it’s simple. The most significant advantage is that you will have an Estonian expert on your side who knows the local rules and regulations and can help you with all the paperwork and compliance issues. The downside is that you will pay more than if you did the bookkeeping yourself.
- Doing the bookkeeping yourself. By going solo, you would submit all reports and filings in English, which is the language understood by Estonian tax authorities. This option will save a lot of money, but you’ll need to be familiar with Estonian bookkeeping and accounting rules, which itself requires a lot of effort. The chance of making mistakes is also higher if you’re not familiar with the system. And the money you saved by doing it yourself could easily be lost on late penalties and other fines if you get something wrong.
Step 7: Run your business
At this point, I hope you know everything you need to launch your Estonian company. You’ve gone through all the tedious but necessary legal and financial hoops, set up your accounting and bookkeeping system and chosen the right business bank. You’re ready to do business and make some profits.
However, some universal elements of doing business are worth keeping in mind, no matter where you’re based.
Freelancers vs. employees
If you’re running a sole operation with no employees, it’s relatively easy to keep things organized and under control. However, once you start hiring people, things can get more complicated (and hectic). It becomes harder to manage everything yourself, so you’ll need to either scale up or outsource some of the work. It’s much easier to run a small operation by relying on freelancers, as you have more control over the quality of their work. You don’t need to worry about things like payroll, insurance, and other benefits. However, freelancers often need to be monitored closely because the quality of their work can vary, while employees are more loyal and fully dedicated to your business.
Protect your personal liability
We discussed how an Estonian limited company is an affordable way to shield your personal liability from business risks. But, as with any legal structure, it’s important to use best practices when running your company. The so-called corporate veil is rarely pierced. But to minimalize the risk of this happening, make sure to adhere to certain procedures
- Always use the business name instead of your own. In all contracts, agreements, invoices, or other documents used by the company, use the full corporate name, including “ÖU .”Don’t use your own name, only as a company representative. This will make it clear that the company acts as a separate entity.
- Always sign on behalf of the company, not as being the company. Whenever you sign business documents, even if you’re a one-man operation, sign them as an authorized signatory and include your corporate title (director or CEO, for example). This makes it clear that you’re acting as a company representative and not in your personal capacity.
- Only use your business bank account for business transactions. You’ve heard this one before: never mix personal and business expenses or payments to/from the company. There are just two instances when you would withdraw money from your company: when you receive a salary or distribute dividends.
A lot goes into launching your business, whether in Estonia or somewhere else. It’s thrilling and daunting all at the same time. But with proper planning and execution, that new business of yours can be running in no time.
With time and practice, you’ll get better at it. The most important thing is to keep your eyes on the prize and stay focused on what you’re trying to achieve. After a few years of running your own company, everything will fall into place and not be so daunting anymore. You’ll have the experience and knowledge to tackle any obstacle that comes your way. So, get out there and launch your business.