Company formation in Estonia

Estonia is a European country with a well-developed legal framework and favorable conditions for company formation and doing business. Its public services are highly digitalized, allowing businesses to be formed and managed entirely online. Let’s take a closer look at how this can be done.

Why Entrepreneurs Choose Estonia

Estonia is not an offshore jurisdiction, yet international businesses often choose it over traditional offshore jurisdictions. This is evidenced by the fact that Estonia ranks among the leading countries in Central and Eastern Europe in terms of attracting foreign investment. The country is particularly popular among IT businesses. There are several reasons for this popularity, but we will focus on two key advantages.

Electronic Residency

One of the main reasons for the popularity of the Estonian jurisdiction is its highly developed digital infrastructure and public services, which make company formation in Estonia simple and fast.

Estonia was the first country to introduce e-Residency. This means that, as a foreigner, you can obtain an e-Resident ID card and use government online services almost as easily as an Estonian citizen.

Obtaining e-Residency takes approximately one month. This digital identity allows non-residents to sign documents electronically and access government information and service portals. As a result, entrepreneurs can not only form companies in Estonia online but also manage them remotely: file reports, communicate with government authorities, obtain licenses, and more.

Despite the many advantages of digital residency, it is important to understand that e-Residency does not grant citizenship, the right to enter Estonia, or tax residency.

Low Tax Burden

From a taxation perspective, Estonia is one of the most attractive jurisdictions in the European Union. The country is an onshore jurisdiction, yet companies are not subject to corporate income tax on retained profits — the rate is effectively 0%. Corporate income tax applies when profits are distributed as dividends. Estonia also offers a number of business-friendly tax provisions established by law. For example, there is no separate capital gains tax.

Doing Business in Estonia: Tax System and Reporting

As noted above, one of Estonia’s key advantages is the absence of corporate income tax on retained profits and a separate capital gains tax. There are also several other important aspects of the Estonian tax system that apply to non-resident-owned companies.

Distributed dividends are subject to taxation at a rate of 20%. If a company is VAT-registered, the applicable VAT rates include a standard rate of 20% and a reduced rate of 9% for certain types of goods and services.

Reporting

All entrepreneurs operating in Estonia are required to prepare and submit annual reports. The following points are worth noting:

• The annual report includes the financial statements and the company’s management report.
• The financial year is 12 months and usually coincides with the calendar year. However, a company may specify different start and end dates for its financial year in its articles of association.
• Documents must be submitted to the Commercial Register within 6 months after the end of the financial year. This can be done online through the e-services portal for entrepreneurs.

Audit of Financial Statements

Under the Estonian Auditing Activities Act, certain categories of companies are required to have their financial statements audited or reviewed.

When is a business subject to an audit or review?

• If two of the financial indicators exceed the thresholds specified below:

Beforis specializes in company formation abroad. Our turnkey incorporation service includes not only setting up the company but also providing comprehensive support for your business.

• If at least one of the indicators in the financial statements exceeds the applicable threshold:

If a company is subject to an audit, the report issued by a sworn auditor must be submitted together with the company’s other annual reporting documents.

Company Formation: Organizational Structure and Capital Requirements

A private limited company (OÜ) is one of the most common legal forms for foreign entrepreneurs establishing a business in Estonia. Let’s take a look at the requirements a legal entity must meet to operate in this jurisdiction.

At the time of formation, the company must have at least the following:

• Director (board member) – at least one individual, who may be a non-resident.
• At least one shareholder – an individual or legal entity; there are no residency requirements.
• Secretary – this position is not mandatory, but the company must have a local contact person.

In addition, the company must have a registered address and at least EUR 2,500 in share capital in order to complete the formation process.

It is important to note that Estonia does not use nominee services. This means that the shareholder is considered the company’s actual beneficial owner. The same applies to the director: they bear full responsibility for the company, regardless of whether they act on their own behalf or on the instructions of a third party.

Company Formation Methods and Required Documents

There are two ways to form a company in Estonia: through e-Residency or under a notarized power of attorney.

Through an e-Resident ID Card

We have already discussed the advantages of e-Residency. To form a company using this method, you first need to obtain an e-Resident ID card. You can apply online and collect the card at the nearest Estonian embassy or consulate.

An important point: if a company has several founders, each founder must obtain an e-Resident ID card.

In addition to the e-Resident ID, you will need to provide the following information and documents:

• proposed company name (3 options in order of priority);
• description of the company’s business activities;
• a photo of the beneficial owner, as well as a color scan of their passport and tax identification number;
• proof of residential address – a utility bill in the shareholder’s name, issued and paid within the last 3 months;
• the beneficial owner’s contact details (email address and telephone number).

If the shareholder is a legal entity, two additional requirements apply. You will need to provide the company’s corporate documents and a certificate of no criminal record from each country of residence of the ultimate beneficial owner. The certificate must have been issued within the previous 90 days.

By Power of Attorney

Another way to form a company in Estonia without visiting any institutions in person is to use a notarized power of attorney. The required documents are essentially the same as for formation through an e-Resident ID card. However, the incorporation process itself is somewhat more complicated.

Since 2018, Estonia has required companies to declare their beneficial owner within one month of incorporation. Therefore, in addition to the power of attorney, a resolution authorizing the representative to submit the beneficial owner’s details to the register must also be prepared.

It is also important to note that if the founder later decides to make changes to the company, such as changing its registered address or board members, a new power of attorney will have to be prepared.

As for the apostille, it is not required if the power of attorney is executed in Ukraine or Russia.

Form a Company Abroad with Beforis

We provide comprehensive support throughout the entire incorporation process. Our package includes all the services necessary to make company formation as fast and convenient as possible for our clients.

The cost depends on the method you choose for forming your company.

Our Services

• We arrange e-Residency, from submitting the application to obtaining the e-Resident ID card.
• We help prepare the power of attorney: we draft the document, provide guidance throughout the notarization process, and arrange delivery of the document to Estonia.
• We provide a registered address and local contact person for one year.
• We prepare and deliver corporate documents and handle the payment of applicable government fees.

Need to form a business in Estonia quickly and at an affordable price? Fill out the form below and we will provide you with a free consultation.