Starting a business as an e-resident in Estonia is refreshingly simple. You register your company online, manage it remotely, and enjoy the benefits of a transparent tax system and digital-first infrastructure. But what happens when your business starts to grow? When you move from being a solo founder to building a small team, the landscape changes, and so do your responsibilities.
Scaling is exciting, but it also requires structure. You’ll need to consider employment contracts, labor taxes, payroll reporting, and potentially adjustments to your company’s legal structure. At Unicount, we’ve seen this transition happen often. Many of our clients start lean and digital, then expand into something more substantial. This blog is for those founders, the ones ready to take the next step.
What changes when you hire your first employee
Hiring someone through your Estonian company means stepping into the role of employer. That comes with legal obligations, financial responsibilities, and a new layer of compliance. You’ll need to register as an employer with the Estonian Tax and Customs Board, sign employment contracts that meet local labor law requirements, and begin submitting monthly payroll declarations.
You’ll also need to calculate and pay labor taxes. These include social tax, unemployment insurance, and income tax. The rates are fixed and predictable, but the reporting must be accurate and timely. Mistakes can lead to penalties, and late filings may trigger unwanted attention from the tax board.
This is where many founders realize they need help.
Understanding Estonia’s labor tax system
Estonia’s labor tax structure is straightforward, but it adds up quickly. As an employer, you’ll pay 33 percent social tax on top of gross salary. You’ll also contribute 0.8 percent to unemployment insurance, while the employee contributes 1.6 percent. Income tax is withheld at a flat rate of 20 percent.
These taxes are reported through the TSD declaration, which must be submitted monthly. You’ll need to track gross and net salaries, generate payslips, and account for vacation days, sick leave, and other entitlements. If you’re hiring locally, you’ll also need to register the employee in the Employment Register and ensure your contracts are in Estonian.
Remote hiring is more flexible, but if the employee is formally contracted through your Estonian company, the same tax rules apply.
Legal structure and ownership considerations
As your company grows, you may want to expand your management team or bring in new shareholders. This requires formal resolutions, digital signatures, and sometimes notarial acts. If you’re issuing new shares, you’ll need shareholder approval and possibly an update to your articles of association.
Companies with fully paid share capital of at least 10,000 euros may transfer shares without a notary, but only if this clause is included in the articles and unanimously agreed upon. These are details worth planning ahead for, especially if you’re thinking about incentivizing key hires or restructuring ownership.
Scaling is a milestone and a mindset
Hiring your first employee is more than a transaction. It’s a signal that your business is working. That you’ve found a market, built something valuable, and are ready to grow. Estonia offers one of the most founder-friendly environments in Europe, and e-residency gives you the tools to build a borderless business. But scaling requires structure, and structure requires support.
At Unicount, we’re here for that next chapter. Whether you’re hiring, expanding, or simply planning ahead, we’ll help you stay compliant, informed, and ready to grow.
Explore our accounting services or reach out for guidance. Your next step starts here.
