Establishing your first company can create a lot of uncertainty for first-time founders due to the bureaucratic requirements, complicated tax regulations, and hidden costs associated with having a company.
But not in Estonia.
This digital nation provides an easy online registration of limited liability companies. The small country offers entrepreneurs a fast track to register a company in one day, eliminating the hassle of filing paperwork and unexpected costs.
This article will explore the advantages of starting your company in Estonia and how you can benefit from the digital nation’s offer for establishing and running a company online.
e-Residency and ease of doing business
Most importantly, Estonia has its door open for remote company establishment thanks to the e-Residency program.
E-resident ID card enables remote company registration and management from anywhere in the world, removing the need for physical presence. It ensures paper-free instant access to public and private e-services, including company registration and management, and tax submissions.
A cornerstone of Estonia’s digital revolution is the widespread use of digital signatures. This technological advancement simplifies and secures business operations, allowing legal documents to be signed and verified online. It’s a time-saver that underscores Estonia’s commitment to an efficient, paperless economy. Every year more than 100 million cryptographic signatures are added to documents in a country with a population of one million. There are estimates that this is saving roughly 2% of the gross domestic product (GDP):
At Unicount, filing your limited company registration application takes just 5 minutes. Unicount company formation works through the Business Register API to ensure a swift and user-friendly application process in multiple languages with online support.
Access to EU markets
Your Estonian company opens the doors to the European Union market, one of the largest in the world. Estonian companies have access to the European single market with all the tax-free goods and services. This means that you can also deliver your goods and services to the single market.
Adopting the Euro has positioned Estonia favourably within the single market. The strength and stability of the Euro allow you to run your business without worrying about currency fluctuations when doing cross-border trade within the Eurozone. This economic stability of the region is a significant factor for international entrepreneurs from other areas of the world.
The euro is also a stable currency and most online transactions have either zero or low costs when wiring money via SEPA payments.
Low Capital Requirements
Estonia’s limited company regulation is founder-friendly, thanks in part to its low capital requirements for starting a business. This is clearly benefiting founders who might be deterred by the high initial capital requirements seen in other countries.
The revised Commercial Code now allows the share capital of an Estonian limited company to be as low as one euro cent, if it has a single founder and shareholder. This radical reduction from the previous €2500 requirement significantly lowers the financial barrier to establishing a business in Estonia. For each additional shareholder, the share capital needs to increase by at least one euro cent.
Unique Corporate Tax Model
One of the most distinctive aspects of Estonia’s tax system is its corporate tax structure. Companies registered for tax in Estonia do not pay annual income tax on their reinvested or retained earnings. Instead, corporate income tax is only paid when profits are distributed as dividends. This policy encourages companies to reinvest their profits, fostering growth and innovation. For resident shareholders, there is also no personal capital gains tax after the corporate income tax is withheld.
The current corporate income tax rate is effectively 25% of the net amount paid out as dividends and is calculated as 20/80 of the distributed profit. This is paid by the 10th date of the next calendar month with no prepayments and self-assessments needed like regular payment schemes that are introduced in some countries with a more aggressive stance towards taxing corporate profits even before they occur. This is slightly below the average corporate income tax rate of 21.5% among European OECD countries.
Access to financial services and funding
One of the advantages for businesses in Estonia is easy access to payment and merchant accounts. This particularly benefits online businesses. EU-regulated fintechs are generally accepting Estonian companies, making it easier for new businesses to access essential financial services.
There is also a multitude of startup funding opportunities available in Estonia, including grants, accelerators, business angels, and venture funds. The startup ecosystem in Tallinn is thriving, with a history of successful startups like Skype and Wise leading to a network of experienced and wealthy founders.
Low Annual Overheads
The cost-effectiveness of operating a business in Estonia is another compelling reason to consider setting up a company here. Lower annual overheads compared to other European nations mean startups and SMEs can allocate more resources to growth and innovation, rather than being bogged down by operational expenses.
You can run a micro-company on a budget of 500-1000 euros per year if you have no monthly tax returns to file. This would include some basic costs like an annual virtual office subscription and annual accounts preparation.
Thanks for reading!
This article was written by Adam Rang, Communications Director at Unicount. You can get started with Unicount at Unicount.eu.
