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Estonia
Company formation in brief
In Estonia, it is possible to establish an enterprise of any organizational and legal form. However, from the tax planning point of view, the most attractive for a foreign investor could be to set up one of the following two:
- Osaühing (OÜ) - a private limited company
- Aktsiaselts (AS) - joint stock company
A private limited company can be established by a sole shareholder (physical or legal person, resident or non-resident of Estonia) and has the following features:
- the minimum share capital is € 2,500. The capital is payable only when, for example, a shareholder decides to distribute dividends or change the amount of the share capital. However, until the full payment of contributions by all shareholders, the company is not entitled to increase or decrease the share capital, and, in addition, it is not entitled to make payments to shareholders. Until the shareholder pays the capital in full, he / she is liable to the company for the company's obligations in the amount of the unpaid contribution if the company's obligations cannot be fulfilled from the company's own assets.
- the minimum number of directors of the company is 1. Directors are not required to be shareholders, but at least half of the directors of the company are required to be residents of Estonia. The directors are elected by the shareholders for a period of 3 years;
- only registered shares are allowed to be issued, the transfer of which to third parties must be notarized in Estonia;
- if the capital of the company exceeds € 2,500 and the company has less than three directors, then such a company is obliged to form a Supervisory Board from its shareholders.
A joint stock company can be established by a sole shareholder (physical or legal person, resident or non-resident of Estonia) and has the following features:
- the minimum share capital is € 25,000.
- the minimum number of directors of the company is 1. Directors are not required to be shareholders, but at least half of the directors of the company are required to be residents of Estonia. The directors are elected by the shareholders for a period of 3 years;
- the issue of both registered shares and bearer shares with and without voting rights, as well as with guaranteed dividends and without guarantees of payment of dividends, is allowed. The company is not entitled to issue more than 1/3 of shares with guaranteed dividends;
- the company is obliged to form a Supervisory Board, consisting of at least three shareholders. The directors of the company are not entitled to be members of the supervisory board. The supervisory board controls and directs the management of the company and is obliged to hold meetings at least once every three months.
Registration of an Estonian company can be done in 3 ways:
- in person with completion of the necessary formalities at a local notary’ office, or
- remotely, either by a power of attorney issued to a local agent, or
- using pre-registration online to receive a so-called Estonian e-residence card.
Electronic document management allows you to get most of the registration and other documents of the company in the open state register of Estonia.
Estonia has introduced a public register of controlling persons. A member of the management board (including personal property) is responsible for all activities of the company.
The system for levying corporate income tax in Estonia differs from traditional systems. All profits earned by the company are not taxed at a corporate level. The same applies if profits are kept in company accounts or reinvested (used for commercial purposes). Corporate income tax is paid when the profit is actually paid out, for example in the form of dividends. Thus, it is up to the shareholder of the company to decide when he/she is willing to pay corporate income tax.
The corporate income tax rate is around 20% (20/80 applies to the net dividend amount).For example, if a company decides to distribute a dividend of € 100,000 and pay in February, the corporate income tax must be declared and paid no later than March 10th. Corporate income tax is € 20,000 (100,000 x 20%). Thus, the shareholder receives a net dividend of EUR 80,000.
Estonia does not impose tax on dividends.
Starting from 2019, the tax rate on dividends is 14% if the recipient of the dividends is a legal entity, but the tax rate on dividends will vary as follows:
- if the legal entity that received the dividends is a non-Estonian company, the income tax rate is 14%.
- if the legal entity that received the dividends pays further the received payments to its owners, who are natural persons - residents of Estonia, then an additional income tax of 7% is withheld.
In 2021, 1/3 of the average distributed profits in 2018, 2019 and 2020 may be taxed at a rate of 14%. The rest (2/3) of the profits will be taxed at the regular rate of 20%.
Taxation in Estonia is valid only at the level of the Estonian company paying dividends, and not at the level of the company's shareholders.
Non-resident shareholders (even if their share is less than 10%) are not subject to additional taxation upon receipt of dividends, even if dividends are not subject to taxation at the shareholder level in another country.
Shareholders of an Estonian company are entitled to work for the company and / or receive dividends. Members of the Management Board are entitled to receive appropriate remuneration.
General taxes related to wages (employment) in Estonia are social tax and unemployment insurance, which are covered by the employer, and income tax and unemployment insurance, which are covered by the employee.
If an Estonian company pays wages to its employee for work performed outside Estonia, payroll taxes (including social tax and unemployment insurance premium) are not payable in Estonia.
If a non-resident performs his/her duties outside Estonia, his/her salary in Estonia is not subject to income tax.
Estonia is a pioneer in the licensing and regulation of crypto companies in the EU and provides a legal framework for two types of activities:
- operations with crypto currency, its exchange for traditional money and vice versa (virtual currency exchange),
- organizing a virtual cryptocurrency wallet, to create or maintain encrypted client keys that can be used to store and transfer virtual currency.
This activity is of a permissive nature and requires authorization by the Estonian Financial Intelligence Department, which grants the necessary licenses within 30 days from the receipt of all the necessary documents, which must comply with Estonian legislation.
The main requirements for the documents of a potential crypto license applicant in Estonia are:
- Developed company rules to combat money laundering
- Duly legalized certificates of non-criminal record for all board members, shareholders and beneficiaries not older than 3 months from the date of issue;
- Confirmation of addresses for all board members, shareholders and beneficiaries not older than 3 months from the date of issue
- CV for each shareholder.
The Estonian Financial Intelligence Unit only accepts documents in Estonian, English or Russian.
In December 2019, Estonia legalized a new version of the money laundering regulation. As a result, the regulation of issuing licenses for working with cryptocurrency has also changed, namely:
• two crypto licenses previously issued to Estonian companies will now be merged into one license;
• the state duty for filing an application for such a license is increased from 345 to 3300 euros;
• the level of requirements for companies working with cryptocurrency is now equal to those imposed on all other Estonian financial institutions;
• the place of management and control of such a company must be located in Estonia;
• the minimum requirement for the authorized capital is increased to 12,000 euros;
• the competent authority issuing the license now has 60 days to decide whether to issue a license or refuse it, with the possibility of renewal up to 120 days;
These changes have taken effect for newly incorporated companies from March 10, 2020.
Estonian banks have also revised their requirements for opening accounts for Estonian companies as follows:
- the company must have a physical presence in Estonia (an office that is leased or owned by the company. The bank may request to provide evidence that the company has an office - a lease agreement or utility bills).
- the company must have local employees who receive wages. The salary must not be less than the minimum wage in Estonia.
- the company must be a business activity in Estonia.
However, even if all these conditions are met, local banks do not guarantee account opening.
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