Life in Estonia and the Process of Setting Up a Company

The amended law simplifies the activities of investment funds in other EU countries. The purpose of these changes was to simplify the marketing of investment funds to investors from different EU member states. The main goal of the law is to improve the functioning of the single market for EU investment funds, which is beneficial for investors as they will have easier access to the investment funds of other EU member states. According to statistics, 70% of the assets held by investment funds are offered in the fund's country of origin, meaning that funds are not interested in investing their funds in other EU countries outside the country of origin. The main reason why funds do not want to offer their products outside their country of origin is over-regulation. The new law removes restrictions and simplifies activities in other countries. For example, under the amended law, EU-registered alternative funds (i.e., venture capital funds for professional investors) that offer products in another EU member state no longer need to have a representative, which is expensive, and before entering the market, the fund can assess the marketing potential in the market. This means it will be easier for foreign funds to gauge the interest of local professional investors in the fund manager's investment idea or strategy before offering shares, stocks, or units in these markets. In Estonia, today's stock market is not yet very diverse. The new law makes it easier for funds established in other EU countries to enter the Estonian market and offers Estonian investors diversified investment opportunities. Since the law is based on EU norms, Estonian funds can now offer their products more easily in other European Union countries.

Does the e-Residency card allow me to open a bank account? Applicants residing in Estonia, employing people who reside in Estonia, or conducting financial activities in Estonia may be eligible to open an account in an Estonian bank.

Is it necessary for an e-resident to pay taxes in Estonia? It is not necessary. You are not a tax resident in Estonia just because you have e-Residency. If you are a tax resident in a country, you must pay personal income tax there, regardless of your e-residency status. It is crucial to understand the difference between e-Residency and Estonian residency. Unlike e-Residency, residency in Estonia is a physical status that includes social obligations and benefits.

What is the Estonian corporate tax calculation? In Estonia, the monthly income tax calculation is done after the distribution of profits (like dividend payments). In 2020, the corporate tax rate is estimated to be 20/80. A regular dividend payment is taxed at a lower rate of 14/86. An additional 7% income tax is withheld from dividends paid to natural persons at the reduced tax rate. The tax rates for resident companies have been reduced to 14/86 (16%):

• The resident company pays income tax on one-third of the profits distributed in 2018.
• The resident company will pay income tax on one-third of the profits distributed in 2018 and 2019.
• E-residents with companies in Estonia will have to pay a 20% income tax on the salaries of Board Members in addition to corporate tax.

Could you please let me know when I will receive my e-Residency card? Is there anyone authorized to collect my card on my behalf? As a rule, the entire process from application to receiving the e-Residency card takes 4 to 6 weeks, and only the applicant can receive the card. Alternatively, you can also find the Estonian Embassy or Consulate in your country. After your card is issued, you will need to collect it within six months. A fingerprint will be required to verify and confirm your identity so that you can receive your e-Residency card. The Estonian Embassy or Consulate cannot issue the e-Residency kit to a third party.

What kind of business should I start in Estonia? There are various forms of business in Estonia, including sole proprietorships, private or public limited companies, and non-profit associations. By far the most common and generally most suitable form for e-residents is a private limited company (OÜ or “osaühing” in Estonian), which is easy and fast to set up online, has a low initial capital requirement of €0.01 per shareholder, and limits the liability of the shareholders.

How do I start a company as an e-Resident? Once you have received your e-Resident digital ID, you are ready to create your Estonian company online. Online registration can be done through the state-owned Company Registration Portal or via Business Registration API services available on some service providers' websites. The state fee for registering a private limited company (‘osaühing’ or ‘OÜ’ in Estonian) is €265. You must use a licensed service provider to meet the legal address and contact person legal requirements. You may also need help from your service provider with accounting, tax, legal matters, and business banking in Estonia, the EU, or your own country. Learn more about choosing the right service provider, and then follow our step-by-step instructions to register your company.

Can I register a company with one or more co-founders? Yes. If a company has several co-founders, it is considered a multi-shareholder company. A company with one founder is considered a single-shareholder company. If all co-founders of a multi-shareholder company can digitally sign (have an e-Residency digital ID card, an Estonian digital ID, or a compatible EU eID), the company formation can be done online. If at least one of the co-founders does not have a digital ID, or if one of the shareholders is another company, it must be registered through a notary in Estonia. For more information about multi-shareholder companies, visit our Knowledge Base.

What kind of bank account can I open for my business? E-residents have various banking and payment options for their business: a business banking account at an Estonian bank like LHV, a business account at a bank or a fintech in another EU/EEA country. The solution they choose varies depending on their physical location, business requirements, and previous experience using payment institution services. Compare banking options here. Fintechs (also known as neobanks or online payment institutions) accept applications online and generally provide more flexibility to e-resident business owners. The most popular fintechs used by e-residents for business banking are: Wise, Paysera, Payoneer, Intergiro, and Payhawk. Estonian banks will require at least one physical visit to their office to set up your business account and also require business clients to have a connection to Estonia. An account at a bank in another EU/EEA country can also be a great option for some e-residents with long-standing banking relationships with such institutions. E-Residency does not guarantee a business bank account. Opening an account is entirely at the discretion of the banks or fintechs and their KYC requirements. E-Residency also does not give people the ability to open a personal bank account in Estonia or other European countries.

Are there any country restrictions or limitations? E-Residency is open to people of all nationalities except for Russia and Belarus. Please note that if you are located in a country where there is no e-Residency card pick-up point, no experienced service providers to support setting up your business, or there are banking or taxation barriers, e-Residency may not be right for you right now. Additionally, individuals who cannot benefit from international financial services because they reside in a jurisdiction classified as 'high-risk and non-cooperative' by the Financial Action Task Force (FATF) may be limited from enjoying the benefits offered by e-Residency. Note that this is based on residency, not citizenship, so individuals from these countries living abroad can still successfully benefit from e-Residency. Also, Estonian citizens or those with a residence permit in Estonia cannot apply for e-Residency.

What is the cost of opening and managing a company in Estonia? With World Company Setup, the cost of opening a company in Estonia is €350 with e-Residency and €1090 through a notary (both prices include a state fee of €290). Please note that the issuance of an e-Residency card costs €120 (collected by the Estonian government). Assistance with opening a bank account is included in our subscriptions. However, some banks may charge you extra fees for processing your application (between €0 and €100). At the same time, please note that some state-provided corporate services may require a government fee. That's all for the one-time costs for company formation. There are also recurring costs – firstly, every company must have a legal address and a contact person in Estonia (both are included in our subscriptions). Other recurring costs are quite individual.

Are there any restrictions on company activities? As long as it is legal and complies with local regulations, there are no restrictions in terms of business activities for e-resident companies. Some fields of activity are more regulated than others, so if your company will operate in the fields of financial services (including virtual currency services like cryptocurrencies), tourism businesses, educational activities, or construction, you will need to obtain the necessary license or submit the relevant notification of economic activity after the company is founded, but before starting any business activity in that field.

How long does it take to open a company in Estonia? With e-Residency, the establishment takes only 1-2 business days, and if you have chosen to establish through a notary, we may need about 1-2 weeks to complete the process. Here is a detailed guide on what the company formation process looks like.

What is e-Residency? Can I travel to Estonia with an e-Residency? E-Residency is a state-issued digital identity card that provides online access to Estonian e-government services and the business environment. Note that e-Residency does not grant you permanent citizenship, tax residency, or any entry or travel rights to Estonia or the EU. However, e-Residency allows for easily signing documents digitally, conducting secure e-banking, and declaring Estonian taxes completely online. Moreover, with e-Residency, opening your company is much easier, cheaper, and more convenient because with e-business registration, everything can be done online in 1-3 days.

What documents will be needed to incorporate a company? When sending documents to a notary in Estonia, we will need to prove that the company exists, that the directors have the authority to sign, that there are no restrictions in the Articles of Association for registering a subsidiary company. We will need a series of documents from the holding company, including a power of attorney, and some documents from its directors. These documents must be notarized and apostilled. To finalize the establishment, the entire share capital of €2500 must be contributed. Note that we will need a bank statement to confirm this fact. The establishment fee by a legal entity is €1490.

Can I use my existing bank account for my new company? Unfortunately, you are not allowed to use a person's existing bank accounts for your Estonian company. There are two requirements for a corporate bank account:

• It must be opened at one of the EEA banks or payment institutions;
• it must be opened under the company's name.