What are the benefits of setting up a company in Estonia?

Setting Up an Online Company in Estonia 

Since regaining independence in 1991, Estonia has grown its economy faster than any other post-Soviet nation, starting with a clean slate and an open mind. It has become one of the fastest-growing economies in the EU, even through the Covid crisis.

Innovation and the drive to find great digital solutions have always been at the heart of this growth, leading Estonia to create more startups, unicorns, and investments per capita than anywhere else in Europe.

This culture of creative innovation is reflected in the local startup scene and events like the annual Latitude59 festival, which brings together entrepreneurs, investors, and tech pioneers from around the world each year to push boundaries and explore the limits of what's possible.

Estonia's Digital Infrastructure

Taking advantage of the unique opportunity to build a nation-state from the ground up in the 1990s, the Estonian government recognized the potential of online services early on. They were among the first to provide a digital national identity system for their citizens and implement digital signatures through legally binding public-key cryptography.

Today, this fully encrypted and secure identity can be used to access 99% of government services online—whether Estonians need to file their taxes, fill a prescription, or vote in an election, a single digital identity service does it all.

It's no surprise that Wired described Estonia as "the world's most advanced digital society." It's also unsurprising that this is supported by government initiatives to provide nationwide, rock-solid connectivity, with over 94% of citizens having daily internet access. This means that all working-age adults are constantly connected and online.

What is the Estonian e-Residency Program?

Until December 2014, these advancements didn't mean much to anyone outside the 1.3 million people living in Estonia.

However, that's when the groundbreaking Estonian e-Residency program was launched. It has since enabled nearly 100,000 foreigners to gain this unique status and become digital residents of Estonia—providing them with an identity kit with similar functionality and access to the same state systems that Estonians have.

A key reason so many people have done this is that it allows them to open an e-residency business in Estonia without ever having to live in (or even visit) the country.

World Company Setup enables entrepreneurs and freelancers to run their businesses through a registered private limited company in Estonia, serving their clients (who can be anywhere in the world). The same digital signature system that allows Estonians to register for a parking permit or cast a vote lets e-residents make bank payments, file taxes, and raise invoices, all completely online.

How to Open an Online Company in Estonia?

Although it was clearly created with Estonian citizens in mind, the Estonian digital infrastructure offers significant advantages for foreigners, including:

• The speed and simplicity of establishing a private limited company
• The ability to access the entire digital infrastructure in English—not through clunky in-browser translation, but through natively trilingual content in Estonian, Russian, and English across the board by default
• A marketplace of various business service providers, including a growing number of fintechs and neobanks that are happy to collaborate with e-resident businesses (without the need to even visit Estonia once for the in-person identification that many traditional clearing banks still require)
• Easy invoicing and bookkeeping in multiple currencies
• A transparent business and tax infrastructure

There are very few disadvantages and drawbacks to consider, but you might want to keep in mind that…

1. Whether you start a business or not, Estonian e-Residency remains a virtual concept and provides no physical access rights to be in Estonia. That still depends on the rights in your passport. Almost anyone can visit as a tourist. Depending on your nationality, you may have the right to apply for a long-term residence permit (for example, if you are an EU citizen) or a Digital Nomad Visa. However, your e-residency status changes nothing here.
2. Your business is tax-resident in Estonia for tax purposes, but you are not. You are personally liable for whatever financial rules apply wherever you are a tax resident. Depending on the nature of the work you do, it cannot be guaranteed that your business does not also have a tax liability where you are conducting the business, so you should seek qualified local advice on this.

Get Information on Becoming an e-Resident and Starting a Company in Estonia

Business Taxes in Estonia

Business taxes in Estonia are easy and simple, and if you partner with World Company Setup, you won't need to know or worry about them much. Doing business with the Estonian Tax and Customs Board is extremely straightforward, even for those who don't have World Company Setup to calculate and arrange the payment for them each month. Of course, all of this is done through your digital identity and its two signature PINs.

Tax rates are comparable to other EU countries, for example, with a 20% VAT. Most businesses collect and pay VAT in Estonia (if you sell to the public or to businesses at a rate exceeding €40,000 annually), but this is calculated automatically.

When you buy things for your business, eligible expenses on which EU VAT has been paid contribute to the offset, which automatically reduces your bill. According to the Tax Foundation, Estonian VAT applies to a broad base, and the compliance burden is low; this means that the VAT you gently spend and collect on behalf of the state is fairly recognized.

Depending on the nature of your business, you may have payroll taxes and social security contributions to consider (though if you pay social security elsewhere in the EU, this can be reported to the tax office in Estonia, and you won't have to pay it). Property taxes in Estonia (if this applies to you) are also quite competitive, as they only apply to the value of the land.

Your business will need to file an annual tax return, but the costs for this are included in your World Company Setup monthly fee—and again, all you'll need to do is provide any missing information, in addition to signing things when prompted. Like everything else, it's done completely online and on time, so you don't need to worry about deadlines or cycles.

As an e-resident, you will not need to file a personal tax return in Estonia (though you will likely need to do so where you live). And if you eventually start paying personal tax in Estonia, you will be pleased to know that the country has signed a Double Taxation Avoidance Agreement with many other countries—so it's highly unlikely you will be taxed twice on the same income. If you distribute your income through salaries instead of dividends, you may pay very little or no personal income tax in Estonia (but your personal taxes will, of course, continue to be payable in your country of residence).