In entrepreneurial circles, especially for those that work online, there is a lot of talk about the chance to start a business in Estonia.
Today we are going to analyze at length the advantages and disadvantages of Estonian businesses, discussing all of their special characteristics, the types of operations that can best benefit these businesses, and of course, the taxes and administrative requirements for these corporations.
The electronic residence program makes it very easy to establish a business in Estonia. And the special Estonian corporate tax system—you only pay taxes once you’ve distributed dividends—makes the country very interesting, especially for rapidly growing startups.
That being said, unfortunately there are also CFC rules that, if you fiscally reside in the UK or any other country with these types of laws.
Fortunately, there are more and more business-owners that live like permanent travelers or that have moved to countries with territorial taxation or, at least, without CFC rules (recently we talked about the different tax systems around the world). In all these cases, you can run a company in Estonia without any problems.
More precisely, as a subsidiary and investment business, an Estonian corporation could be useful to any type of person.
All about Estonian companies
The broadest type of corporation in Estonia is the Private Limited Company, comparable to the companies in countries like Great Britain. It can also be compared to a limited corporation, which in Estonia requires an initial minimum capital investment of €2500.
If this initial capital doesn’t exceed a sum of €25,000 and the founders are natural persons, they don’t need to disburse the capital. That said, the associates of the company will have to be responsible for the cost of the initial capital, namely a maximum €2500 to meet the minimum sum.
Every limited company in Estonia needs a director, who should be a natural person. Offshore corporations, therefore, can’t be designated as managers. In any case, the director doesn’t also have to be an associate at the same time.
At the moment, non-residents need an in situ agent for their Estonian corporation—a person who can be delivered the necessary official documents. Hopefully, with the increased growth in the electronic residence program, this step will soon be skipped.
These agents are generally cheap and also support the corporation’s commercial domicile. They assume the administrative jobs of the limited corporation and, if it is required of them, they can also take care of any necessary accounts.
Special characteristics of the Estonian tax system
Estonia is a very special country with respect to its corporate taxes. It’s likely the only country in the world that has implemented a system where corporations only pay taxes on their distributed dividends. This means—as long as the international tax laws of your country of origin don’t impede it—that you won’t have to pay taxes on profits or investments while the money remains in the Estonian corporation.
Taxes, at a rate of 20%, are only paid when you distribute dividends. In many countries, this will imply also paying income or withholding tax. But for those people that don’t have to pay taxes in their countries of residence, Estonia is an interesting alternative, and there is another aspect of Estonian corporate tax that may be even more interesting.
Up to a certain point, your salary is exempt from taxes in Estonia. The sum of the tax-exempt salary is determined by the volume of sales and work done by the administrators within the corporation. An accountant in my partner agency can help you with this (only after you register).
Furthermore, you can allot up to €1,230 a month tax-free as fixed travel expenses, as long as you don’t live in Estonia and actually have travel expenses relevant to the company. This is easy to argue for the majority of companies that aren’t tied to one place.
Although you won’t be receiving an immense amount of money, for many digital nomads this is more than sufficient to live on. In the end, geoarbitrage lets you live with considerably lower costs than the majority of people. With €1,200, you could live a life of luxury in any place outside of Western Europe, Australia and North America. What’s more, the money from these places can even let you get ahead.
On the other hand, nothing is stopping you from giving yourself more money if you need it. If this is the case, you will have to pay a 20% corporate tax on any sum beyond the limit.
This is precisely why, for people that plan long term, it makes much more sense to leave funds in the Estonian limited company rather than paying taxes. Ultimately, you can leave your money tax-free in the Estonian corporation as a legal person, which becomes an excellent vehicle for investment.
Estonia is a country with a good reputation within the European Union and offers many possibilities for investment vehicles that classic offshore companies don’t offer.
An Estonian limited company can invest in real estate within the EU, and in general, can make various types of deposits and other investments with no problems. Estonian businesses rarely have obstacles to accessing investment opportunities, plus they don’t pay taxes within the country.
With this, they are perfectly suited for pension plans. Instead of contracting them privately and having to pay capital gains tax, you can transfer them to an Estonian limited corporation, which will be able to invest them very flexibly. The capital yields obtained will be tax-free and, over time, will accumulate.
Naturally, all of this is only possible if you fiscally reside in countries without CFC rules. If you reside in the UK, Canada or Australia, you won’t be able to avoid paying taxes on capital yields.
In countries without so-called CFC rules, an Estonian corporation offers the possibility of circumventing taxes on private capital gains. In the case that you do need to pay taxes, they will only be in the form of a 20% tax on dividends. But, given that you can assign yourself a specific monthly salary, this is not a necessary requirement.
Consequently, an Estonian limited corporation can be run in a way that is totally tax-free if it uses long-term investment strategies. This makes it an especially interesting option as a subsidiary company for the many entrepreneurs that aren’t tied down to a physical place.
You can continue running your business tax-free through an offshore or hybrid company while taking advantage of the Estonian limited corporation’s investment advantages. You can also assign yourself a long-term monthly salary at the maximum tax-free amount, and if you need money later on, you can take out more money for a 20% tax.
Thus, the Estonian limited corporation has advantages if you use it as an operating subsidiary.
Advantages of Estonian limited corporations within the EU
Having an Estonian limited corporation is one of the few possible ways to run a business inside the European Union tax-free, even if this involves restrictions, all the while obtaining a tax identification number. This is increasingly difficult for other non-resident companies.
Companies like British limited liability partnerships have problems getting intra-communitary tax numbers if they don’t earn taxable income in the United Kingdom. The same thing happens with partnerships in other countries.
In contrast, authorities in Estonia will willingly assign you a tax identification number (this has changed, obtaining a VAT number is not as easy as it used to be if you don’t have operations in Estonia); after this, you’ll only have to pay a 20% tax on small sums.
Estonia is very interesting for import and export company models like Amazon FBA because, thanks to being a part of the European Union, they rarely have problems with companies like Amazon or Ebay or payment services like PayPal or Stripe. You can use all these services without a problem if you start a company in Estonia.
An Estonian limited company can also be useful as an invoicing corporation. However, transferring profits to an offshore corporation is considerably more difficult than from the UK, for example, because Estonia isn’t ideal for double structures.
Anyone who has a classic consultancy business with digital products and services should consider invoicing its advice services through an Estonian business, while offering their digital products through external servers like Digistore in combination with an offshore company. Part of the earnings from the consulting services can be taken out as a specific monthly salary, tax-free, and the remaining money can be invested as contingency plans for the future. It’s a smart solution for anyone!
What is the administration of an Estonian business like?
Anyone with a goal to avoid accounting will have no luck with an Estonian limited corporation. In Estonia, all capital movement should be reflected in the business’s accounting so that the good reputation of the country’s businesses isn’t diminished. In contrast, you can ignore audits―which are mandatory in places like Hong Kong, for example―under a certain sum. This quantity is somewhere in the order of millions of euros, thus only a small minority of digital nomads reach this.
Given that Estonia is a more cost-effective country than the United Kingdom, it’s convenient to outsource accounting. The limited corporation’s registered agent is a good point of contact for this. Depending on total sum of transactions, a freelancer or small online business-owner shouldn’t have to pay more than €20-€50 monthly in accounting costs.
Because of electronic residence, you can handle this entire process yourself. Whatever the case, a requirement of Estonian electronic residence is that you have to be able to run the whole business online, always according to your verified electronic residence card. This translates into a minimal processing period; you can run your Estonian limited corporation in a few minutes a month.
Currently, this also depends on your in situ agent, who is authorized to receive official notifications. It’s likely that this won’t be the case in the future.
My partner agency LeapIN offers packages with monthly fee plans for different business models. You can pay between €50-€80 monthly to forget about all this. However, they currently only accept single-person companies and not FBA users or investors. If you need this service, you can get in contact with me.
All about Estonian bank accounts
In contrast to what happens with other businesses, Estonian limited corporations don’t have any type of problem opening company bank accounts. You can open accounts practically anywhere in Europe; what’s more, you can also do so on a global scale if your investments demand it.
Nevertheless, there are good reasons to open an Estonian bank account. For example, it will be easier to take money out of your PayPal account. This is a flourishing, modern country that has the lowest state debt in the whole EU, meaning it has good economic security.
One of the more interesting opportunities is to open a SwedBank account. This bank is the most open when it comes to non-residents who don’t have clients in Estonia, and is willing to open business accounts for practically anyone, including internet entrepreneurs and freelancers. SEB and Norvik Banka are among the other banks that have more requirements concerning sales volume and initial deposit. Of course, it will never be as difficult to open a bank account in Estonia as it is in Hong Kong.
Update june 2018: The banking situation is quite horrible now. Swedbank and SEB are no longer options. LHV maybe, but you need to have some economic interest/activity in Estonia. The best banking solutions at the moment are fintechs like Paysera, Holvi, Revolut, Transferwise etc.
Steps for establishing an Estonian business
One good thing about Estonian businesses is that they are very easy to establish; it seems like their start-up requirements get more and more simple by the day.
Currently, you can incorporate your business online using your electronic residence (e-residence), which you will need to have applied for over the internet prior to this. Of course, you will have to look for an agent there to run the corporation and give the business an address. With the LeapIN agency, you can contract all this with accounting and form presentation services for a fixed rate.
If you want to save yourself some work, you can establish your limited corporation directly with them (but this isn’t mandatory). Start-up doesn’t take more than a few business days and you can open a bank account in situ afterwards. If you decide to establish the business with the help of an agency, you will have to pay €700. Annual administration costs are €200 and monthly accounting is between €20-€50.
So in general, this is a reasonable price if you keep in mind the advantages of this kind of business.
Summarizing the advantages of an Estonian limited corporation
An Estonian limited corporation is very worthwhile in many cases, especially in the following:
- For anyone that can live at a low monthly salary or wants to be taxed based on this salary
- As a vehicle for investment, real estate and contingency in the long-run
- For invoicing services including consulting
- For simple import-export businesses
- As a subsidiary or tertiary for simple businesses that need a company with a good reputation
With an Estonian limited corporation you have the following advantages:
- Retained profits aren’t taxed, and distributed dividends are only taxed 20%
- The possibility of having a tax-free salary (within certain limitations)
- Business bank accounts with good services are easy to open
- Limited responsibility with reduced or null contributions (€2,500 responsibility)
- Good reputation within the EU
- Simple administration, likely to get even easier in the future
- Reduced creation and maintenance costs
Well, that’s all for today. Do you think having an Estonian company would suit you? Remember that if you need help to analyze your situation and decide where to establish your business or what structure to give it, you can book a consulting session with me here.
If you have any questions or doubts, take advantage of the comments section below and, as always, if you know anyone who might be interested in this article, don’t forget to share it.
See you soon!
Hello Christoph,
You mentionned that LeapIn does not support companies doing FBA. Could you recommend a company with similar services and prices which would do that?
Looking forward to reading your replay!
Achraf.
I am also interested in this question! Which services do provide accounting services for Amazon FBA companies?
Hi, can you also send me the accounting services for Amazon FBA please?
Thank you and best
Jan
Hello Jan. As I told Tom, I’m putting you in contact with our partner in Bulgaria. It’s now a better option then Estonia for FBA.
Can you put me in contact with your partner in Bulgaria too please? )
Yes, we will
I’ve sent you an email.
Im interested in this as well, can you sent me an email also?
Done.
Could you please forward that as well? Thanks for the content, well structured and really informative.
OK, Alex. I send you an email.
I’m also interested in FBA accounting
Just put you in contact.
thank you can you send me the informations too (fba estonia) ?
Thanks
OK
Hello,
I’m also interested in the Amazon FBA through a company in Estonia. Could you please send me the information as well?
OK
Hello and thank you for all this free and very precise content!
I would also like to know which service I could use for Amazon FBA business 🙂
Thanks!
I am also interested in setting up an Amazon FBA business in Estonia. Could you send me an e-mail with the Leapin alternative?
I just put you in contact.
Hi, I’m also interested in setting up an Amazon FBA business in Estonia. Can you please forward me that email?
I am in the United States. Can you please email me regarding setting up a multi-owner company, or FBA. I would also like to discuss other services with you via email. Thank you.
I just sent you an email.
Hi There
Thanks for your article, it was AMAZING!
I am currently looking into setting up Amazon FBA, could you advise me of the best way forward please, you mentioned Bulgaria. Do they have the same incentives as mentioned in your article 1200 Euros small wage & 20% tax on dividends?
Also does that wage go into your Estonian account & doesn’t have to be declared in the UK?
Many thanks in advance for your help, sorry for all the questions!
Would you please send me this FBA email.
Thanks
I just did.
Hi ,
Tax-free today is nice to read, could you please send me maximum salary without tax and export /import business model please
Need a PLC to setup within EU, open to public for investments.
I think Estonia is good option.
Can you assist? Need as much as possible info
I just sent you an email.
Hi, this is my situation as well. Could you please send me the information? Thank you!
Silvahunt.ee
Hello Chris,
I am about to move from London to Mallorca. I am web-developer and have a Ltd here in London but I was thinking about managing my business through a Plc in Estonia.
Would you please be able to advice on what’s best to do?
Hello Alessio. There are many possibilities. If you want to establish you company in Estonia I can put you in contact with our contact there. If you need a consultation you can book yours here: tax-free.today/consulting
Hi thank you,
amazing article!
I would like to understand the possibilities of managing an amazon business in Estonia rather than Ltd in uk, pros and cons..
can you please help?
Hi Alex,
I’m interested as well for the fba leapin like service in Estonia.
Can you send me the infos ?
Thanks 😉
OK
Hi Alex,
I like your article, well structured and informative!
I am also interested in the FBA LeapIn like service in Estonia,
Would you mind sending me that email as well ? Thank you,
Done
I’m new to this blog and I must say that this is a great article.
Would greatly appreciate if you could send me the info regarding FBA as well.
OK. I just sent you an email.
Hi.
I am also interested in FBA Services and would like to receive an email from you.
OK
Hi,
great article!
Could you also send me information on the service like LeapIn, that is suitable for FBA?
Thanks!
Kamil
Yes, I just sent it to you.
Great article! Could you send me an e-mail with the Leapin alternative for FBA business?
Thank you!
OK
Hi there, great article. I recently applied for (and was granted) my Estonian e-residency, and I’m also looking into Amazon FBA, however leapin does not support it (yet). Could you please send me the FBA email? Thank you!
OK
Thank you for clear article, can You please send me too the e-mail with alternative for FBA business?
OK
Hi,
Could you also send me information on the service like LeapIn, that is suitable for FBA as well
Could you also send me information on the service like LeapIn, that is suitable for FBA?
I sent you an email.
Hi there,
Thanks for this informative article.
I am a bit confused with this sentence “unfortunately there are also CFC rules that, if you fiscally reside in the UK or any other country … “.
In my understanding, CFC rules applies depending of the country of residence (not the fiscal residence). Let’s say I am a UK fiscal resident (= paying income tax in the UK), living in Thailand (= my country of residence), owning an Estonian company that I manage from Thailand. Then CFC rules would apply between Thailand and Estonia, not UK and Estonia. If my understanding of things are correct.
Thanks in advance.
Cheers
Nicolas
Hi there – I just saw that someone posted this a few months ago, but I also had a question about setting up a multi-owner company. Could you let me know about that, and also what the costs are if based in the US.
I just sent you to info per email.
Great read, thank you.
We are setting up a company with 3 foreign shareholders, so I guess we can’t use leapin. Could you recommend any other simular service that accepts multiple shareholders?
Thanks again,
Firat
I just put you in contact with someone.
Hi, I am also interested in a service provider that can handle the Private Limite Company setup and ongoing services (address, accounting, taxes) for a multi-shareholder startup (2 co-founders). Any trusted provider to recommend?
I just sent you an email.
Hi, do CFC rules or effective management place rules apply if you are a NON-DOM in UK/Ireland/Malta?
I’m interested in being a non-dom in UK/Ireland/Malta and setting up a company in Dubai/BVI etc for forex/stocks daytrading (would live and trade from the UK/Ireland/Malta)
Yes, they apply. Your best option in Cyprus, you don’t have them there as a non-dom.
Hi! Excellent article, very clearly explained.
I am interested in a service provider for an multi-owner FBA business- can you please send me the details of your contact?
Thank you.
Hello Tom, I just put you in contact with a partner in Bulgaria. Estonia is not longer interesting for FBA due to the difficulties in obtaining an EU VAT number and opening a local bank account.
Does that mean that Bulgarian companies are now preferred over Estonian ones? Or only when you’re doing FBA?
Just wanted to make sure.
Great stuff on this site by the way. A big thumbs up.
When you need a VAT number.
Hello,
Thank you for the information
I’m also interested in the Amazon FBA through a company in Estonia. Could you please send me the information as well? can you also send me the accounting services for Amazon FBA please and VAT registration in Europe ?
Thank you
If you don’t have business in Estonia (clients there) you won’t be able to get a VAT number there. So it’s no longer a good option for FBA. If you want I can put you in contact with our partner in Bulgaria, there you can easily get the EORI and VAT numbers.
Does that mean that you can sell to other eu countries without charging vat?
It depends on where your company is based and where your customers are. In most countries you can sell VAT free if you are not making too much money.
Hi, I am thinking of starting an fba. I reside in the European Union but am not understanding if you are suggesting that Bulgaria now offers a similar options to Estonia？
Hello Janet. No the options in Estonia and Bulgaria are quite different. You pay less taxes in Bulgaria.
What I’m saying is that if you need an EORI and VAT number Bulgaria is a better option at the present then Estonia.
I am also interested in setting up an Amazon FBA business in an alternative country . Could you send me an e-mail with the Leapin alternative?
Yes, I did.
Hi,
I was considering opening a company in Estonia via e-residency to buy index funds and do other investments and was wondering if there was any stumbling blocks i should be aware of. I am resident in Belgium and was not really planning to do any other business except for investing. Do you think this would cause problems?
BR,
Christoph
Since 1 January 2019 Belgium has CFC rules and there is also the effective management rule. So you would have to pay taxes as if it was a Belgian Company.
Hi!
I am also from Belgium and thinking about opening an Estonian company.
As far as I know, CFC in Belgium is applicable between two companies and more specifically if a Belgian company owns a company, for example, in Estonia. The Belgian company would need to pay taxes on the earnings of the Estonian company.
However, if we don’t have any company in Belgium, CFC shouldn’t be applicable to us, isn’t it?
Best,
Dave
Hi,
I’m thinking to start a FBA, could you please email me the FBA info.
Thank you
Yes, we will send you an email.
Hi Tax free today
hope you are well, just read your article, is informative, do you have any suggestions in opening company in Estonia with Amazon UK FBA and drop shipping, which agency you recommend, i asked Xolo which seem to be no such service provided, thx
We use silvahunt.ee
Hi Christoph,
I am currently selling on Amazon USA. I would like to register a company in Bulgaria or Estonia.
1. I don’t need a VAT number to sell on Amazon USA. However, I wouldn’t want to be restricted from entering a UK/European market in the future. Would an Estonian business leave me restricted in this regard?
2. Is Bulgaria now the best option now for FBA sellers?
I was almost ready to sign-up! Because I can easily live off €1230 as a Digital Nomad. But I suppose I should also consider Bulgaria now?
Thank you so much for your insight and support ??
Please send the FBA information too.
Thanks,
Peter
Hi Peter,
overall Cyprus is the best deal because you also have to consider withholding tax. Yet Estonia and Bulgaria are not bad either. All those may obtain VAT in future. You can also think about tax-transparent vehicles like English or Irish LPs
Hi!
Thank you for this amazing blog! Very useful.
I read in other blogs that in Estonia dividends paid to a non-resident are not taxable. Or that depends on the CFC rules?
BTW: I have Italian and Argentinian citizenship.
Thank you!
Bests,
Anton
Hi Anton,
this depends on the nature of the dividend. Indeed there is no withholding tax. So if a subsidiary pays a dividend to Estonia this can be distributed tax-free. Only corporate income is taxed retainedly.
Hi Cristoph,
Do you advice creating an Estonian LLC for E-Com? I am a EU resident and I see that E-residency is for people outside Eurozone, correct?