Estonia – Ready Made Shelf Companies – Company Formation

Estonia

Estonia is one of the former Soviet Republics. The country is situated in Northern Europe, on the coast of the Baltic Sea. The country borders with Lithuania, Russia and Finland. Estonia is a member of NATO and the European Union and also belongs to the Schengen Area.

Estonian economy is well-known for being one of the most liberal in Eastern and Central Europe. An attractive tax system and low employment costs make the country attractive for foreign investors. Moreover, when it comes to doing business, Estonian law treats residents and foreigners the same way.

The biggest advantage of the Estonian fiscal system is the fact that the effective income tax rate is 0%, and this is because companies are obliged to pay tax only at the moment of a dividend payout.

Moreover, even though shareholders’ and board members’ data appear in the business register, Privte Limited Company – Osaühing (OÜ) may guarantee 100% privacy, as using nominee services is permitted here.

Estonia is not an offshore jurisdiction and that is why companies formed here do not raise any suspicion in the world.

Estonia is a country with stable political and economic situation, and all this creates excellent environment for doing business.

The official language is Estonian, but knowledge of Russian and English is commonplace. A lot of people know Finnish as well. The official currency is EUR (from 2011).

Estonian commercial law is regulated by the Commercial Code of the Republic of Estonia of 1 September 1995. It is possible to set up many types of companies, but the most popular structure is Private Limited Company –  Osaühing (OÜ).

Every company registered in Estonia has to have a name which differs from the names of the registered entities and have an address in the territory of Estonia.

Every company also has to have Articles of Association that govern it.

The minimum share capital is 2500 EUR. It is this amount that companies are most often formed with. The minimum nominal share value is 1 EUR. The capital may be paid in cash or in kind (any ownership or property right) or partly in cash and party in kind. You should remember that if over a half of the share capital is in the form of contribution in kind, it is necessary to obtain an auditor’s approval.

Osaühing (OÜ) may have one or many shareholders, who are not personally liable for company obligations.

Osaühing (OÜ) has to have a management board consisting of at least one person. Board members may at the same time be shareholders and may be physical persons. A company also has to have a supervisory board if the share capital exceeds 25 000 EUR, the board has less than 3 members or the articles of association state so.

In Estonia, there are no restrictions with regard to establishing companies by non-residents, but if less than 50% of the board members reside in the territory of the EU, Switzerland, Iceland, Norway or Lichtenstein, it is necessary to register a local who will be competent to collect court documents. The person has to be an Estonian resident. We encourage you to use this service through our company.

VAT registration is obligatory in case the annual company income exceed 16 000 EUR. From 1 January 2018, the threshold will be increased to 40 000 USD. You may also register as a VAT payer involuntarily with lower turnover.

Business register in Estonia is publicly available and includes the following data: company name, registered address, share capital, information on shareholders and company representatives. To ensure privacy, you may use nominee director and nominee shareholder services, which in Estonia are completely legal and practiced.

In Estonia, there is a 20% linear income tax rate, both for legal and physical persons, but the effective income tax rate for legal persons is 0%. This is because taxation happens only at the moment of distribution of income in the form of dividends. In practice, this means that if income stays in the company and is directed towards e.g. reinvestments in company development, it is completely tax free. That is why the fiscal system in Estonia is so attractive for investors from all across the globe.

Osaühing (OÜ) also solves the problem of double taxation – as the income tax is paid only at the moment of dividend payout, the moment of taxation happens only once. This means there is no double taxation on, first of all, company income and, secondly, shareholder income.

The basic VAT tax rate is 20% and for certain products it is 9% and 0%.

In Estonia, there is no tax on real estate.

Osaühing (OÜ) are obligated to keep accounting books and submit annual financial reports. If share capital exceeds 25 000 EUR, companies are also subject to audit. Otherwise, Osaühing (OÜ) are subject to audit if at least two out of the following conditions are met:

• Annual turnover exceeds 650 000 EUR
• The company employs 10+ people
• The balance sheet sum exceeds 330 000 EUR

Estonian economy is characterised by openness, liberal policy, and tax and bank systems that support entrepreneurship and investment. Average GDP growth in the recent years has been around 1.1-1.6%, the budget surplus 0.3% and public debt 9.5% (the lowest in the UE). The country is also characterised by very low inflation, around 0, and low unemployment.

The most important sectors of the economy are services (71% of GDP) and industry (25%). Significant for the Estonian economy are oil shales situated in the territory of the country, the source of 78% of energy consumed by the state.

The main trade partners of Estonia are: China, Denmark, Finland, France, Germany, Latvia, Lithuania, the Netherlands, Norway, Poland, Russia, Sweden, the UK and the USA.

Estonia is a parliamentary democracy with multi-party system. The country’s political system is shaped by the constitution of 1992. In Estonia’s political system, the parliament, which has the dominating role, besides the legislative function, approves the government and elects the country’s president. The executive power is exercised by the government, chaired by the prime minister chosen by the president. Government actions are controlled by the parliament.

The judiciary power is exercised by independent courts: county, municipal and administrative (I level); appeal courts (II level); the Supreme Court (III level).

Estonia is a member of the European Union and NATO and belongs to the Schengen Area.

As Estonia is a country where a lot of foreign investors do business, banks have adapted to providing services to foreign investors. Majority of banks have online banking and call centre in many languages. It is also possible to make international wire transfers and accounts are maintained in various currencies.

In the territory of Estonia function 9 licenced banks and 7 branches of foreign credit institutions.

Banks in Estonia: BIGBANK, Eesti Krediidipank, Swedbank, Inbank, LHV Pank, SEB Pank, Tallinna Äripank, Versobank SA