Company registration in Estonia: Legal aspects and advice

Company registration is the process of formalizing the status of a legal entity in accordance with the laws of a certain country. During this process, the company is officially recognized as a legal entity with its own legal capacity.

To receive this status, it is necessary to provide certain documentation and fulfill the requirements established by the state authorities. Due to registration, the entity is able to conduct commercial activities, conclude contracts, participate in court proceedings and perform other legally significant actions.

If you plan to start a business in Europe, Estonia is an excellent choice for registering your company.

The Manimama team has conducted in-depth research, analyzed the main subtleties of incorporating in Estonia, and is ready to share its results and help you choose the right jurisdiction.

What are the main advantages of incorporating a company (business) in Estonia?

1. Stable economic system

Estonia’s stable economy provides favorable conditions for business due to its predictable legal and financial systems. The country demonstrates steady economic growth while maintaining low inflation rates, which instills confidence in entrepreneurs and investors. An important factor is the stable banking sector and investment climate, which ensure capital security and offer opportunities for long-term business development.

2. Ease of company registration process

The company registration process in Estonia typically takes about a week, making it one of the fastest in Europe. The absence of complex bureaucracy and minimal documentation requirements allow entrepreneurs to start their businesses quickly and easily. Additionally, Estonia offers the option of company registration through e-residency, making the country attractive to international firms.

3. Developed digital environment

Estonia is a leader in digital technology and e-government, making it one of the most attractive places to do business in Europe. Thanks to its advanced digital infrastructure, entrepreneurs can register a company entirely online using an electronic signature, even outside the country. The Estonian e-residency system allows remote business management and enables the opening of bank accounts, signing contracts, and filing tax declarations, significantly simplifying operational processes.

4. Highly skilled workers

Estonia is known for its highly skilled workers, especially in the fields of information technology. Thanks to a high-quality education system, most workers possess strong technical skills, foreign language proficiency, and a deep understanding of modern innovations. This makes the country an ideal environment for technology companies, startups, and IT businesses that need specialists capable of quickly adapting to new technologies and solutions.

5. Strong international cooperation

As a member of the European Union, Estonia provides entrepreneurs with direct access to the single European market, which covers over 500 million consumers. This allows companies to trade goods and services freely without additional tariffs or barriers between EU countries. Additionally, Estonia has a significant international cooperation framework through numerous free trade agreements, opening opportunities for establishing global partnerships and expanding business beyond Europe.

How to register a company in Estonia and what are the main requirements for such registration?

Step 1. Initial setup

• Initiating a preliminary project assessment, assessing risks, choosing the type of company, preparing the necessary documents and obtaining the necessary permits, determining the time frame, budget, and resources required to complete the process
• Preparation and filing of the package of documents

Step 2. Company registration

• Pick a name for your company
• Get a legal address and contact person (companies whose management team is located outside of Estonia, require an Estonian legal address and contact person service; a contact person needs to ensure that the communication works between the local authorities and your company’s management board; contact persons are not granted rights to act on behalf of your company)
• Register your company with the e-Business Register
• Open a bank account

Requirements for registering a company in Estonia on the example of a Private Limited Company (PLC) / Osaühing (OÜ):

Shareholders: at least one shareholder (may be a natural or legal person).

Director: at least one director; there must be a management board.

Minimum share capital: €1.

Legal address: it is necessary to have a legal address in the territory of Estonia.

Liability: the company has limited liability only with its share capital.

Accounting: Estonian companies must file annual reports, salary declarations every month, monthly VAT reports (if the company is registered for VAT).

What do you have to know about taxes when registering a company in Estonia?

Corporate income tax (CIT):

• The CIT rate is 20%, calculated as 20/80 from taxable net payment.

Personal income tax (PIT):

• The PIT rate is 20%.
• The amount of basic exemption depends on a person’s income (up to € 654 per month and up to €7,848 per year). In order for the basic exemption to be calculated, the person must submit a written application to the employer or the person making the payment.

Value-added tax (VAT):

• From 1 January 2024, the standard rate of VAT in Estonia is 22%.
• There are two transitional provisions for the transition to the 22% VAT rate:until 31 December 2025, provided that the goods or services supplied are subject to a standard VAT rate, the user of cash accounting of VAT may pay VAT at the rate of 20% on the supply of the goods or services generated after 31 December 2023 if an invoice was issued to the purchaser and the goods were dispatched or made available or the service was supplied before 1 January 2024. (subsection 24 of § 46 of the Value-Added Tax Act);the second transitional provision concerns transactions relating to long-term contracts, in particular transactions relating to immovables. Until 31 December 2025, a taxable person will be entitled, on the basis of a written contract concluded before 1 May 2023, to apply the 20% VAT rate applicable on the supply of goods or services until 31 December 2023, provided that the relevant contract provides that the price of the goods or services includes VAT at a rate of 20% or VAT at the rate of 20% is added to the price and the contract does not provide for a change in the price resulting from a possible change in the rate of VAT. (Subsection 25 of § 46 of the Value-Added Tax Act).
• According to subsection 25 of § 46 of the Value-Added Tax Act, the exact wording in the contract is not the most important factor, but whether according to the contract the seller has the right to increase the price of the goods or services due to the increase in the VAT rate or it is not possible. If the taxable person is able to increase the price, for example based on the Law of Obligations Act or the general terms and conditions of the contract, a tax rate of 22% will apply from 1 January 2024, regardless of when the contract was concluded. If the company that signed the contract has an exceptional situation where it is not possible to change the price and they do not want to terminate the contract, the VAT rate of 22% must be applied from 1 January 2026.
• Reduced VAT rates:9% for books and educational literature, medicinal products, accommodation services or accommodation services with breakfast;5% for press publications;0% for exported goods, goods where their transfer and transport to another Member State or transport to another Member State without transfer is deemed to be intra-Community supply of goods; sea-going vessels navigating in international waters; goods transferred and transported to another Member State to a diplomatic representative, a consular agent (except an honorary consul), a representative or representation of a special mission or an international organization recognised by the Ministry of Foreign Affairs, headquarters of an international organization, a diplomatic representation, a consular post, a special mission or a Union institution; services where the place of supply is not Estonia, excluding cases where the supply of such services is exempt from tax; port services to meet the direct needs of vessels navigating international waters and many others.

For readers

Manimama provides assistance in choosing the right jurisdiction for company incorporation and in registering a business specifically in Estonia. We have a good understanding of the tax and legal peculiarities of specific jurisdictions, which helps our clients make an informed choice based on their unique needs and development strategies. In our work, we take into account factors affecting the business environment, such as the level of competition, access to financial and human resources, as well as opportunities for further growth and development in different jurisdictions.

By choosing our company formation service in Estonia, you are working with a law firm that values integrity, competence, and client satisfaction. Let us help you set up a company in Estonia and pave the way for your business success!

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The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.