Who can benefit from establishing a business in Estonia?

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First, it is important to mention that the business activities that different foreign entrepreneurs practice in Estonia is very broad. Based on some market analysis and drawing conclusions regarding the opportunities that arise for different people with different backgrounds, we have brought out some examples that illustrate the reasons who and why should someone comes aroung to establishing a business in Estonia. Further in the article we also discuss the reasons why for some establishing an Estonian company might not be the best idea. Also, please note that the lists below are not conclusive.

Some examples where establishing a business in Estonia is a good idea:

  • You are an non-EU national/resident and wish to sell products or services in the EU using Estonia as a gateway.
  • You are an EU national, who intends to operate their business/start-up in Estonia.
  • You are a non-EU national, who has an innovative tech start-up idea and you wish to manage the company in Estonia via the start-up visa program.
  • You are an EU national, who wishes to move to Estonia and/or to become Estonian tax resident. Dealing with the Estonian government and taxes may be easier, and Estonia may offer a better quality of life.
  • You are an EU/non-EU national, who wishes to invest in securities in Estonia or elsewhere in the Baltic using their Estonian company.
  • You have an EU/non-EU company/start-up and want to raise funds for your business in Estonia and elsewhere in Europe.
  • You are a non-EU/EU national digital nomad (e.g., travel a lot) and would like to manage you business online and remotely using the advantages of e-Residency.
  • You or your company is looking to benefit from the local tax system.
  • You wish to avoid high business establishment costs (usually high minimum share capital requirements) in your home country or country of residence.

Typical Businesses incorporated in estonia

e-Commerce/Amazon FBA businesses

eCommerce and Amazon FBA businesses are among some of the most popular companies that entrepreneurs are establisshing in Estonia.

Probably the most relevant case here is the fact of the United Kingdom leaving the European Union. Because of this, it is more common to see UK entrepreneurs are establishing businesses in Estonia, which before Brexit could serve their EU clients easily. There were no extra import/export costs or declarations and only had to keep distance-sales rules in mind, not to mention the ease of collaborating with EU partners.

However, now these UK eCommerce companies must fill out new declarations if they wish to send theirgoods to someone in the EU. Most often clients end up paying more in total because of additional importcosts and VAT charges, besides the delay caused by additional customs procedures.

Therefore, an Estonian company can be an excellent solution for these entrepreneurs as it offers theflexibility they need. As almost everything can be done online, no need to live in Estonia and the taxation is fair and simple. Also, being able to use different EEA banks or payment institutions for their businesses, and the ease of collaborating with European partners makes an enormous difference.

In addition, as of July 2021, the new VAT scheme OSS was introduced. This scheme enables entrepreneurs to sign up for VAT only in one EU country to pay and declare it there even when selling toother EU countries. Currently, a company needs to sign up for VAT in each individual country when thedistance-sales threshold is met, declare there and pay there. Adding that the threshold differs from country to country, which makes accounting more complex.

Luckily, getting a VAT number in Estonia is relatively simple and can be done voluntarily before therevenue threshold of €40,000 is met. Keeping in mind the new VAT scheme simplifies things even further.

Agencies and service companies

Many non-EU residents choose to set up their business in Estonia for similar reasons that were mentioned in the examples above. Having an EU entity allows many entrepreneurs to deal with their EU customers and partners more efficiently and being present in the EU market opens new opportunities forthem.

Typical agencies and service companies that are incorporated in Estonia are marketing agencies, tourism agencies, different consulting agencies, financial service companies, and IT companies that offer services like programming, consulting and software development.

Some of these businesses need a licence to offer their services to clients in Estonia and probably elsewhere in the EU. While others can function with no restrictions, as their industries are not regulated. Note that each country regulates industries differently and an Estonian licence probably does not give the right to operate in an industry that is regulated in another country.

This should always be verified beforehand!

Recently, tourism agencies have become quite popular. Sometimes, such businesses need to give notice of starting operations in the industry, while in other cases, there is no need for that. This of course depends on the business plan, partners, how payments will be handled, etc., which we can also help our customers analyse.
Typical activities that these tourism agencies have are organising tours in Estonia and elsewhere in the EU or operating a website that mediates flight tickets for example.

Companies that offer financial services to others are also at the top of the list in terms of popularity. However, many companies within the financial sector need an activity licence to operate legally.
Per the Estonian law, it is necessary to obtain a financial licence if a company intends to operate as:

  • a credit institution;a creditor;
  • a credit intermediary;
  • a management company;
  • an investment firm;
  • an insurance undertaking;
  • a payment or e-currency institution.

Lately, the Estonian government has been making regulations stricter and checks more frequent forfinancial service companies. All to avoid companies operating with ill intentions and taking away licences from companies that go against anti-money laundering regulations.
However, if a business has a transparent business plan, there is no reason for it to be rejected by the Estonian Financial Supervision Authority.

If a business needs a licence or is required to give notice, we got it covered. We have extensive experiencein working with different companies that operate in industries that are regulated in Estonia.

Private investing companies

Estonian companies that do not offer financial services to others do not need to get an activity licence. These businesses are free to invest and trade as they see fit as long as it only benefits the company and its owners. However, a company that invests or trades financial instruments via a licenced EU broker needs a LEI code, which we can help acquire and re-new as needed.

Investing in local or Baltic securities means that the company must have a local securities account. The most popular exchange in the Baltics is Nasdaq Baltic and where a company can invest only if they have a securities account at one of the official brokers. Also, many Estonian brokers have access to securities from around the world, which makes it easy to diversify and hold different world-wide assets.

Yes, there are also many online brokers that accept businesses and bank accounts from different countries and can thus be able to trade different securities there. However, these brokers should always be carefully researched beforehand as it can be risky – money can be lost, and accounts can be closed. Many banks that also act as brokers do not enable to open a securities account for foreign companies, asbriefly mentioned earlier.

Having an Estonian securities account can also be needed in case one wishes to buy shared of local start-ups. Often these start-ups are listed on the Estonian Central Register of Securities, where the number of shares owned by the company are registered once the transfer is made official. For this, an Estonian securities account is needed.

Start-ups

Establishing start-up company in Estonia is quite popular, as he local government has set up an environment which supports early-stage companies by being innovative, bringing people together, offering expert advisory, doing workshops, etc. Also, there are many growth opportunities because of the success that many Estonian start-ups recently have had. These successful ideas and entrepreneurs has drawn interest from many local and foreign investors that are looking to go along on a business venture.

As all of this creates the prefect ecosystem, and that is why many people are making Estonia the base oftheir breakthrough ideas. There are many opportunities to get access to EU funds through Estonia which may help founders grow their companies even more.

Establishing a scalable tech start-up is popular specifically among non-EU nationals. By doing so, they can get a Start-up Visa which enables them to live and manage their business in Estonia, and travel within the EU. On the other hand, EU nationals can easily move to Estonia and claim residency if they have established a business and wish to manage it here.

There are many organisations in Estonia that will invest and to go along with innovative ideas. This has also given birth to crowdfunding, which has become the trend in investing and raising capital.
While funds can be raised in Estonia by using a company from another EU nation too, an Estonian company has the best chances of succeeding now, and in the future. This offers more transparency and security to the investors as their shares and the respective shareholders can be listed on the Estonian Central Register of Securities.

Probably the most famous Estonian crowdfunding platform is Funderbeam. On Funderbeam, companies and private persons can invest in and trade stock/equity of listed companies freely. However, as of September 2021, all crowdfunding platforms in the EU will need to obtain a business licence to continue offering their services to investors and start-ups. Using an Estonian company on Funderbeam for example may prove to be less risky for themselves afterwards as they will need to follow new regulations to keep their licences.

Our services can help these businesses to keep their costs down and ensure that everything related to administration is being taken care. All while the founders focus on growing their business, obtaining capital and meeting the right people.

Companies that have intentions in operating specifically in Estonia

Estonia is a small country which also means that the competition may not be as tough as elsewhere in Europe. Many companies can enter with relatively low costs and can earn market share quickly. There are some companies and funds that are interested in supporting in unique ideas that are sought after andbeneficial in different industries – one of them is agriculture, for example.

Such businesses offer excellent opportunities for EU nationals to move to Estonia if it offers better outlooks than their current country. Doing so enables them to become a local residents and tax residents. By that also the ability to obtain a business and personal bank account at an Estonian bank which is otherwise quite hard to succeed at.

Non-EU companies that are interested in selling their goods in the EU

There are also some businesses that are interested in bringing their goods directly to the EU instead ofusing a local partner or an intermediary by giving away control.

This is particularly relevant if main clients are in Northern or Eastern Europe. Estonia has excellen tinfrastructure to accommodate businesses that wish to sell their goods in the region; Excellent digital services and coverage. Many large ports, where goods can ship to and ship from. Plenty of warehouses and storage places where goods can be stored under required conditions. Good logistic services that can deal with different goods that are needed to be delivered to their customers.

Our services, and our local know-how can help maintain such business’ costs low while pointing them intothe right direction.

Holding companies

In some specific cases, using an Estonian holding company can prove to be beneficial. Truthfully, it is hard for Estonian holding companies to compete with Maltese holding companies, for example. However, there might still be instances where one opts for using an Estonian one. This all depends on the requirements that the founders have set and can benefit from the local tax system along with international treaties.

For whom establishing a business in estonia might not make much sense

As with everything in life, everyone may not benefit from things that benefit others, and the same can be said about establishing a business in Estonia. There are cases where incorporating in Estonia can and will make doing business across boarders more difficult and costly.

Here are some examples where establishing a business in Estonia might not be the best idea:

  • You wish to avoid paying taxes. Establishing a business in Estonia and being an e-Resident is not a method to avoid taxes and being caught doing so will bring legal consequences.
  • You are a freelancer who is a resident of another EU state and wishes to open an Estonian company. Such entrepreneurs may run into legal difficulties as the country of residence and where the business is managed from plays a huge role. Each EU country has their own specific PE rules per which one may need to create another company and the company will be taxed there as well. In addition, there are also CFC rules and Double Taxation Treaties that must be taken into consideration.
  • A company which operates outside of the EU and needs a licence to provide its products or services there. Having a licence from the Estonian government does not allow companies to offer their services in other countries, where that specific industry is regulated.
  • The same applies to some EU countries as most likely an industry is regulated by the local government and a licence from that country is needed to operate legally.
  • Companies who definitely wish to have an Estonian bank account and do not have connections to Estonia (no office, no local partners, no local employees, not managed from Estonia, etc.).
  • This is relevant for companies who want to get a loan for their business in order to start their activities, or who wish to use some specific services that only traditional banks offer. Companies who do not specifically need an Estonian bank can use any EEA bank account or payment institution for businesses.
  • Investing companies, whose primary activity is investing and trading securities and need a securities account but do not plan to invest in Estonia. Most Estonian brokers have access to popular international securities, however, not to smaller ones that are only available in specific countries. The likelihood of being able to get a securities account for an Estonian company in another country is very low.
  • Non-EU nationals who wish to move to and live in Estonia via a temporary residence permit for business may face certain difficulties. This is because the Estonian immigration quota is quite low – around 1300 and may change year-by-year. With that being said, it is difficult but not impossible to accomplish.

Questions you should ask yourself when deciding on a jurisdiction where to set-up your business

  • How are the local business-related taxes (labour, salaries, VAT, customs, CIT, etc.)?
  • Are there any international treaties or local legislations that make doing business easier?
  • How would my personal and my company’s taxation look like (depends on the country of tax residency)?
  • How easy is it to communicate with the local government and to conduct everyday business?
  • How is the reputation of the country?
  • How is the local business environment? Is the government and the economy stable? How is the outlook? How is the local infrastructure?
  • Is the local geographical location suitable for my business? Where are my customers?
  • Could my company benefit and grow in the local environment?

In case you would like to discuss any of these points, or you already know that you wish to proceed with establishing a business in Estonia, please feel free to reach out to us!

Disclaimer: We always suggest speaking to a local professional in the country of one’s tax residency to find out if an Estonian company will make sense in their specific case. It is important to learn how their personal and their company’s taxation will look like to avoid running into serious international taxation related problems in the future.

About the author

Incorporate Team