Estonia has emerged as one of the most favourable destinations for foreign companies and digital nomads looking to open a business. With its pro-business culture, advanced digital infrastructure, and robust start-up ecosystem, the country presents numerous opportunities for business owners from around the globe, especially those looking to expand their business activities into European countries. In this article, we will explore key factors such as legal forms and documents, the culture of Estonian business as well as the Estonian ecosystem and all other factors that make it viable to open a business in Estonia, especially for foreign business entities and guide you through the necessary steps to start your entrepreneurial journey in this Baltic nation.
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Understanding the Business Environment in Estonia
As of late, Estonia has emerged as an excellent destination for foreign companies and business owners looking to expand into the EU. The business environment and its strategic location make it viable to open a business in Estonia for all company types, whether limited, sole traders, private companies, or public ones. However, it is essential to understand the nature of Estonian company operations before opening an international business in the country.
For one, Estonia allows limited companies to operate within the country without physically moving to Estonia through the Estonian e-residency cards. A physical, legal address and a contact person will still be necessary for foreign entrepreneurs, depending on the industry and size of operation of said limited company, particularly private limited companies. For some sole proprietors, an Estonian e-residency card would suffice in setting up a virtual office. However, special requirements are to be met by the sole proprietor.
As for business opportunities available for foreign entrepreneurs looking to open a business in Estonia, there are many areas for foreign entrepreneurs to explore. However, Estonia has placed itself ahead of many in the digital space. Many Estonian companies are active in e-commerce, fin-tech and cyber security. Investing or launching a business in any of these areas would be ideal as the ecosystem already exists due to many Estonian companies already participating.
Step-by-Step Guide on How to Open a Business in Estonia as a Foreign Company
Several prerequisites must be satisfied for foreign companies aiming to open a business in Estonia. After the entire process of selecting an appropriate business model is completed, the following steps are important for company formation.
An e-residency card is necessary for running a business in Estonia, especially if one aims to do so remotely by running their business online. As stated, the online business model is common in Estonia. This can be obtained by submitting required documents such as a CV, motivation statement, copy of your travel document or ID like a passport financial statement and a digital passport photo. Additionally, a legal address is required to legitimize the business. Contact person services are also available to make the entire process of establishment easy for sole proprietors.
Following this, one has to fill out an online application form. This is followed by payment of an application fee, after which they can select a name. After this, a minimum share capital (if applicable) is to be paid. Estonian resident companies must also open an account at an Estonian bank. This will typically be a business bank account. When selecting a business bank account, one must ensure it is possible to receive and send transactions to business associates through multiple currencies, whether Estonian residents or sole traders from outside the country. Additionally, a business bank account is useful to meet tax obligations.
Types of Companies in Estonia
When opening a business in Estonia, knowing what kind of businesses operate within the country is imperative. According to the commercial code, six forms of Estonian business structures are available to international entrepreneurs. These include:
- Limited Liability Companies or Private Limited Company
- Public Limited Company
- General Partnership
- Limited Partnership
- Commercial Association
- Sole Proprietorship
Limited Liability Companies
Limited Liability Companies or Private Limited Companies are the most common type of Estonian Business. This form of private company is popular as it can be run online due to quick and easy registration, which takes about five business days to get a response. Founders of Limited liability companies are not exempted from personal liability and are required to pay a share capital contribution of not more than 300 euros. A management board is also a requirement for limited liability companies. The ease of remote management, as well as relatively straightforward costs, makes this the ideal business form for international entrepreneurs and digital entrepreneurs looking to establish an Estonian business.
Public Limited Company
Another business form used in Estonia is a Public Limited Company. It is the most expensive in terms of required authorized capital, at around 25,000 euros. The company must also have a management board. However, despite the high amount of authorized capital required, the management board will not be held personally liable for the business. Additional costs to the authorized capital include a 200 euro payment, which is recognized as business costs for setting up a PLC.
General Partnership
A General Partnership must consist of at least two or more partners who work together under a shared business name. These partners hold unlimited liability in their business operations, jointly and severally, for the obligations, ongoing costs and debts incurred by the company. The business model of a General Partnership is founded on an association agreement established between the partners involved. No minimum capital investment criterion needs to be met, and profits earned by the partnership are allocated among the partners based on their respective shares unless the partnership agreement states otherwise, as per company documents.
Additionally, it is essential to note that the association agreement does not need to be notarized, nor does it require any formal filing with the Commercial Register.
Limited Partnership
An Estonian Limited Partnership must comprise a minimum of one general shareholder and one limited shareholder, both of whom operate collectively under a shared commercial name. At least one of the partners involved must act as the general partner, who holds unlimited liability for all the obligations that arise from the partnership; conversely, the other participant is designated as a limited shareholder and enjoys limited liability, which is restricted to the amount of their contribution to the partnership. The general partner bears sole responsibility for fulfilling the legal obligations of the company, whereas the limited partner's liability is confined to the total value of their initial investment respective to the business growth.
Commercial Association
The hallmark of a Commercial Association is that its members are not personally liable for the association's obligations. The charter may stipulate either complete personal liability for participants or limit liability as set forth in the charter. Registering a company must be done through a notary who will authenticate the application for entry into the Commercial Register and prepare needed foundational documents. Additionally, establishing a Commercial Association requires the payment of a state fee amounting to 200 EUR, with VAT applicable to all notary fees.
Sole Proprietorship
An individual entrepreneur (often abbreviated as IE or FIE) represents a particular type of business structure that is ideally suited for individuals who operate small businesses, either independently or in collaboration with family members.
It's essential to recognize that an individual entrepreneur assumes unlimited personal liability for any debts arising from their business activities. To pause their operations, an individual entrepreneur must inform the Commercial Register, specifying the duration of the suspension. If engaged in seasonal work, they can communicate the start and finish dates of their business activities. When establishing a sole proprietorship (FIE), there is no requirement to create a memorandum or articles of association. However, a vital prerequisite is to have a business-appropriate bank account.
Conclusion
In conclusion, Estonia offers a highly conducive environment for foreign entrepreneurs to open a business in Estonia, thanks to its advanced digital infrastructure, supportive government policies, and strategic location within the European Union. The ease of setting up and managing businesses remotely through e-residency and access to a thriving start-up ecosystem makes Estonia an ideal destination for digital nomads and international business owners. By understanding the legal frameworks and choosing the right business structure, entrepreneurs can successfully navigate the process of establishing their businesses and tap into the numerous opportunities available in Estonia's dynamic market.
FAQs
What are the tax obligations for businesses in Estonia?
Estonia's tax system is appealing to businesses, featuring a 20% corporate tax on distributed profits, while undistributed profits remain untaxed to promote reinvestment. The VAT is set at 20% for most goods, with reduced rates for specific items. Businesses must file annual tax returns and meet payroll tax obligations. This straightforward structure is a major draw for many international companies.
Do I need to be physically present in Estonia to open a business?
No, you do not need to be physically present in Estonia to open a business. Thanks to Estonia's e-residency program, foreign entrepreneurs can establish and manage their businesses remotely. The e-residency allows you to access digital services, sign documents, and submit reports online. However, you will still need a physical, legal address and a contact person in Estonia to meet regulatory requirements.
How long does it take to open a business in Estonia?
Opening a business in Estonia is a relatively quick process. For most entrepreneurs, establishing a Private Limited Company (OÜ) can be completed within five business days if all documents are in order. This includes registration with the Estonian Business Register and obtaining an e-residency card. The process can be even faster if you have a legal address and a contact person set up in advance. However, depending on the complexity of the business structure and any additional requirements, the timeline may vary slightly.
