Our partners and colleagues often ask us about the peculiarities of the company registered in Estonia. What are its strengths and weaknesses. Let’s try to briefly highlight this issue.
1. General information. We are talking about the Estonian company in the form of a private company (osaühing). This is an analogue of the limited liability company. It is established with a minimum charter fund of 2500 euros, but it is not obligatory to pay (up to the size of 25 000 euros). The founder and the board member can be one person. The board member has the right to represent the company without power of attorney and sign documents.
If more than half of board members are non residents of Estonia, it is necessary to appoint a contact person from residents of Estonia (has neither responsibility nor obligations). According to the law correspondence received by contact person is considered to be received by the company).
2. Taxes. The advantage of taxation is that there is no corporate income tax. VAT for transactions outside Estonia is also 0%. Taxes and salary payouts make up about 68% of the net payment to the employee, but there is no obligation to pay salary to the board member. The tax on dividends is 25% – it may be avoided to pay tax in Estonia, if a Treaty on double taxation is applied.
3. Reports. There are monthly reports on VAT and salary, as well as a general annual report.
The VAT report is submitted by the 20th day of the following month, and on the salary by the 10th of the day. If the company does not have a VAT number and there are no payroll charges, then zero reports are not required.
The annual report is submitted within 6 months of the following year, i.e. by 30th of June. The annual report is the Financial statement and the Profit and loss statement for the previous year.
4. Bank account. In recent years, the rules of opening bank accounts have changed and opening a bank account has become quite a challenge. First of all, due to excessive demands of banks and lack of interest of banks in work with business-sector. Also, the banking sector of the Baltic region has experienced several serious litigation involving banks in money-laundering operations. And for some reason the responsibility for this lay with the entrepreneurs, not the bankers.
5. State project e-Residence. Within this project, Estonia issues an electronic identification card for applicants and assigns a personal code to the individual. With the seeming simplicity of the project, e-Residence is a serious opportunity to conduct remote business. Including company registration, filing reports, electronic signature, online identification and access to most public services – all this can be done with a card E-resident. The card also allows to open a payment account in such systems as Holvi and Transferwise.
Thus, the main advantages of the Estonian company include the ease of doing business, low maintenance costs of the company, loyal tax climate, e-Residence and the general prestige of jurisdiction.
The weak point is obviously a closed and an inadequate banking system.