COMPANY FORMATION IN ESTONIA


Estonia is located in Eastern Europe, and has a land area of 45,000 sq km. The country borders the Baltic Sea and the Gulf of Finland, between Latvia to the south and Russia to the east. The population is around 1.3m. The official language is Estonian.


Estonia, former Soviet Republic, has been a member of the European Union since 2004. Estonia has one of the most liberal economies of Central and Eastern Europe. This, combined with low taxes and payroll social contributions, make this country very attractive for foreign investors.


There are several types of businesses for foreign investors:

         Private limited company (Osaühing, OÜ)

         Public limited company (Aktsiaselts, AS)

         Partnership (TU/UU)

         Individual operator (FIE)


Private Limited Company (OÜs) are the most common corporate status of medium and large businesses. It is usually used by foreign companies to become established in the country.


Under EU law, the free movement of capital is the rule. Estonia has no exchange controls or restrictions on foreign investment. There is no limit on the amount of foreign capital that can be invested in an Estonian company, and foreign shareholders may be the majority in a company. Foreign investors are offered no financial incentives in Estonia during the creation of a company. However, Estonia has a liberal business policy and labor costs are low.


The core of the corporate income tax in Estonia is that the corporate taxation is shifted from the moment of earning the profits to the moment of their distribution. It means that as long the profit is not distributed there is no corporate income tax applicable to the company (unless some other costs must be taxed). In other words - it does not matter how successful your company is - it is possible to run your company without taxation at all and many entrepreneurs already do so.


Tax rate

Distribution tax (income tax): 21%  Tax on capital gains: 21%  Tax on royalties: 10%  Tax on interest: 21%  Income of foreign companies: 21%  Tax on dividends: 21%  VAT: 20%

Minimum capital

40,000 EEK (2,500 )

Shareholders

A minimum of two partners

Foreign shareholders

Yes. Half of the board of directors must be permanent residents of the European Union

Foreign holding

Yes


In accordance with standard practices in the EU, companies must register and submit annual accounts to regulatory authorities. Annual audits are required for larger companies.


Estonia is a signatory to double tax treaties with a number of countries throughout the world, including Ukraine.