About commencement of activity in Estonia as an undertaking
Memberships of the European Union and the Eurozone, success oriented business climate, low operational expenditures and stable and advantageous tax system are probably the reasons why number of natural and legal persons decide to operate in Estonia as an undertaking.
In Estonia most common form of an undertaking is a private limited company (osaühing, abbreviated form OÜ; hereinafter referred to as a company), of which minimum share capital is 2 500 euros. A company may be founded by one or several persons. When founding a company, the founders shall enter into a Memorandum of Association and approve the Articles of Association of the company. The Management Board of a company shall have at least one member, who may be elected therein for an unspecified term.
In order to enter a company in the Commercial Register, the Management Board shall submit a petition to the Commercial Register. Upon commencement of the activity of a company, depending on the area of activity, a licence or a registration in corresponding state register may be necessary. In case the taxable supply of the sale of goods in or provision of services in Estonia carried out by a company exceeds 16 000 euros as calculated from the beginning of a calendar year, the company generally has to register itself as a taxable person in Estonian Tax and Customs Board.
There is no income tax obligation from companys revenue until it is not paid out from a company. Revenue of a company is taxed by income tax upon its distribution to the shareholder of the company. The tax rate of income tax is 20%. The tax rate of value added tax is generally 20% of the taxable value (also 9% or 0% in some cases).
An employer shall pay social tax 33% from remuneration payable to employee. An employer is also required to withhold on the gross wage of an employee the income tax 20%, the employee’s share of unemployment insurance premium 2,4% (incl. the employees share as 1,6% and the employers share 0,8% of the payable amounts) and the contributions to a mandatory funded pension of which amount is generally 2%.
In case you require assistance upon founding of a company, we are prepared to assist you in all legal questions related to this matter, including preparing the projects of necessary documents and by administering this process until the necessary entries in the Commercial Register are made.
If you require further information, please do not hesitate to contact us.