Starting Business in Estonia

Estonia is recognized as one of Europe's most attractive jurisdictions for doing business. As a member of the European Union and the euro area, it offers a transparent legal framework, a highly digital business environment, competitive operating costs, and a unique corporate tax system that encourages reinvestment.

The most common form of business entity in Estonia is the private limited company (osaühing or OÜ, hereinafter referred to as the "Company"). A Company may be established by one or more natural or legal persons.

Since the 2023 amendments to the Estonian Commercial Code, there has been no statutory minimum share capital requirement for an OÜ. An OÜ may be established with a share capital of as little as EUR 0.01, or any higher amount determined by the founders according to the needs of the business. The share capital must be fully subscribed upon incorporation and may be paid in either monetary or non-monetary contributions, subject to the applicable legal requirements.

To establish a Company, the founders must adopt the Articles of Association and complete the incorporation procedure in accordance with the Estonian Commercial Code. Every Company must have a Management Board consisting of at least one member. Unless otherwise provided in the Articles of Association, Management Board members may be appointed for an indefinite term.

The Management Board is responsible for submitting the application for registration to the Estonian Commercial Register. Depending on the nature of the Company's activities, obtaining an activity licence or registration in a specialized state register may also be required before starting business operations.

A Company must generally register for value added tax (VAT) if its taxable turnover in Estonia exceeds EUR 40,000. Voluntary VAT registration is also possible where the statutory conditions are met.

One of the principal advantages of the Estonian tax system is that retained and reinvested corporate profits are not subject to corporate income tax. Corporate income tax becomes payable only when profits are distributed (for example, as dividends) or are deemed to be distributed under the Income Tax Act. The current corporate income tax rate on distributed profits is 22%, calculated as 22/78 of the net distribution.

The standard VAT rate in Estonia is 24%. Reduced VAT rates apply to certain goods and services, while some transactions are exempt or subject to a zero rate in accordance with the Value Added Tax Act.

An employer is generally required to pay social tax at the rate of 33% on an employee's gross remuneration. In addition, the employer must withhold and remit the applicable payroll taxes and mandatory contributions, including income tax, unemployment insurance contributions and funded pension contributions, in accordance with Estonian legislation.

Should you require assistance with establishing a Company in Estonia, we provide comprehensive legal support throughout the incorporation process. Our services include advising on the most appropriate corporate structure, preparing all necessary incorporation documents, assisting with regulatory and licensing matters, and managing the registration process until the Company has been successfully registered in the Estonian Commercial Register.

We also advise clients on all legal aspects of doing business in Estonia, including corporate governance, commercial contracts, taxation, employment law, regulatory compliance, mergers and acquisitions, and corporate restructuring.

If you require further information or would like to discuss your plans for business, please do not hesitate to contact us.