How to open a company in Estonia using e-Residency

Xolo
Written by Xolo
on April 20, 2022

If you’re thinking about opening a business in Estonia, you’ll be in excellent company.

Estonia’s startup success stories extend around the world, thanks to the unique e-Residency program - which means that anyone can base their business and finances in the country. As an e-resident, you’ll have full access to Estonia’s advanced digital infrastructure and the same rights in business as Estonian citizens, making it easier than ever before to open a company in Estonia — and enjoy all the benefits of a digitally enabled EU-based business.

So now you can join the more than 2,000 companies that have been created by e-residents from all over the world, with your own Estonian business. Some are startups that would love to be the next Skype-scale ‘unicorn’ but a large proportion are micro-businesses run by digital nomads, freelancers, contractors and the self-employed. Together with the native entrepreneurial community, these companies are known online and around the world as the #estonianmafia.

What is global e-Estonia?

At the heart of Estonia’s business success is an advanced digital infrastructure and a belief that almost anything can be done online with minimal bureaucracy. Global entrepreneurs are attracted to the location-independent lifestyle made possible by e-Residency, as well as the low-cost administration, greater ease of doing business and simple taxes. In addition, an Estonian company is an EU company. When you open a company in Estonia, it will be based inside the world’s largest single market, while you administer it from anywhere in the world!

Estonia’s digital infrastructure is so advanced that it’s already independent of Estonia itself. Every night, Estonia is effectively backed up like a computer in secure locations around the world, thanks to a unique network of data embassies created specifically to keep the digital infrastructure secure.

So, regardless of cyberattacks, future pandemics, or even an asteroid strike, Estonia is the most secure and forward-thinking place to locate your business as well as vital personal information and record-keeping. Disaster preparedness and resiliency are intrinsic features of e-Estonia.

If you’re thinking of starting an Estonian business yourself, know that it’s surprisingly straightforward. And Xolo is at your side to guide you through every step of the process.

How to become an Estonian e-resident

 

Before you can start an Estonian business, you’ll first need to complete your e-Residency application and collect your ID card and reader. In 2022, Estonia is on track to reach the important milestone of 100,000 e-residents, so you'll be in very good company.

The entire process is very straightforward and completed entirely online. Once your card is ready, you’ll be able to pick it up from your nearest Estonian embassy or a special collection point. More of these collection points are launching around the world all the time, and you can specify the pick-up point that's most convenient for you. This is also when your fingerprints are electronically captured, for secure storage on Estonia’s secure X-road digital database.

E-Residency application and processing costs a one-off fee of €100, good value-for-money considering you’ll have full access to the world’s most advanced digital infrastructure.

Anyone in the world can apply to be an e-resident of Estonia, and most applications are approved. However, you do need to be over 18 and not have committed a criminal offense. You can complete the entire process in English.

Why establish an Estonian e-Resident business?

Another key criterion is that e-residents should either have links to Estonia or a legitimate reason for wanting to use Estonia’s public e-services. Some of the first e-residents were friends of Estonia around the world who wanted to show their support, but now the majority fall into the second category. 

If you want to start a business in Estonia through e-Residency, then that includes you, too. You will need to briefly describe why you would like to open a company in Estonia using e-Residency, instead of a local business in your own country. This isn’t a ‘tick-box’ exercise — you should take this seriously as your answers will be read by the Estonian Police and Border Guard Board who have sole discretion to approve your application, so it’s important to be clear about your rationale and intentions.

Start your application for Estonian e-Residency here, and contact your Xolo advisor if you have any questions about how to respond.

How to register your Estonian business address

Even in e-Estonia, you do need a physical address within the country where your company can be legally registered. 

Work with an e-Residency service provider

But you don’t need to jump on a plane — provision of a legally registered office address in Tallinn is part of Xolo’s turnkey business incorporation solution for global e-residents. So, you can run a your virtual company in Estonia while travelling the world, or work from your home or local office wherever you want.

A business address is needed for essential correspondence, with government institutions like the tax office. But one of the great things about having a virtual office in Estonia, the world’s most advanced digital society, is that almost everything is done online - so you don’t have to hire someone there just to open your post! 

Handling any physical correspondence is part of the Xolo Leap service, but the whole system is essentially paperless and digital-first. Check out our guide on how to choose an e-Residency service provider.

How to register your company at the e-Business register

More paperwork? No, nothing to worry about! Company formation is easy for your e-resident business.

In e-Estonia everything is digital. Xolo will take care of all of this, as your named representative in-country. This step will also establish your new e-Residency business as part of the thriving marketplace of global entrepreneurs and international enterprises, giving you immediate visibility and a supportive network.

Choosing a name for your e-resident Estonian Company

A limited company in Estonia is called osaühing. This gets shortened to OÜ at the end of your company’s legal name, in the same way that a limited liability company is shortened to Ltd. in the UK or LLC in the US.

In Estonia, your company name must be written in the Latin alphabet and preferably without any special characters or symbols. You also need to choose a name that’s unique in Estonia’s company registry. This means you’re likely to have far more options available than in your own country. Well, unless you choose an Estonian word!

As an Estonian company is an EU company, you’ll also want to check if there are other trademarks that are similar across the continent. The EU is the world’s largest single market and home to more than 500 million consumers, as well as plenty of entrepreneurs, so it’s more difficult to find a company name is completely unique (though you can always make up an entirely new word, or combine two words in a novel way).

What you need to know about EU trademarks and branding

Don’t worry though. A similar EU trademark isn’t going to stop you from using a name that you love, but it’s always good to know in advance which companies with similar names already exist, particularly so you can avoid any marketing confusion in the future. You’ll also want to consider the implications for search engines and social media availability, which may affect you launching your business and people being able to identify you and find you.

You can check your preferred company name against the Estonian company register and other EU trademarks at the same time. Simply visit xolo.io and do the name search as part of the sign-up process.

Still can’t decide on your company name, or disappointed that your first preference is not available? Don’t let this stall the process of opening your e-resident Estonian company! Check out our 7 highly practical tips for choosing your company name as a digital nomad or freelancer.

Identifying your e-resident Estonian company's shareholders and board members

Your limited company will need a management board. That sounds grand, but it can actually be just you! It’s an important milestone when you open a company in Estonia.

Many companies set up by e-residents have just a single employee and board member, which is the e-resident themselves. That’s because the scheme is so popular with digital nomads, freelancers, and the self-employed, particularly among expats or others who value location-independence.

Some countries complicate this by requiring at least one of the directors to be local, but there’s no requirement for that in Estonia. It's one of the greatest advantages of becoming an Estonian e-resident.

As a ‘Xolopreneur,’ you will be able to complete all contracts and paperwork related to your business. Fear not, because these are minimal in Estonia anyway, and everything is prepared and provided by your Xolo advisor, at the appropriate time, and signed by you completely digitally using your e-ID.

What’s the difference between a shareholder or board director?

If you are a sole trader you will wear both of these hats, but it is important to understand and distinguish between them, to ensure good governance as a business operator.

As a shareholder, or perhaps THE shareholder, you own the business. That is, you own the share capital you invest, and all the assets and profits of the business. You own the liabilities, too! 

Your e-resident business may have more than one owner, if you have external investment for example, but all owners will need to be e-residents in their own right.

The role of board director is an executive one, and it is under this competency you make operational decisions for the business. Every e-resident business will need at least one board member/director, though you may have more than one, particularly as your business continues to grow.

In theory it is the shareholders, the owners, who appoint the director, and the director is accountable to them. The distinction matters once your business grows, because a director does not need to be a shareholder and a shareholder has no right to be a director. 

But as a sole trader getting started, Xolo will sort out all the different contracts and forms you need to complete, to establish yourself in both roles appropriately.

Paying the share capital for your e-resident Estonian business

If you’re setting up a limited company, then the minimum share capital is €2,500. 

If you’re not ready to pay that in while the company is becoming established, you can choose to defer the payment for as long as you want if the share capital is under €25,000. This is one of the ways the Estonian business infrastructure supports entrepreneurialism, by enabling you to test ideas with minimum financial risk, and prove your business idea in the market before committing to larger investment.

However, you will need to pay up the share capital before you make any dividend payments, and you’re still personally liable for your company up to the amount of share capital not yet paid in, so it's an important milestone in the establishment of your e-resident Estonian company.

When the time comes, paying the share capital is an easy process in Estonia. When you’re ready, simply make the payment directly into your company bank account and label it "payment of share capital" (or "osakapitali sissemakse" if you want to show off your Estonian).

If you set up your company with Xolo, then you’ll already have an Estonian business bank account set up, too.

Bonus section: 4 tips for operating your Estonian e-Residency business

Do you need to learn Estonian to run an e-Residency business?

It’s always useful to know at least a few words in the local language when you’re doing international business, but an Estonian company is a truly global one: your customers, suppliers and investors can be located anywhere on Earth.

In addition, Xolo provides full services in English, and we handle incorporation, accounting, taxes and compliance for you. So don’t worry — it’s not actually necessary to learn any new words to open a company with e-Residency.Of course, if you want to learn Estonian, then the government provides free Estonian lessons here — online, of course!

Understand your business and personal tax residency

There are many excellent reasons to establish an e-resident Estonian company, but tax avoidance is not one of them! 

Most Estonian e-residents operating businesses under this program are tax residents in their home nation or wherever they habitually reside, and you must take advice in the relevant jurisdiction relating to both income tax and corporation tax. 

Xolo cannot provide local tax advice; for that you need someone qualified and practicing wherever you are living and working. 

How do you pay tax in Estonia on profits and dividends?

The best news is that taxation in Estonia is fair and simple, no matter where you pay it. 

The digital infrastructure makes it easy to see what you owe, and if you do pay corporation tax in Estonia, then there’s a 0% rate on profits that you keep inside your company.  No wonder Estonia is such a great environment for startups to grow into world-class enterprises! It’s easy and straightforward to do business in Estonia.

Streamline your business admin

So while Estonia isn’t a tax haven, it definitely is an admin haven, and that’s what makes it so popular with people starting and running businesses around the world.

The e-Residency program is already helping entrepreneurs save money, as well as free up more time, so they can focus on their passion, rather than their paperwork.

One of the key reasons for this is the globally competitive price of business services, from incorporation to accountancy, virtual office, banking, and compliance. In addition, if you’re setting up a micro business with yourself as the only employee, then Xolo provides an affordable turn-key solution at the right scale for your business needs - and a solution which grows with you, as your business develops. So from the day you open a company in Estonia, to when you take your global unicorn to IPO, you’re covered.

There are no hidden surprises, and it’s your business, so you decide which services to outsource and can cancel any at any time. If you’re ready to open a company with e-Residency, check out 9 reasons every digital nomad needs Xolo.

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