9 Things You Need to Know Before Starting a Company With Estonian e-Residency

Xolo
Written by Xolo
on December 19, 2016

Some of the world’s fastest growing companies started in the small northern European nation of Estonia. In fact, you may have already used Estonian startups without knowing it, like SkypeTransferWise and Pipedrive.

There’s only 1.3 million people there, but Estonia’s entrepreneurial prowess is so notorious that companies there are known online and around the world as the #estonianmafia.

At the heart of this success is an advanced digital infrastructure and a belief that almost anything can be done online with minimal bureaucracy.

Now you can set up and run an Estonian company too, no matter where in the world you live and work.

Estonia is the first place to offer e-Residency so 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.

In the first two years of the e-Residency programme, more than 2,000 companies have been created by e-residents. Some are startups that would love to grow bigger than Skype, but a large proportion are micro-businesses run by digital nomads, freelancers, contractors and the self-employed, particularly expats.

They love 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, so your company will be based inside the world’s largest single market, while you administer it from anywhere in the world.

If you’re thinking of starting an Estonian business yourself then here’s a few things you’ll need to know.

1. Get Estonian e-Residency

 

e-Residency card and reader

Before you can start an Estonian business, you’ll first need to complete your e-Residency application and collect your ID card and reader.

The entire process is very straightforward and is completed online. Once your card is ready, you’ll be able to pick it up from your nearest Estonian embassy or a special collection point. This is also when your fingerprints are taken.

E-Residency costs a one-off fee of €100, which is great 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 offence.

Another key criteria 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 through e-Residency then that includes you too.

So when you’re asked about your reason for wanting to be an e-resident, or what business you’re setting up, remember 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.

Start your application for Estonian e-Residency here.

2. You’ll need an Estonian address for your company

Estonians like to keep things simple. You won’t need to compile heaps of documents or jump through hoops when you’re starting your company as an e-resident. In fact, there’s only one thing that you’ll need in advance, and that’s an address in Estonia where your company can be legally registered.

Before you think about boarding a plane to Estonia and browsing office space, you can simply obtain a legal address remotely. This works great whether you want to run a virtual office while travelling the world or if you have an office already elsewhere.

LeapIN provides a turn-key solution to set up an Estonian company through 
e-Residency and that includes a legally registered address in Estonia, as well as incorporation.

In other countries you might get important letters from the authorities, like the tax office, posted to your legally registered office. 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.

3. Check whether the name you want for your company is available

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 in other countries is shortened to Ltd — 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 a name in Estonian!

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 unlikely that your company name is completely unique.

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 future.

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

Still can’t decide on your company name? Check out our 7 highly practical tips for choosing your company name as a digital nomad or freelancer.

4. You don’t need to learn Estonian to run an Estonian company

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 so your customers, suppliers, and investors could be anywhere on Earth.

In fact, if you’ve remembered the word osaühing then you already speak more Estonian than many e-residents! That’s not a problem though, even when you need to access public or private services locally in Estonia, like banking, accountancy, or tax filing.

Estonia considers itself to be a Nordic nation and shares many characteristics with the rest of the Nordic region, including a high level of English. In fact, with the exception of actual English-speaking countries, Estonia ranks among the very highest in the world for English language proficiency.

In addition, LeapIN provides full services in English and they can handle incorporation, accounting, taxes, and compliance for you.

Of course, if you want to learn Estonian then the government provides free Estonian lessons here — online of course!

5. Paying the share capital is simple

If you’re setting up a limited company then the minimum share capital is €2,500. Don’t worry if you’re not ready to pay that in when the company is being established though, as you can choose to defer the payment for as long as you want if the share capital is under €25,000.

However, you will need to do it 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.

By now, you probably won’t be surprised to hear that this too 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 LeapIN then you’ll already have an Estonian business bank account set up too.

6. You can be the management board

Your limited company will need a management board. That sounds grand, but it can actually be just you!

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.

7. E-Residency does not automatically provide tax residency

It’s only fair that you pay taxes in the country that you physically reside so 
e-Residency is not a way to avoid paying taxes.

Taxation can get complicated if you’re location-independent, so you should always consult a tax professional to determine where income and corporation tax should be paid.

The good 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.

8. Your company is global

Estonian e-Residency makes it easy for you to do business with customers and suppliers around the world, but your company will be global in a way that’s even more mind-boggling than that.

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. At present, those locations are Estonian embassies, but in future, it will include revolutionary new data embassies created specifically to keep the digital infrastructure secure — along with all you and your company’s records and data.

So in the extremely unlikely event that half the Earth is hit by an asteroid, you’ll be able to conduct business as usual no matter where it lands. Well, as long as you’re on the other side!

9. Business services are competitively priced in Estonia

 

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

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

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 LeapIN provides an affordable turn-key solution at the right scale for your business needs.

There are no hidden surprises, and it’s your business, so you decide which services to outsource and can cancel any at any time. To find out more, check out 9 reasons every digital nomad needs LeapIN.

Company Setup e-Residency