The attractiveness of Estonia as a jurisdiction for establishing a company is ever-increasing nowadays. The Estonian Government is continuously improving the country’s legislation, offering foreign investors more and more favorable conditions for doing business. However, not every entrepreneur is able to understand all the taxation subtleties and peculiarities, as well as accounting issues.
For example, a company registered in Estonia does not seem to be taxed, as the corporate tax rate is zero. But it is necessary to know under what circumstances such a rate is available. It is worth considering all the details of Estonian tax laws in order to correctly use your Estonian company for tax planning. In this case you cannot do without professional legal services when registering a company in Estonia.
Why Do I Need Lawyers’ Assistance When Registering a Company?
Establishing a company is the process that precedes the start of any business. And if the jurisdiction of residence allows you to organize the process of your company’s registration on your own, then when establishing a business abroad it is better to get the professional support. After all, it is quite difficult to understand the legislation subtleties of another country in a short period of time. Experts of our portal usually provide assistance not only when registering a company in Estonia or another offshore jurisdiction, but they also take care of the business support (preparation and submission of reports, accounting and other business processes).
At the initial stage, our experts will help you choose the right legal corporate form for your company in order to get the maximum access to the benefits provided by the state. The term Legal Services for the Company Registration in Estonia implies the following:
- Assistance in determining the most suitable legal corporate form for the future company;
- Development of the company’s Articles of Association;
- Preparation of the necessary package of documents and its submission to the registration authority;
- – Getting the company name approved;
- – Providing a legal address (preparing a lease agreement);
- – Preparation and provision of the company seal;
- – Allocation of a resident representative.
Should you need any extra services, they will be provided. They may include consulting services, obtaining a VAT number or EORI number, getting your documents apostilled and translated, delivery of your documents by courier worldwide. If an entrepreneur wishes to register a company in Estonia remotely, the cost of services will be slightly higher. Should you like to get more information on the subject, please feel free to sign up for free advice now.
Income Tax Zero Rate for an Estonian Company
If the company’s profit is reinvested rather than distributed as dividends to shareholders, the income tax will be zero. This condition is ideal for start-up companies, as they can thus build up capital and develop their business. Undistributed profit can be used both for the company’s development (purchase of equipment, expansion) and also for just storing it in your bank accounts until the moment when the company’s executives decide to use it for different purposes.
There is an important peculiarity to the Estonian legislation, that is, if a company have decided not to distribute its profits, it has the right not to contribute real funds as registered capital, but only to declare them on paper.
There are also several peculiarities that should be taken into account:
- If a company have decided to use the profit to purchase equipment and other goods intended for the improvement of the business, this fact should be documented. Otherwise, a 20% tax will be withheld from its profits.
- Companies registered in Estonia are very sensitive to the choice of business partners. After all, if a business agreement is made with a partner from the doubtful jurisdiction, the profit from it can be considered as taxable, rather than one aimed at improving business operations.
It is also worth remembering that many fields of business operations in Estonia require a special permit or a license (construction, financial services, tourism, transport services).
Tax Rate on Distributed Profits
Before 2019, the income tax rate in Estonia was 20/80. The rate of dividend income has now been reduced to 14/86. Before that, no withholding of income tax of non-residents could take place. For example, if the source of income was an individual resident of Ukraine, then previously it was subject to taxation in the main jurisdiction, but did not have to pay taxes in Estonia. Today the tax will be withheld in Estonia, but at a reduced rate of 7% to 5%, according to the convention between Ukraine and Estonia.
To do so, an individual must submit the appropriate certificate proving that they are actually the Ukrainian tax resident to the tax service of Estonia. At the same time, in order to avoid double taxation, the tax paid in Estonia will also be taken into account in the jurisdiction of which the taxpayer is currently a tax resident (in this case, Ukraine). It should be noted that only distributed profit that is taxed in Estonia is taken into account.
If the amount of payments exceeds the average payments for the last three years, then the tax rate of 20% will be applied.
Peculiarities of Doing Business in Estonia
Calendar and tax years in Estonia are the same, which should be remembered when submitting your reports and declarations. If a company’s taxable supply exceeds the limit of 16,000 euro for the previous calendar year, it needs to be registered in the VAT system. Companies registered in Estonia (all of them without exception) must submit financial statements within six months after the end of the financial year.
Mandatory audit is only provided for large companies with revenues of 2 million euro or more, whose assets exceed 1 million euro by the balance sheet date and whose staff includes 30 or more employees.
If the company founders are Estonian e-residents, this fact will not affect taxation. Electronic citizenship certainly gives a number of advantages to the status holder, but does not make them an Estonian tax resident, allowing them to pay taxes at their place of permanent residence.
Amendments to the Commercial Code that were introduced in January, 2018, make the presence of a contact person for a company whose directors are not Estonian residents, a necessary prerequisite. It is the resident representative who ensures uninterrupted communication between the company and the regulatory authorities.
All these subtleties and many more must be known when registering a company in Estonia and further doing business in this jurisdiction. One might agree that it is rather difficult for an ordinary entrepreneur to take into account all of the above. That is why it is so important to contact the relevant experts on time so that you would not have to deal with undesirable consequences later on. Please do not hesitate to write to our experts right now at email@example.com.