Estonia

Key facts Estonia taxation

Estonia is a country situated in northern Europe with a powerful economy and high GDP. The country is rich in valuable rocks such as oil shale and limestone, and has a strong mining industry. Estonia has been the first country in the world to introduce the E-Residency concept, a digital identity backed by the government. This small piece of land on the shores of the Baltic Sea is a world leader in digital governance and is one of the countries more advanced in the world in digital terms.

In addition, Estonia is one of the most economically liberal countries. Where you can register a company online in less than a day and manage it remotely. With a competitive tax system, where reinvested profits are tax free. Estonia is an excellent location for trade and investment, a growing economy, and a vibrant ecosystem for tech startups, where projects like Skype or more recently TransferWise have been devised.

Estonian OÜ (private limited company):

  • minimum share capital is 2,500 EUR
  • at least one shareholder is required
  • at least one director is required, but must be individuals with active legal capacity, resident or non-resident
  • shareholders are liable for their contributed capital
  • local legal address is required
  • submission of annual financial statements is required

Estonian AS (public limited company):

  • minimum share capital is 25,000 EUR
  • at least one shareholder is required
  • at least one director is required
  • must be registered by notary, electronic registration is not possible
  • local legal address is required
  • submission of annual financial statements is required

General partnerships (TÜ) and limited partnerships (UÜ) are fairly uncommon forms of business in Estonia. They are suitable when a larger number of shareholders are involved or for supporting the economic activity of shareholders.

Taxation:

  • Estonia levies a corporate income tax on a company's distributed profits (in lieu of an annual corporate tax). Retained earnings are not taxed until profit distributions are made. Profit distributions may be specific (i.e. dividends, share buybacks or profit distributions via capital reductions) or deemed (which include expenditure and payments unrelated to business activities, as well as gifts and donations).
  • The corporate income tax applies to dividends and is paid by the resident legal person making the distribution. There is no separate dividend withholding tax.
  • Corporate tax is 20/80 of the net amount (20% of the gross amount) of the profit distribution
  • Capital gains are treated as ordinary income of Estonian resident companies, but they are taxed only where there is a profit distribution.
  • Losses - Not applicable (as corporate income tax applies only to distributed profits)
  • Royalties - 10% withholding tax paid to nonresidents, unless the rate is reduced or an exemption applies under an applicable tax treaty. Royalty payments to qualifying EU or Swiss-resident companies may be exempt if they meet the requirements for application of the EU interest and royalties directive.