General information about Estonia
- Republic of Estonia is a state situated in Northern Europe on shore of the Baltic Sea. The official language is Estonian. The currency is Euro.
- The legislation of Estonia is based on continental European law.
- Estonia is a member of EU, Schengen agreement, WTO, OECD.
- The main trade partners of Estonia are Russia, Latvia, Lithuania and Finland.
Advantages of jurisdiction
- Estonia is one of the most developed states in Baltic region, and this includes the availability of public services in electronic format.
- The income tax is to be paid only if the distribution of profits to members (shareholders) of the company takes place. If the profits are being reinvested, the obligation to pay tax is not imposed on the entity.
- Estonia is a prestigious jurisdiction with wide trade links.
- Estonia has a significant number of Double Tax Avoidance Agreements (DTAA) concluded with foreign states and territories.
Use of Estonian companies
- Estonian companies may be used as an instrument for tax optimization and an alternative to offshore companies. Estonia is not blacklisted as an offshore by any state and has a status of prestigious European jurisdiction.
- Estonian company may also be used as a trading intermediary between Russia and EU member states for tax optimization (in particular, Value Added Tax rate 0% may be applicable to goods supply within EU in accordance with Directive 206/112/ЕС).
- Application of reliefs of DTAAs concluded by Estonia and foreign states when Estonian company is used as holding company.
Legal forms of entities in Estonia
- Joint-stock company (AS) is a standard legal form of company the capital of which is divided into shares. Generally, it is used for conducting big business with a significant amount of shareholders (there has to be at least 2 shareholders). Meeting of shareholders shall be arranged at least once a year. The management body of a company is the Board of Directors that shall include at least 3 persons. The minimum share capital is 25 000 Euro.
- Limited liability company (OÜ) is the most widespread legal form of company in Estonia and is common for entities that conduct small and medium businesses. The liability of members is limited by their contribution to company’s capital. The minimum capital is 2 500 Euro.
- Non-commercial partnership (MTÜ) is a legal form designed for running social activity. It is used to incorporate and formalize the activity of such entities as social organizations, charities, associations and unions. Non-commercial partnerships are entitled to run commercial activity only if it is necessary to reach their purposes according to their charter.
- Branches of foreign companies (filiaal).
Main features of limited liability companies (OÜ) in Estonia
1. Memorandum and articles of association (Põhikiri). This document establishes the type of company’s activity, the formation procedure and the amount of company’s capital. Also memorandum and articles of association (M&AA) regulates the procedure of meeting of members of the company, including the rules of making a decision, organization of voting, etc. In addition, M&AA shall contain the information about members of company and its Board of Directors. M&AA may provide the dates of the beginning and the end of accounting period for financial statements different from the standard ones.
2. B-card (B-kaarti koopija). This document is an analogue for extract from the Register of Companies in Estonia. It contains the identification data of the company, such as:
- Name of the company;
- The amount of the capital;
- Information about the capital’s formation procedure;
- Incorporation date;
- Registered number;
- Registered address;
- Type of activity;
- Members data;
- Data of Board of directors.
3. Company’s members. In Estonia there are no restrictions regarding the persons that are entitled to be members of limited liability company OÜ: both natural persons and legal entities resident in any country may incorporate an OÜ.
4. Company’s capital. The minimum authorized capital is 2 500 Euro and there is no requirement to pay it before the incorporation. It may be paid during 3 years after the incorporation. The capital may be paid in several forms, including payment by money (cash or bank transfer) or by any other property.
5. Management bodies. The Board of Directors is the main management body of the company and may be composed of only one director designated by the members. If there are more than 3 persons in the Board of Directors, the formation of collegial body called the Council is required. The members of the Board of Directors may employ other directors by concluding a labor contract with them. The members of the Board of Directors are not required to impute and pay salary to themselves (as they are for the employed directors). Employed directors and the members of Board of Directors have similar duties, for example they may act on behalf of the company in transactions, manage company’s commercial activity and open bank accounts.
6. Disclosure to the Register of Companies. The information about the members of Board of directors, employed directors and company’s members is to be disclosed to the Register of Companies by filing of special electronic form. Such information is publicly available. Starting from 1 September 2018 the information regarding company’s beneficial owners will be disclosed not only to the Register of Companies, but also will be available publicly. Before this date Register will require the information about beneficial owners, but it will be kept confidentially.
Corporate taxation in Estonia
All Estonian residents are taxed in Estonia on their worldwide income, the same rule is applicable to branches of foreign companies located in Estonia. The incomes of non-residents derived from sources in Estonia are taxable in Estonia.
- The rule governing tax residency for legal entities in Estonia is that any legal entities incorporated in Estonia or other unincorporated legal forms registered in Estonia are deemed to be tax residents. Societas Europaeas and European Associations that have registered address in Estonia also has a status of resident in Estonia.
- Income tax is imposed on companies only in case if distribution of profits in a form of dividends or equivalent payments to the members (shareholders) take place. If income is being reinvested to company’s activity, such company is not obliged to pay tax.
- The following payments are equivalent to the dividends:
a) Fringe benefits;
d) Business entertainment expenses;
e) Payments not related to the business of the payer.
- The standard tax rate is 20/80 (25%).
- Tax period is calendar month.
- The payments of dividends may be exempt from income tax in the following cases:
1. The dividends are redistributed by Estonian company from dividends paid by its subsidiary resident in the European Economic Area or Switzerland and Estonian company owns at least 10 % of share interest of its subsidiary.
2. The dividends are redistributed by Estonian company from dividends paid by its subsidiary resident in any country if such incoming dividends were taxed in other jurisdiction or in Estonia and Estonian company owns at least 10 % of share interest of its subsidiary.
- Withholding tax on dividends is not levied in Estonia if such dividends are paid to non-resident (except from residents of low tax rate territories).
- In Estonia the blacklist of low tax jurisdictions is not official and was designed on the basis of correspondence to criteria established in section 1 of article 10 of Income Tax Act. This criteria is the absence of a tax on the profits earned or distributed by a legal person or if such tax is less than 1/3 of the income tax which a natural person who is an Estonian resident would have to pay on a similar amount of business income (a legal person is not deemed to be located in a low tax rate territory if more than 50 per cent of its annual income is derived from actual economic activity or if the state or territory of location of the legal person provides the Estonian tax authority with information concerning the income of a person controlled by Estonian residents). This blacklist includes the following jurisdictions:
Antigua and Barbuda
British Virgin Islands
Commonwealth of Dominica
Oriental Republic of Uruguay
Republic of Mauritius
Republic of San Marino
Republic of Venezuela
Saint Kitts and Nevis
Saint Vincent and the Grenadines
The Principality of Andorra
The Principality of Liechtenstein
The Principality of Monaco
The Republic of Chile
The Republic of Costa Rica
The Republic of Djibouti
The Republic of Guatemala
The Republic of Kenya
The Republic of Lebanon
The Republic of Liberia
The Republic of Maldives
The Republic of Nauru
The Republic of Panama
The Republic of Philippines
The Republic of Seychelles
The Republic of the Marshall Islands
The Republic of Vanuatu
The State of Kuwait
Turks and Caicos Islands
Virgin Islands (US)
- Withholding tax on interest payments generally is not levied in Estonia. The exception for this rule when withholding tax at rate 20 % is levied applies in following cases:
1. Payments to private individuals resident in Estonia;
2. Payments to non-residents from Estonian contractual funds if at least 50 % of the assets of such funds during at least 2 years before the payment consisted of immovable property situated in Estonia and non-residents owns not less than 10 % of interest in such fund.
- Withholding tax on royalties paid to non-residents is levied in Estonia at a rate of 10 %.
- Capital gains are deemed to be a regular income and are taxed in case of distribution of profits received as a result of such capital gains at a standard rate 20/80.
Value added tax (VAT)
- VAT is to be paid in Estonia in case of goods and services sales in the territory of Estonia, import of goods to Estonia and provision of services by foreign contractor to Estonian party.
- The entity shall be registered as VAT payer and apply for VAT number if annual turnover (except imports) exceeds 40 000 Euro.
- The standard VAT rate is 20 %. A reduced rate of 9 % is available for certain types of goods (e.g. books, newspapers, medicines) and services (accommodation). VAT is not levied (rate 0%) for export of goods and some particular services.
- Tax period for VAT is calendar month.
Accounting of Estonian companies
1. Annual return. This document is provided for the period of calendar year, if memorandum and articles of association do not establish other period. There are requirements not only to prepare and keep such documents, but also to file them to corresponding authority, Register of Companies. The annual return shall be filed not later than 30th June of the next year.
2. Audit. Audit is mandatory for the accounting of companies if they meet at least 2 of 3 of the following requirements:
- Annual sales of goods or services is not less than 4 000 000 Euro;
- Balance volume is not less than 2 000 000 Euro;
- Number of employees is not less than 50 persons;
- Annual sales of goods or services is not less than 12 000 000 Euro;
- Balance volume is not less than 6 000 000 Euro;
- Number of employees is not less than 180 persons.
3. Income tax return. The tax period for income tax is established as a calendar month. If during such month the distribution of profits to members or shareholders took place, than income tax return shall be filed to Tax and Customs Board of Estonia not later than 10th day of the next month. By this date the sums of income tax shall be paid to the budget.
4. VAT return. This type of document is obligatory only for entities registered for VAT and obtaining a VAT number. Tax period for VAT is calendar month. VAT return shall be filed to Tax and Customs Board of Estonia not later than 20th day of the next month. By this date the sums of VAT shall be paid to the budget. If Estonian company’s turnover of VAT taxable goods and services takes place in the territory of the EU, it is also obligatory to file EU turnover report.
Double Tax Avoidance Agreements of Estonia
Currently Estonia has concluded DTAAs that provide for reduced withholding tax rates for particular types of passive incomes (dividends, interest and royalties) with the following states and territories:
|Jurisdiction||Date signed||Date entered into force|
|1. Albania||5 April 2010||25 November 2010|
|2. Armenia||14 April 2001||23 January 2003|
|3. Austria||5 April 2001||12 November 2002|
|4. Azerbaijan||30 October 2007||27 November 2008|
|5. Bahrain||12 October 2012||23 December 2013|
|6. Belarus||21 January 1997||22 July 1998|
|7. Belgium||5 November 1999 г.||15 April 2003 г.|
|8. Bulgaria||13 October 2008 г.||30 December 2008 г.|
|9. Canada||2 June 1995||28 December 1995|
|10. China||12 May 1998||8 January 1999|
|11. Croatia||3 April 2002||12 July 2004|
|12. Cyprus||15 October 2012||8 October 2013|
|13. Czech Republic||24 October 1994||26 May 1995|
|14. Denmark||4 May 1993||30 December 1993|
|15. Finland||23 March 1993||30 December 1993|
|16. Former Yugoslav Republic of Macedonia||20 November 2008||21 May 2009|
|17. France||28 October 1997||1 May 2001|
|18. Georgia||18 December 2006||27 December 2007|
|19. Germany||29 November 1996||29 December 1998|
|20. Greece||4 April 2006||1 August 2008|
|21. Hungary||11 September 2002||1 January 2005|
|22. Iceland||16 June 1994||10 November 1995|
|23. India||19 September 2011||20 July 2012|
|24. Ireland||16 December 1997||23 December 1998|
|25. Isle of Man||6 August 2009||21 December 2009|
|26. Israel||29 June 2009||28 December 2009|
|27. Italy||20 March 1997||22 March 2000|
|28. Jersey||21 December 2010||30 December 2011|
|29. Kazakhstan||1 March 1999||19 July 2000|
|30. Korea||23 September 2009||25 May 2010|
|31. Latvia||11 February 2002||21 November 2002|
|32. Lithuania||21 October 2004||8 March 2006|
|33. Luxembourg||23 May 2006||23 January 2007|
|34. Malta||3 May 2001||22 January 2003|
|35. Mexico||19 October 2012||4 December 2013|
|36. Moldova||23 February 1998||21 July 1998|
|37. Netherlands||14 March 1997||8 November 1998|
|38. Norway||14 May 1993||30 December 1993|
|39. Poland||9 May 1994||9 December 1994|
|40. Portugal||13 May 2003||23 July 2004|
|41. Romania||23 October 2003||29 November 2005|
|42. Serbia||24 September 2009||14 June 2010|
|43. Singapore||18 September 2006||27 December 2007|
|44. Slovakia||21 October 2003||29 March 2006|
|45. Slovenia||13 September 2005||26 June 2006|
|46. Spain||3 September 2003||28 December 2004|
|47. Sweden||5 April 1993||30 December 1993|
|48. Switzerland||11 June 2002||12 July 2004|
|49. Thailand||25 October 2012||23 December 2013|
|50. Turkey||25 August 2003||21 February 2005|
|51. Turkmenistan||28 December 2011||15 March 2013|
|52. Ukraine||10 May 1996||30 December 1996|
|53. United Arab Emirates||20 April 2011||29 March 2012|
|54. United Kingdom||12 May 1994||19 December 1994|
|55. United States||15 January 1998||30 December 1999|
|56. Uzbekistan||2 October 2012||23 December 2013|
|57. Vietnam||26 September 2015||13 November 2016|
Participation of Estonia in exchange of tax information
At the moment, Estonia can participate in the exchange of tax information on request with most of the states and territories with which DTAA was previously concluded. Also, such exchange may be organized with the member states of Convention on Mutual Administrative Assistance in Tax Matters of 1988 developed by the OECD (Amended 2010) which was ratified by Estonia in 2014.
Regarding the automatic exchange of tax information on the basis of Multilateral Agreement of the competent authorities on the automatic exchange of information on financial accounts (MCAA), Estonia has signed MCAA and has committed to exchange the information in practice in September 2017. At the moment Estonia can transfer the information automatically to the competent authorities of 63 states according to the official website of OECD.