Estonia company formation

Estonia company formation

How to open a company in Estonia

It is difficult to compete with big Estonian business, because today it is a very strong cog in the economic mechanism of the country. By registering a business in Estonia, an entrepreneur is able to integrate into a progressive business environment. .The company has access to modern infrastructure, within which the functioning is carried out. Internet applications, communication and electronic services in Estonia are considered the most progressive in the world. They are actively used by almost the entire population.

Advantages of company formation in Estonia

The prospect and financial attractiveness of Estonia is confirmed by the fact that a large number of foreign companies are present on the market. Local organizations often support investors. The influence of other countries is very strong. The export level exceeds 100% of Estonian GDP. Working on the Estonian market allows companies to count on the assistance of the European Union. Thus, the local organization is entitled to EU subsidies. More and more well-known international companies are gradually entering the Estonian market. Most people work in the service sector. At the same time, the entire territory of the state is computerized. Public Internet access points cover even small villages. Almost all documentation is conducted electronically. Through the Internet, you can even establish a company. The procedure takes about 15 minutes. You need to know the features of its execution.  Estonia is great for start-ups. All conditions have been created here for the development of new organizations.

The main features of company formation in Estonia

Some countries with less synchronized registries use many unique identifiers for different purposes such as taxation, social security, etc. In Estonia you have only 8-digit company registration code and your 11-digit company registration codedigit personal identification code. They are suitable for all institutions and services in Estonia. This also means that you do not need to request any tax number for Estonia company formation. If you are asked to specify your unique taxpayer number (sometimes called TIN) elsewhere in the world, there will be no number other than your registration code.

If you are asked to specify the VAT payer registration number, it is also not necessary to have it in Estonia until your company exceeds certain thresholds and therefore should not be required to access anyor services inside or outside Estonia. Similarly, some countries require you to register any alternative trade names used other than your official name, but not in Estonia. As a rule, there are no special requirements to register alternative trade names, but make sure that you do not violate anyone’s registered trademark or other rights provided by law. In addition to national trademarks, pay attention to EU trademarks, as they are valid in all member countries, including Estonia. Your registered company name does not give you any trademark rights, and there is only some protection for your legal name.

The main activity code of Estonian company

When registering a limited liability company it is necessary to choose one field of activity. Some clients ask if they can register more than one, and they respond negatively. The presence of the main activity code does not restrict your commercial activities if you are involved in other business lines that do not require a license or registration with authorities.  In the future you will not be able to change the code of your activity in the Commercial Register. The main area of activity will be automatically determined based on which activities have generated the most revenue according to your last annual report.

In addition, your company can invest in all asset classes available to investors in general, even if it is not specifically registered as an investment company. However, some trading platforms may not support Estonian limited liability companies or legal entities. The use of business models related to your limited liability company’s finances is a potential regulatory minefield, and you need to consult specialists before you start. For example, consumer credit, e-money, or ICO issues. The rules are the same for financial institutions throughout the EU.

Estonian Limited Liability Company and dividends

Estonian Limited Liability Company requires a minimum capital of 2500 euros. This is an investment in your company, which can then be spent on the development of your business. It also helps to maintain confidence in Estonia’s business environment, which benefits all owners of Estonian companies. However, Estonia also has a well-designed system that allows this investment to be postponed for a very long time. The only catch is that your company cannot pay dividends until your equity is registered, but you can start trading and even pay salaries before that. If you do not have an accountant yet, you can also wait for your first annual report to register your equity. The reason is that the law requires declaring any changes in the authorized capital of the company by filing a declaration on the profit tax until the 10th of the next calendar month. Your company’s Monthly Income and Social Tax Declaration (TSD) in Appendix 7 should include any capital contributions and dividend distribution. In case of liquidation of the company, your paid-up equity may be paid to the shareholders without paying taxes. Please note that you should distribute dividends only after the annual reporting is accepted by the shareholders decision and submitted to the Commercial Register.

Accounting records of company in Estonia

In some countries your accountant can only accept account statements, but not in Estonia. You will quickly learn that unless you provide receipts and purchase invoices, the amounts paid from the company account are considered a loan from the director. In other words, it’s your responsibility to the company. It’s better to know this before you start spending company funds. If you are not registered as a VAT payer in Estonia and have not provided the accounting documents, your accountant will not draw up annual reports for expenses, but instead will present you with a loan balance as director. Finding receipts from a year ago is a nightmare for a busy entrepreneur. The VAT Act applies to Estonian legal entities even if they are not yet registered as a VAT payer in Estonia. Some of the required fields, such as: serial number and invoice date; name and address of the issuer with VAT payer number if registered for VAT payer; name and address of the buyer of the goods or the recipient of the services; VAT payer number of buyer of goods or recipient of services (if registered as VAT payer); name or description of goods or services; quantity of goods or volume of services, and list continues with some more specific requirements, such as references to the abolition or zero VAT rate for cross-border sales.

The main requirement for company formation in Estonia

Some ask whether they need to submit annual accounts if their companies are inactive and no sales revenue was received in the previous fiscal year. The short answer is yes, you still have to turn in the annual accounts for each financial year. The standard financial year in Estonia is the calendar year from 1 January to 31 December. Annual reporting in Estonia is called an «annual report», and there is no simplified regulation of inactive reporting in Estonia. Screenshots and instructions apply only to the annual accounts of micro-companies and therefore cannot be used for any other type of business that does not fall under the definition of micro-companies with one individual shareholder.

Shareholders and investors of company in Estonia

Until recently, any stock transaction required a visit to an Estonian notary or complex legalized documents with an Apostille affixed by the state to confirm that a potential shareholder issued to someone physically located in Estonia, power of attorney for transfer of shares in notary office. Fortunately, at the moment there are four alternative ways to add new shareholders. The first way is to use an electronic notary. Estonian notaries have launched an electronic notary service so that the electronic residents of companies can transfer shares to another electronic resident online rather than in a notary office in Estonia. All other aspects of the process remain the same, so you will still need to order and pay for the services of a notary, but at least you do not need to fly to Estonia or engage a lawyer. The Estonian Parliament changed the law at the request of the startup sector, so that shares can now be transferred to the new shareholder under the responsibility of the interested parties, if this is approved by the charter of the company. This option could be added to the statute only if it was unanimously approved by all existing shareholders. However, for this to work, your company must have at least 10,000 euros of equity, which has been paid in full. This is useful for growing startups in Estonia.

Use of NASDAQ Depository Service

Your company may register its shares with Nasdaq CSD as an alternative to the Estonian Commercial Register, which manages your list of shareholders. However, there is a limitation here: all shareholders must have a securities account with the Estonian bank. This may not be an easy requirement even for the most experienced venture capital fund investors if they are non-residents. What if your new shareholder doesn’t have a securities account in Estonia, and none of the other options suits you? Well, there’s another option - micro companies with limited budgets. As stated in the Estonian Commercial Code, you will need to prepare a digitally signed shareholder decision setting out the planned new distribution of shares with all shareholders. You will also need confirmation of payment of this previously agreed share from your banking provider.

Tax reporting

The TSD declarations are given by the company monthly up to the 10th of the date. The report includes information on the amount of salary payments for the previous month to Estonian citizens. The declaration includes a number of articles that specify expenses, penalties and fines, distributed profits. Such items as excess fuel, hospitality, etc. Important! That, according to the tax rules of other states can pass for the non-taxable expenses, in the Estonian business can fall under the rate of 26%.

KMD declarations must be submitted monthly up to 20 days. Reports are submitted for the previous calendar month. It specifies the turnover of VAT, calculates the VAT to be refunded and the tax paid at customs, paid for fixed assets. Financial transactions with companies from the EU countries are specified separately.The VD declarations for the reporting month must also be submitted by the 20th day of the next calendar period. In this report all transactions with EU companies are signed, the value of purchased or sold goods and services is indicated, the counterparties are specified. Statistics. Every year the Statistical Office collects different data. To this end, companies are asked to fill in 2-3 tables and reports. Statistics are submitted electronically 1-2 times per quarter. Report to CenterBank. It is submitted every quarter. The document indicates different data on expenses, revenues, liabilities, assets of the company. Registers of all documents. They are not surrendered, but are filled in and stored. All accounts, checks, bank statements, cash documents are recorded.

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