Suitability of various business types with e-Residency17. April 2020
Becoming an e-Resident and establishing a company in Estonia is a modern and efficient way to conduct your business. Estonia’s world leading e-governance infrastucture makes the administration of your company easy and you will be able to conduct the entire process online, wherever you are physically located. Also – Estonia’s corporate income tax system offers advantages to companies interested in re-investing their earnings into growing their business.
At the same time, the option of running your business using Estonian e-Residency programme and a Private Limited Company established in Estonia is not a one-size-fits-all solution for all types of business models. We hope some of the following guidelines can be helpful to you in making the decision about in which country to incoporate your business.
“e-Residency + company in Estonia” solution works very well for
- Digital nomads / Freelancers – one-man operations or small groups of business partners, who mainly just need their laptop to work and often travel around in different locations.
- IT service providers – Businesses where services are entirely taking place online (programmers, software developers, IT startups, etc).
- Consultants – Businesses and individuals who are selling their skills in a concrete professional field (business, finance, law, health, etc).
- Creative services – Architects, designers, (copy)writers, artists, translators, interpreters, etc.
- Online sellers – Buisnesses selling physical goods online on Amazon or other larger online shopping platforms (e.g. Shopify or Etsy).
- Dropshipping – Businesses where the goods you are selling are never actually “owned” by your company and where the seller (producer) handles the shipping to end-clients (incl logistcs and Vaue Added Tax).
“e-Residency + company in Estonia” solution works fine (under certain conditions)
- Holding companies – Businesses where the only activity is holding shares of other businesses. With such business type, please bear in mind that in case the size of the businesses you hold (wholly or partially) grows, your Estonian holding company may become subject to auditing and consolidating requirements. When this becomes necessary, your Estonian company will need to buy additional auditing services, which will be an additional annual cost. Your Estonian accountant cannot handle this process, as you must buy auditing services from an independent third party (such as KPMG, PWC, Deloitte, etc).
- Investment vehicles – in case of larger sums of money, you probably want to open a bank account in a commercial bank. Payment service providers may not be the best option for you. At the same time, Estonian fully online business environment and a corporate income tax system, where corporate income tax is levied only on dividends, is a considerable benefit for investment vehicles.
- Crypto currency related businesses – In case you wish to provide crypto currency wallet services or operate your own crypto currency exchange, you will need a licence. Please read the information on the website of the Estonian Financial Inspectorate and consult with them before making further plans. Please also note that only some selected service providers in Estonia offer their accounting and consulting services in the field of crypto currencies. Please consult the e-Residency Marketplace to find such service providers.
- Travel agencies – you may be subject to licencing in Estonia and may need to submit a financial deposit in Estonia as collateral.
- Event organisers in Europe – European VAT rules stipulate that you need to pay VAT in the country in which the event takes place. Accounting, reporting and paying VAT in other countries outside Estonia is usually not handled by Estonian service providers. You will need a local (or international) VAT service provider, which will add to your operating expenses.
“e-Residency + company in Estonia” might not be the best option for
- Localised businesses (outside Estonia) dealing with physical goods – Examples include a tobacco shop on a street corner, a car spare parts shop, restaurants / bars, factories, etc.
- Localised businesses (outside Estonia) offering services to local private customers – Examples include dentists, hairdressers, beauty parlours, etc.
- Trading business of physical goods (where the warehouse or distribution centre is not located in Estonia) – European VAT rules may make it unnecesarily complicated to use an Estonian company. It may be a better option to find a European distributor for your products or to set up a company in the country where your goods will physically be stored.