Frequently Asked Questions

Taxation

What is Value Added Tax (VAT)?

Value Added Tax (VAT) is a tax levied on goods and services in most countries of the world.

For a theoretical background, you can read the Wikipedia article.

It is important to understand how and when VAT is applied to your business model. In some cases VAT rules can also be an important factor in deciding whether or not it makes sense to run your business using the “e-Residency + company in Estonia” model. Read more about VAT in our dedicated memo.

How are dividends taxed?

In case your company has made profit, it is possible to pay dividend to the shareholders. Shareholders receive dividends proportionately to the share of the company that they own.

NB! Before the company is allowed to pay dividend, the company’s share capital needs to be paid into the company bank account.

After you have made the share capital payment, please inform your e-Residency hub accountant, so we could formulate the changes in the company registration documents

Dividends are taxed with 20% corporate income tax.

Example: A company decides to spend €100,000 of its accumulated profit to make a dividend payment. This sum is divided in the following manner:

  • €80,000 is paid out to company shareholders according to their shares of the company
  • €20,000 € is paid as the Estonian company’s corporate income tax to the Estonian Tax and Customs Board (the tax payment is made no later than on the 10th day of the following calendar month)

In the case described above, the €80,000 which is received by the company’s shareholders, may be considered their income in the country where they are tax residents. It may therefore be taxed with a personal income tax in their country of residence. Please check with a tax advisor in your country of residence to find out if this applies to you.

What is the Board Member’s remuneration?

The Estonian law allows a company to pay to its Board Members a fee for performing their duties as Board Members. This fee is always taxed in Estonia (regardless of whether the Board member lives in Estonia or not). The Management Board Member fee is taxed in the following manner:

  • 20% of personal income tax
  • 33% social tax

I have employees who do not live in Estonia. What taxes are related to their salaries?

In case the company has employees who are not Estonian tax residents and who live and work outside Estonia, salary payments to these foreign employees are not taxed in Estonia and we do not submit any tax declarations about these employees.

In such case, these foreign employees must declare their income from your Estonian company in the country in which they live and are tax residents.

NB! It is your responsibility to make sure any income of your foreign employees is properly declared in the foreign countries in which they live. In case any supporting documentation is required on behalf of your Estonian company – please let your e-Residency Hub accountant know.

I have employees who live in Estonia. What taxes are related to their salaries?

In case you plan to employ people who are tax residents of Estonia, please send us their Estonian ID code and start and end dates of their employment contracts. You must do that BEFORE these people begin actual work in Estonia. We will enter this information in the Estonian Employee’s Registry.

NB! Employees who are not Estonian tax residents and do not live in Estonia do not need to registered!

In case your company is paying salaries to its employees who are Estonian tax residents, the company is required to withhold the following taxes and transfer them directly to the Estonian Tax and Customs Board:

  • 20% of personal income tax
  • 1.6% unemployment insurance payment (employee’s share)
  • 0.8% unemployment insurance payment (employer’s share)
  • 33% social tax

We will calculate the taxes, based on actual payments your company has made to your employees during the previous calendar month and inform you no later than on 7th day of each month. In case there are tax payments, which are due, this leaves you three calendar days to make the tax payment.

NB! It is your responsibility to make sure that the tax payments reach the bank account of the Estonian Tax and customs board on time. We shall inform you of the relevant bank account numbers and reference number you need to use when making the tax payments.

Owning an Estonian company

What is the Annual Report?

Once per year your company needs to submit an annual report. The annual report has two parts:

  • Executive summary of company activities. You need to write a text about what the company has done and achieved during the previous calendar year, what have been the key milestones and what are the plans for the future. This should be a few paragraphs of text at minimum. If you’d like, you can always be more thorough.

Please note that annual reports of all Estonian companies are public information that can be downloaded by anyone from the Internet (for a state fee of 2 € per company)

  • Company financial statements. We will prepare those on your behalf.

Before submitting the annual report to the Estonian Business Registry, we shall send it to your company’s Board Members for approval and digital signing.

Deadline for submitting the annual report for the previous calendar year is June 30th of the following year.

In case your company was established between 01.07-31.12 of a calendar year (i.e. during the second half of the year), you do not need to submit an annual report for that first year. You will submit an annual report for the first 1.5 years of activities in June of the third year of activities.

Example: if your company was established on 15.07.2018, then you do not need to submit a separate report for 2018.

The first report that such company will need to submit is the joint report for 2018-2019. This report is due by 30.06.2020

How is an Estonian company managed?

When you register a company with E-Residency Hub, you’ll receive a private limited liability company (OÜ or osaühing in Estonian) which is registered in Estonia.

An OÜ is the simplest format to run your micro business. According to the law, by default an OÜ is managed by it’s shareholders and management board members.

  • Shareholders have the ultimate decision making power in the company. They are the ones who founded the company in the first place. During the course of business activities they can decide to amend the Articles of Association, increase/reduce share capital, elect/remove members of the management board, approve the annual report and distribute profit, decide on dissolution of the private limited company etc.
  • The management board is the managing body of the company which represents and manages the company, and takes official responsibility for the activities. There is a legal distinction between an official role as a “management board member” and an unofficial role as a “manager”, “director” or similar. The first one comes with the legal rights and obligations valid outside the company as well, but the latter one is for internal or promotional purposes only.

A private limited liability company can also elect a supervisory board, but it’s optional, and the companies registered via E-Residency Hub do not have it.

Since you are both the sole shareholder and management board member of the company, fulfilling both roles at the same time, you are fully in charge and don’t have to bother with the official distinction of decision making rights between the shareholders and the management board members, or the internal reporting requirements. In other words, in case of a single-member company, the corporate governance rules and processes are simplified – a benefit for you. And it’s up to you which title (CEO, manager, director, etc) you use on your business card.

Please keep in mind that the legal power to manage your company comes with equal responsibility. By law, the founders of a private limited company and the members of the management board shall be liable for damage caused to the private limited company by their action or inaction.

Accounting Services

How to handle receipts that I receive when buying things for my company?

Receipts are different from invoices in that they usually do not have the buyer’s name written on them. In most cases, receipts are in hard copy (paper copy).

A receipt needs to include:

  • Date of issue
  • Receipt number
  • Description of goods or services purchased
  • Numerical data (amount, price of unit, total sum)
  • Name of the seller
  • Address of the seller
  • Seller’s company registration number
  • Seller’s VAT number (in case the seller has it)

Receipts can be forwarded to us, using the Envoice app. You simply take a photo of the receipt and send it to us via the app. Please use Multipage function, if your receipt has multiple pages (card payment slip and receipt itself).

It is very strongly preferred that only business related expenses are on your receipts that you send to us.

Example: you go to the shop and buy A4 office paper for your company’s use and also ice-cream for your children. Please ask the seller to issue two separate receipts: One for the A4 office printer paper and another, separate receipt, for the ice-cream.

Your purchase invoices and your receipts will appear in the Envoice tool. The invoices will be digitised line-by-line within 5 hours from the moment you send them to us.

How to send your purchase invoices to Envoice?

e-Residency Hub will provide you with an email address in the following format:

xxxxxxxxxxx@envoice.eu

You need to send your purchase invoice to that email address either in .PDF or .JPG format.

In case you have received hard copy (paper copy) invoices, you can use our mobile app to snap a picture of the invoice and send it to us via the app.

If possible, please ask your suppliers to submit invoices in English, Estonian, or Russian. If that is not possible, please include in the email an explanation about what this invoice was for.

NB! When emailing your invoices to us, please attach only one invoice at a time!

What data must an invoice contain?

The following information needs to be written on purchase and sales invoices:

  • Title (e.g. “Invoice” or similar)
  • Invoice number
  • Date of issue
  • Description of goods or services purchased
  • Numerical data (amount, price of unit, total sum)
  • Names of the seller and buyer
  • Addresses of the seller and buyer
  • Seller’s company registration number
  • Seller’s VAT number (in case the seller has it)

How to create expense reports, using Envoice?

See a video tutorial here.

Only expenses, which are directly related to your business, can be booked as company expenses. In case you use the company bank account to pay for expenses,
which are not directly related to your business, you must pay additional income tax of 25% on these sums.

All non-business related expense occurred during the past calendar month, must be declared by 10th day of the following month to Estonian Tax and Customs Board using TSD declaration Annex 6. Your accountant at e-Residency Hub will do this for you.

VAT is not recoverable on such expenses.

In case we have a doubt whether some expenses are business related or not, we shall ask for your explanation about those and we shall advise you about whether these expenses are business related or not in our opinion. The final decision about whether to include these expenses in the company’s accounting is made by the Board Members of the company (i.e. by you). The Board Members also carry the responsibility about that decision in any future disputes with the Estonian Tax and Customs Board.

How to create travel reports, using Envoice?

See a video tutorial here.

Business trips are defined as short-term travels, with a specific business-related purpose and with actual business-related activities being carried out during the trip. Business trips usually start from your permanent place of employment. A business trip typically involves meeting customers, project partners, attending conferences etc.

When travelling for business purposes, expenses usually occur (accommodation, taxi rides, plane, train or bus tickets, meals etc). If your country’s legislation allows it, daily allowances can also be claimed.

For submitting travel report and expense statements, Envoice travel application should be used. The easiest way to do this is via the Envoice mobile app. This app is used to start travel expense reports and submit related receipts (by taking a photo of the receipt using the app).

Which documents must clients forward e-Residency Hub and how to do it?

A client needs to forward to ERHub all data about its economic activities in a given calendar month no later than on the 5th day of the following calendar month.

Using Envoice, this data exchange can be done in real-time and as-you-go. We recommend that you send all
invoices and receipts to us as they occur, instead of sending them all together at the end of the month.

You need to send us the following information.

  • Purchase invoices
  • Receipts
  • Bank account statements. The easiest way is to give ERHub the rights to see your bank account activities (i.e. so that we can not transfer money out of your account but we see the transactions you are making).This way you do not need to separately send us your account statement every month.

Sales invoices must be created using Envoice. You do not need to send these to us separately.
Travel expense reports must be created using Envoice.

Business in Estonia

What if I have other questions about starting a business?

The answers to most commonly-asked questions can be found here. And when in doubt, you can always get in touch.

Can I visit Estonia?

Absolutely! Read more about travel opportunities here.

How many companies have been founded by e-Residents in Estonia?

Thousands. For the most current figure, click here.

Do I really need a service provider? Can’t I do this by myself?

Most entrepreneurs elect to partner with an experienced service provider for three reasons:

  1. To avoid or help resolve issues due to lack of experience with Estonian companies and the Estonian government.
  2. To receive support during the application and set-up process. For example, if there are any problems in opening a bank account, this could prevent you from needing to be physically present in Estonia.
  3. To receive tax and accounting support on an ongoing basis after your company is established.

Is Estonia really tax-free?

No. Income tax is flat 20%, and VAT is 20%. But corporate income tax is only applied to dividends, meaning reinvested corporate profits are tax-free. Fringe benefits are taxed in the same way as salaries. Read more about Estonian taxes here.

Is founding a business really as easy as it seems?

Yes and no. While Estonia makes it easier than almost anywhere else, there are a couple issues commonly faced:

  • Registration of a company still involves legal questions and fine print that you may miss at first glance. Without any previous experience or professional assistance, there can still be some challenges and frustrations. This is where we come in.
  • Opening a bank account without any formal links to Estonia can be challenging – and without an Estonian bank account, a business doesn’t have much use. Fortunately, we can help.

How does Estonia’s economy compare internationally?

Numerous international organizations have recognized Estonia as having a thriving, open, and competitive economy. Estonia has been ranked:

  • 1st in the International Tax Competitiveness Index – OECD
  • 1st in Entrepreneurship – World Economic Forum
  • 1st in Digital Economy and Society Index – European Commission EU
  • 2nd in Internet Freedom – Freedom House 2015
  • 8th in the Index of Economic Freedom 2015 – Wall Street Journal/The Heritage Foundation
  • 16th in Ease of Doing Business Report 2016 – World Bank
  • 23rd in the Corruption Perceptions Index 2015 – Transparency International
  • 30th in the Global Competitiveness Report 2015-2016 – World Economic Forum

Estonia offers highly-competitive international credit ratings:

  • Standard & Poor: AA-
  • Moody’s: A1
  • Fitch IBCA: A+

e-Residency

How can I become an e-Resident?

There are a few steps involved, but we can help. Click here to learn more.

Who has already applied for e-Residency?

So far, individuals from over 100 countries have applied to be an e-Resident within Estonia. Find out more here.

How many people have already applied for Estonian e-Residency?

Tens of thousands – and the number continues to grow.

Can I use my e-Resident card like a passport?

No. The e-Resident ID card is not a travel document and does not display your photo.

Is the e-Resident ID card secure?

Yes. The smart ID card is protected by two unique PIN numbers for secure digital authentication and transmission of digital signatures.

How do I prove I am an e-Resident of Estonia?

All e-Residents receive a digital ID card to prove e-Residency.

What if I have other questions about e-Residency?

The answers to most commonly-asked questions can be found here. And feel free to contact us.

What can’t I do with e-Residency?

e‐Residency does not provide citizenship, tax residency, a residence permit, or the right to enter Estonia.

What can I do with e-Residency?

e-Residents can:

  1. Found and manage a location-independent online company
  2. Apply for a business bank account and credit card
  3. Securely manage banking online
  4. Access international payment systems (PayPal, Transferwise, etc.)
  5. Digitally sign, encrypt, and/or transmit documents
  6. Use Estonia’s e-services (see the state portal at eesti.ee)
  7. Provide reports to the Estonian Tax and Customs Board and E-Business Register
  8. Declare Estonian taxes online

Who can be an e-Resident?

e-Residency is available to anybody in the world.

Why become an e-Resident?

e-Residency provides access to the EU business environment from anywhere in the world. e‐Residents are granted access to secure e‐services, such as digital authentication, digital signatures, and the ability to start a company.

What is e-Residency?

e-Residency is a secure, government-issued digital identity that provides access to Estonian e-services.

Digital signatures

Where can I go for technical assistance?

Most solutions can be found on the ID card help page. For further support, you can contact us.

Do I need to be present to offer a digital signature?

No. With a digital signature, you can legally sign forms and documents from anywhere in the world – without ever having to be physically present.

Can I provide a digital signature without an ID card?

No. Your secure chip-enabled ID card is what allows you to prove your identity and digitally sign forms and documents.

Where can I download the necessary software?

You can download DigiDoc3 software for free: https://installer.id.ee/

Where can I get an ID card reader?

You can buy an ID card reader here: https://www.pluss-id.com

How do I provide a digital signature?

A digital signature can be provided by connecting your ID card to your computer with a ID card reader and running the free DigiDoc3 secure ID card software.

What is a digital signature?

A digital signature is an electronic marker which has the same legal merit as a traditional signature and/or face-to-face identification.