Establishing a Private Limited Company in Estonia
Private limited company is the most commonly used form of entity for doing business in Estonia. The establishment process includes the following steps:
- Selecting an area of activity and a business name. The name has to include „OÜ“ or „Osaühing“ and be clearly distinguishable. Proposed names can be checked at www.rik.ee
- Preparing documents of association
- Registering the company in the Commercial Register. There are two ways to do that: electronically and through a notary.
Electronic registration at the Company Registration Portal of the e-Business Register is possible if:
the company is established without an immediate share capital contribution or with a monetary contribution made electronically in the course of preparing an application in the portal of the e-Business Register;
all persons related to establishment (members of the management board, founding members, etc.) are able to sign the application of initial entry and establishment documents digitally. Digital signing is possible with an Estonian ID-card (and ID-card reader). Foreigners can get the ID card by becoming e-Residents.
More information about e-Residency is available here.
The articles of association can be prepared through the portal using a provided template and registration will take only a few hours.
Registration through a notary is as follows:
- founders will meet a notary.
- notary will prepare necessary documents: an application of establishing a company, the memorandum of association and articles of association. Notary offices provide samples of documents necessary for establishing a company.
- Founders will pay in share capital.
- In case of monetary contribution, founders shall open a bank account in the name of the company being founded, into which they shall pay their monetary contributions. Bank certificate regarding the deposit of the share capital should be forwarded to a notary.
- founders will pay a notary fee and a state fee;
- notary will send the application and all the documents to the Commercial Register.
Minimum share capital is 2500 euros. It can be paid as a monetary or non-monetary contribution. A private limited company can be established without contributing the share capital if founders are natural persons and the planned share capital of the company is not larger than 25 000 euros.
State fee for establishing a company is 190 euros when establishing electronically and 145 euros when establishing through a notary. The state fee can later be recognized as a business expense.
Notary fees depend on the size of share capital and the number of founders. More information can be found here.
If the company will be operating in an area of activity with special requirements, then it have to apply for an activity licence. Whether the area of activity has special requirements can be checked here.
If the company will hire employees, then the company have to register them with the Tax and Customs Board. More information about the registration is available here.
The company’s obligation is also to pay employees the salary (minimum wage is currently 470 euros) and to calculate and pay taxes such as personal income tax 20% and social tax 33% (20% for social security contributions and 13% for health insurance). Social tax has to be paid by employers on top of the gross salary.
If annual turnover of the company exceeds 16 000 euros, then the company has to be registered as a VAT payer at the Tax and Customs Board. More information about registering as a VAT payer can be found here.
The standard VAT rate is 20% and a reduced rate is 9% which applies to specific goods (e.g. books or medical devices). The VAT rate on the export of goods, intra-Community supply of goods and certain services is 0%.
Profits are not taxed until they are distributed as dividends or deemed profit distributions.
Distributed profits are generally subject to a 20% corporate income tax (20/80 on the net amount of profit distribution).
Depending on the field or place of activity, paying other specific taxes may be required (e.g. land tax, customs duty, excise duties, etc.).