Does e-residency make sense for you?
FREQUENTLY ASKED QUESTIONS
1. What is e-residency?
Estonian e-residency is a program which offers non Estonian residents the chance to establish an Estonian company and manage its operations worldwide. The program is especially suitable for digital nomads and freelancers as it allows electronic identification and personal authentication as well as the digital signing of documents, which means paper free management of your company.
It should not be confused with real residency though, as it does not confer any rights to reside in or travel to Estonia and is meant to be a tool to help run and maintain a paper-free company in a country where doing business has been made easy.
2. How to apply for e-residency?
Becoming an e-Resident will require you to complete a short form, provide scans of your passport along with a photo and a written explanation of why you would like to become an e-Resident, all of which have to be sent (or rather uploaded) to the Police and Border Guard, who will review the application. If the application is accepted, within one (in rare cases two) months you will receive an invitation to an Estonian embassy in a convenient location, or at a pickup point in Tallinn, for a short introduction of the program and issue of the e-ID card. There is a link to a list of Estonian embassies at the end of this article.
e-Residency application –https://apply.gov.ee/
3. How to set up a company?
A private limited company can be registered electronically at the Company Registration Portal of the e-Business Register.
It can be registered electronically, if:
• 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, which means the possession of the e-residency card;
• a licensed Estonian legal address and contact service provider, such as BRISQ, has been agreed to provide such service.
It can be registered at the notary, if:
If one of the founders does not have the e-residency or it’s a legal person (company), the new Estonian entity has to be registered at the notary. Either in person or authorizing a representative with a Power of Attorney.
Should the founders be private persons, the list of documents is short –
· A Power of Attorney on the name of the representative with a clearly expressed wish to register a company in Estonia (including the company name, how the shares are split, address and who will be the members of the board, should it differ from the founders). The Power of Attorney has to be notarized and bear an apostle.
· ID’s, preferably notarized
· A consent of becoming a member of the board.
If one of the founders is a legal person, the list of documents is longer:
• articles of association
• registry card (a document where the representatives and shareholders of the company are listed)
• information on communications devices;
• Power of Attorney
4. What’s the tax rate?
There is no corporate income tax on retained and reinvested profits.
Estonian resident companies and the permanent establishments of foreign entities (including branches) are subject to 22% income tax only in respect to all distributed profits (both actual and deemed).
Distributed profits include:
• corporate profits distributed in the tax period
• gifts, donations and representation expenses
• expenses and payments not related to business
• transfer of the assets of the permanent establishment to its head office or to other companies
Fringe benefits are taxable at the level of the employer. The employer pays income tax and social tax on fringe benefits.
5. Where is the tax supposed to be paid?
Companies established in Estonia through the e-Residency are automatically tax residents in Estonia. It is then the company´s duty to report and pay taxes in other countries according to their law if the source of taxable income is there.
If your company has a strong presence in one country then this will be simple to determine, but if your company is operated across multiple countries then you will likely need help from a qualified tax adviser that can look at your unique situation.
6. If and when do I need a VAT number?
If the taxable annual turnover of your company exceeds 40 000 euros (in Estonia), you are required to register the company with the Tax and Customs Board as a VAT payer. If the turnover is below that limit, registration is not obligatory.
The general VAT rate is 22% of the taxable value of a good or service.
A 0% VAT rate is in effect for a number of goods, including exported goods, and consultation services provided to VAT payers in another EU member state. A 0% VAT rate also applies to services provided outside Estonia, a number of services related to water and air transport and carriage of goods. The supply of a number of goods and services with a social orientation is tax-free, such as postal services, insurance, health care and social services. For a full list of the VAT exemptions, consult the VAT Act.
https://www.eesti.ee/en/entrepreneur/taxes/valueadded-tax/
7. How do I pay for myself?
As a (tax) resident of any other country than Estonia, you are able to receive funds from your company in 3 ways:
· receive dividends
· receive management board member salary
· receive employee salary
According to the existing law in Estonia, there is however no obligation to pay yourself or any other member of the board dividends, management board member salary or employee salary, at the same time you have the chance to combine them all.
8. What is the tax rate on salary?
* Dividends are taxed with 22%
* Board member salary is taxed with 22% personal income tax and 35% social tax (unless you are already paying social tax in any of the EU countries)
* Employee salary. If you are a non-resident of Estonia and do not work in Estonia, no personal income tax nor social tax are paid on employee salary in Estonia. In that case, you are responsible for paying taxes in the country where you are a tax resident as an individual person. In case of interest, you need to be able to prove to Estonian authorities that the real work was performed outside of Estonia. However, your tax arrangements abroad are not their concern here.
9. Accounting and reporting
All companies and branches of foreign companies operating in Estonia are subject to accounting requirements. Every company’s accounting must conform to the standards set forth by the state, so that the results would be comparable and comprehensible.
Basic requirements:
1. Accounting must be a true, objective and comparable view of the company’s financial situation, operating results and cash flows. The information presented must be salient.
2. All economic transactions must be documented.
3. All economic transactions must be entered into accounting ledgers and journals.
4. Every company must prepare and file an annual report to the Commercial Register.
5. All accounting documents must be kept on file.
10. Annual Report
Each year, you will have to prepare and submit to the Commercial Register an annual report which gives a comprehensive overview of the company’s results in the previous financial year.
In addition to the above, you will also have to file other reports and declarations, depending on your form of business, structure and area of activity.
https://www.eesti.ee/en/entrepreneur/accounting-and-reporting/annual-report/
111. What other reports shall I file and when?
As a legal entity, your company is a taxable person. You have the obligation to handle tax reporting and file tax returns to the Estonian Tax and Customs Board, including the following returns filed on a regular basis:
• Income and social tax, contributions to mandatory funded pension and unemployment insurance premium tax return (Form TSD) which must be filed each month if a company has contracted employees or the company has made taxable distributions. A company registered as a VAT payer must file Form TSD each month even if the company has no contracted employees or the company made no taxable distributions. In the latter case, the company will submit a tax return that contains all zeros;
• Fringe benefits return (Form TSD Annex 4) if, for instance, you have provided a car to an employee to use for free or at a discounted price or you cover an employee’s expenses for recreation or entertainment, etc.;
• Disclosure of gifts, donations and entertainment expenses (Form TSD Annex 5) if you have covered the catering and accommodation expenses of business partners, for example, etc;
• Value added tax return if your company is registered as a VAT payer.
In addition, dividends and distributions from equity must be disclosed, as well as excise duties on goods and packaging, etc. The deadlines for submitting the reports are available in the tax calendar on the website of the Estonian Tax and Customs Board.
11. Can I open bank account for my company outside of Estonia?
Estonian company can have a bank account in any bank it wishes, also outside of Estonia. Opening a bank account for the Estonian company in an Estonian bank requires currently a personal visit and opening of the account depends on the bank. Due to the strict Anti Money Laundering rules and regulations a bank might decline from opening an account. This happens if the sources of income are not clear or derive from high risk countries, but also, if the authorities of the countries the founders are from are known for lack of cooperation, motivation or language skills.
A suitable option for small- and starting companies could be Wise (ex TransferWise), Paysera, Revolut or Payoneer.
2025 changes you need to know about
Who needs to pay attention? Owners of companies that aren't VAT registered, especially if they use the company for any stock trading (even small amounts), receive rental income, and have income from selling goods, providing services, etc.
What will change? Mandatory VAT registration.
Solution? Have a separate company for holding your investments, managing real estate and offering services
New VAT regulations taking effect next year in Estonia create complications for investors using companies for investments. Previously, companies engaged in non-taxable activities like long-term rentals or stock trading only became VAT payers if they voluntarily registered or if their taxable turnover (e.g., short-term rentals, training) exceeded €40,000 annually.
Under the new rules, financial and real estate transactions (unless purely accidental) will now count towards the €40,000 VAT threshold. This means a company primarily engaged in high-value, non-taxable financial transactions (like stock trading) could be forced to become a VAT payer if it provides even small amounts of taxable services (e.g., training) that push its total turnover over the limit.
This change will require many companies to file monthly VAT declarations, a significant increase in administrative burden. Existing accounting software isn't equipped to automatically include securities sales in VAT returns, requiring manual calculations. Furthermore, companies with both taxable and non-taxable income will face complex VAT calculations and may need specialized accounting expertise.
While voluntary VAT registration remains an option for input VAT deduction, many investment companies prefer to avoid VAT filings altogether. The Ministry of Finance states the €40,000 limit is meant to protect small hobby businesses, not large-turnover investment firms. However, even small amounts of taxable income will trigger VAT obligations for these companies.
Experts warn that many investors are unaware of these changes. Some active traders could exceed the threshold early in the year. The easiest solution may be to separate taxable and non-taxable activities into different companies. While some investors may choose to restructure their holdings, others, particularly those with primarily passive income, may find the new regulations burdensome. The changes also potentially incentivize long-term investing over active trading.