How to start a company in Estonia

Estonia is one of the most favourable grounds for entrepreneurship

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How to start a company in Estonia. Source: flickr.com

Startups have been popping up all over, especially in those countries which foster small business growth. Estonia is one of the most favourable grounds for entrepreneurship. The authorities have done a lot to facilitate business applications and digitalise company management. At the same time, companies registered there get access to the EU single market.

If you want to make use of this win-win situation, find out more details in this article.

EU market facts

Whether you are a freelancer, a startup founder, or a business owner already successfully operating in your native country, there’s always a place to expand your business activities. EU market is one of the most promising and profitable ones up-to-date.

Some stats from the European Commission to consider:

  • European countries jointly have 500 million consumers looking for quality goods.
  • Across the Member States, in 2018, Actual Individual Consumption (AIC) per capita varied between 56% (Bulgaria) and 134% (Luxembourg) of the EU average. The coefficient is expressed in Purchasing Power Standards (PPS).
  • The EU is the largest economy in the world. Although growth is projected to be slow, the EU remains the largest economy globally with a GDP per head of €25 000.
  • Europe is the world’s largest exporter of manufactured goods and services and is itself the biggest export market for around 80 countries.
  • Together, the European Union’s members account for 16% of world imports and exports.
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Don’t worry if you are not currently a resident of Estonia. Source: pixabay.com

Regarding the business environment in the EU, and specifically in Estonia, you should know that:

  • At EU level, the European Commission works with financial institutions to improve the funding available to SMEs. Therefore, the percentage of SMEs with the concern for financial access went down from 16% in 2009 to 9% in 2016.
  • The average number of emerging startups in Europe is 5 per every 100,000 people. Estonia ranks 6 times higher than the European average (30 startups per 100,000 people), taking the third place in the EU.
  • SMEs in Estonia generate 75.7 % of total value-added and 77.9 % of total employment — significantly above the respective EU averages.
  • Micro-sized enterprises that employ up to 9 people make up the majority of SMEs in Estonia with over 70 thousand of them in total (as of 2018 data).
  • Estonia has one of the best Small Business Act (SBA) profiles in the EU. It is first in the EU for ‘responsive administration’ and single market and second for entrepreneurship and access to finance.
  • In 2016-2017, the World Bank ranked Estonia 12th out of 190 countries for ease of doing business and also 12th for ease of starting a business.

E-residency in Estonia

Don’t worry if you are not currently a resident of Estonia. That won’t prevent your starting up a business here. In this country, you can become an e-resident. The unique e-residency program allows anyone to become a digital resident of this innovative country, obtaining an ID card with a certificate.  Please do not confuse it with the regular national ID. You should be aware that e-Residency does not give you citizenship, tax residency, residence or even the right of entry to Estonia or to the EU. It is not a visa or residence permit. This digital identity only allows you to access the Estonian vibrant business community. In other words, e-residency gives you legal access to the national transparent digital business environment.

Since the launch of the program in 2014, the number of e-residents has surpassed 62,000, and the companies established by e-residents employ some 1,700 people in total. Direct income from the program is estimated to equal €31 million since the program has been in effect. The number of businesses established by Estonia’s e-residents exceeded 10,000 in November, up 58% since last year. The largest number of businesses was registered in IT and business consulting. Many e-residents operating in forestry and agriculture, health, trade or education are paying taxes in Estonia.

The certification service is provided in accordance with CPS, CP and the relevant legislation of the Republic of Estonia and European Union. therefore, the Police and Border Guard Board checks background information regarding every applicant. The state fee for the e-Resident ID card is €100.

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You will be required to present a valid travel document. Sourceunsplash.com

Certified individuals are required to collect their e-Residency digi-ID card in person from one of the Estonian foreign representations or the Police and Border Guard Board service points in Estonia. If you choose to collect your digi-ID in Seoul, Tokyo, or San Francisco – an additional service fee applies. Additional service fee for Seoul is €28,5. Service fee for Tokyo and San Francisco is €30. Service fee is only payable in cash in local currency. You will be required to present a valid travel document and give your fingerprints when collecting your e-Residency digi-ID card.

While applying for e-residency, you’ll be asked to fill in some personal information: name, DOB, citizenship, address, contacts, ID details, your reason for application. You may also describe your professional activities by providing your online CV details; names and registration numbers of the companies you’re related to; relevant social media accounts;  information on bans or restrictions on business, related to you or your enterprises/business. This data is important for the authorities to understand what kind of business you operate.

Starting a company in Estonia online

All e-residents may register their businesses in Estonia hassle-free, without personal presence or bundles of paperwork. For their trusted, location-independent EU companies, 99.6% of all bank transactions are done electronically with the help of international payment solutions.

  • All Estonian companies must have a virtual Estonian address and all Estonian companies managed from abroad must appoint a contact person. Therefore, you need to choose a trustworthy service provider to obtain an Estonian contact person and legal address. An average monthly fee for this service is €50-100.

The official suggested list of service providers may be found here.

  • The next step is registering itself. You’ll pay the state fee in the amount of €190 for registration.

If you choose to distribute dividends, an additional fee will be charged for registering your minimum share capital.

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When you establish a limited company in Estonia, you are also required to register its minimum share capital. Source: unsplash.com

When you establish a limited company in Estonia, you are also required to register its minimum share capital. This is referred to as your company’s share capital contribution. since the Estonian Commercial Code was revised in January 2019, the share capital can also be registered at a credit or payment institution anywhere within the European Economic Area (EEA). You can learn more about this change here.

The suggested process for e-residents is to postpone the payment and establish a company without making a share capital contribution during the establishment process. The share capital contribution process is better suited for Estonian physical residents, who already have a relationship with an Estonian bank.

  • Once the proper registration is complete, you should apply for business banking. The entrepreneurs must find a fintech partner in the Estonian service provider marketplace to cover their corporate banking needs.

The main alternatives can be viewed at the official marketplace of trusted service providers. If you wish to compare the recommended banking & payment partners, please open the given link.

Theoretically, your financial services provider may not be an Estonian bank or a FinTech company with necessary competence (e.g. able to provide you with a digitally signed statement in Estonian), but the payment verification process may become much more complex in this case.

If you establish a limited company, you can now proceed to the share capital contribution. After you have registered your company and have obtained a banking service provider (a bank or a fintech account within the EEA) you are now able to make a deferred share capital contribution by transferring necessary funds from your private account to the company’s bank account. You may complete the payment in a single transaction or divide it into multiple smaller instalments. In both instances, it is necessary for you to add an explanation „Osakapitali sissemakse“ (meaning „Share capital contribution“) to each separate transaction. More information on this payment here.

From now on, you will be able to digitally manage your business in the EU.

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