Doing business in Estonia – 5 common mistakes

You already know why it’s worth to register company in Estonia. In this episode we will talk about five costly mistakes while doing business abroad.

Pretty much everybody knows that Estonia is famous for: e-Residency program in novative tax system with friendly administration and being the most digitalized country in the world.

Doing business in this small baltic countryis a pure pleasure for entrepreneurs from all over the world. In the same time conducting business activity outside your home country can cause you costly business mistakes. Let’s start with the company structure.

  1. Remember e-Residency is a digital signature which allows you to sign document and petitions online. So only you as an individual can be e-resident. If you want to establish your business online with e-Residency, company cannot have a corporate shareholder, but only individual. So does it mean that the corporate shareholders are banned? Not exactly, in this case it’s better to use the other option for the company registration. The easiest way is to grant the power of attorney to thelocal lawyer, who can represent you during the incorporation process at the notary office. Remember all the corporate documents should be translated and verified by the Commercial Register.
  2. Before starting your business, please consider that some activities require a license to operate in Estonia. It touches especially companies operating in energy financial and tourism sectors. Will it be a problem? Come on, you’re in Estonia. For the most licenses you can apply directly online or in the cooperation with your local lawyer.
  3. Benjamin Franklin said that in this world nothing can be said to be certain except death and taxes. In Estonia taxes are: simple, fair and easy to declare. Before registering company, you should check whether your country of your personal residency has signed a tax treaty with Estonia or not. The easiest way is to check it at Estonian e-MTA website. Estonian tax rate is 20% however, the profits are taxed at the moment of distribution the dividends to the shareholders. This is why some countries consider Estonian entities as a CFC for their tax residence. And speaking of taxes… make sure that you register your company to the VAT on time – not sooner not later but just on time.
  4. If your company revenue exceeds 40 000 euros in the calendar year, you’re required to register as a VAT payer. Remember you have three days following the day on which such an obligation arises.
  5. If you run your business in Estonia, I’m sure that you’ve heard about hidden dividend payment of fringe benefits. Those are the company expenses done for the private purposes like: gifts, food, clothes and any other not related to business. Remember these expenses are subject both to the income and social tax.

I’ve just showed you five examples of common costly mistakes. How to avoid them? Focus on your business and hire professionals like accountants and lawyers. They will help you to save your money and time.