Estonia is a small country located at the heart of the Baltic Sea Region - Europe’s fast-growing market of nearly 100 million people. Attractive location between East and West, an excellent business environment, stable government and liberal economic policy, moderate costs and the ease of doing business have already attracted numerous international companies to Estonia.

Estonia’s economic freedom is among the highest in the world. In 2018 Index of Economic Freedom (prepared by the Heritage Foundation) Estonia is ranked 7th out of 180 countries. The Ease of Doing Business index by the World Bank (2017) sets Estonia at the 12th position. According to Transparency International (Corruption Perception Index 2017), Estonia is ranked 21st out of 180 countries. 

A foreign investor may operate through the following corporate forms that should be registered within the commercial register:

a public limited company,

a private limited company,

a general partnership,

a limited partnership,

a commercial association or a branch.

The private limited company and public limited company are the most commonly used forms of entities for doing business in Estonia due to their most essential characteristic – the limitation of the shareholders’ liability.

Business units like permanent establishments or representative offices are not registered with the Commercial Register. A permanent establishment should be registered in the registry of Estonian Tax and Customs Authorities. As a general rule, Estonian legislation does not recognise the concept of a representative office. However, the branch must be registered in the Commercial Register.

The estimated minimum cost of setting up a branch or subsidiary in Estonia may range between EUR 1,000 to EUR 3,000 (excluding a minimum compulsory share capital).

Establishing a company in Estonia may take from few days up to a couple of weeks. Foreign investors may also buy ready-made companies (in this way, these procedures might take only a few days upon receiving all the relevant information/ documents).

Choice of entity and business forms

The Commercial Code provides for five types of business entities: general partnership (täisühing), limited partnership (usaldusühing), private limited company (osaühing), public limited company (aktsiaselts) and commercial association (tulundusühistu).

Of the five types of entities regulated under the Commercial Code, the private limited company and public limited company are the most commonly used forms of entity for doing business. This is due to their most essential characteristic – the limitation of the shareholders’ liability.

Consequently the main emphasis of this chapter is on these two forms of business, and the central aspects of their operation are presented in the form of a comparison.

Private limited company (OÜ) and public limited company (AS)

Private limited companies and public limited companies have a share capital divided into private limited company shares and public limited company shares, and the shareholders are not personally liable for the obligations of the companies – the companies are liable for the performance of their obligations with all of their assets.

Limited companies are established by concluding notarized certified foundation agreements and adopting articles of association.

Private limited companies may also be established with an expedited procedure. In such cases all the necessary documents are presented to the Commercial Register electronically and authenticated with digital signatures.

Even though the number of shareholders is unlimited by law in both cases, the private limited company is suited for a more closed circle of contributors.

Accordingly, safeguards enabling respective control are provided by law, including rights of pre-emption in case of the sale of shares to non- shareholders, and even the possibility of prescribing (in the articles of association) that a resolution of the partners is required to transfer a share or a part thereof to a third party.

The shares of a public limited company are freely transferable, but shareholders may establish pre-emptive rights in the articles of association.

As for the minimum share capital, it is EUR 25,000 in the case of a public limited company and EUR 2,500 in the case of a private limited company. In certain fields of activity (e.g. banking, insurance companies, etc.) the laws may provide for higher share capital requirements.

Corporate governance

The management structure of the public limited company consists of three levels, the shareholders’ general meeting, the supervisory board and the management board, whereas the management structure of the private limited company usually lacks the levelof the supervisory board.

However, a private limited company must have a supervisory board if it is prescribed by the articles of association.

The management board, the members of which are elected by the supervisory board, is a directing body of the limited company, which represents and directs the company, whereas the supervisory board plans the activities and organises the management of the company as well as supervising the activities of the management board.

For the management board, consent of the supervisory board is required for conclusion of transactions, which are beyond the scope of everyday economic activities. Where the company lacks a supervisory board, these rights and obligations are exercised by the meeting of the shareholders.

The shareholders’ general meeting is the highest management body of a public limited company whereas the respective body of a private limited company is called the meeting of shareholders.

These management bodies are vested with powers to take the most crucial decisions from the perspective of the company’s development – division of dividends, approval of financial statements, election and recalling of the members of the supervisory board, etc.


A member of the management board is expected to perform his or her duties with due diligence. Management board members shall be jointly and severally liable for damage wrongfully caused to the company, unless they prove that they have acted with due diligence. The same applies with respect to the supervisory board members.

Generally, the liability of shareholders for the limited company’s obligations is limited to their payments into the company’s share capital.

However, shareholders are held liable for any damage wrongfully caused to a public limited company, another shareholder or third persons.


General partnership – a company in which two or more partners operate under a common business name and are solely liable for the obligations of the general partnership with all of their assets.

Limited partnership – a company in which two or more persons operate under a common business name, and at least one of the persons (general partner) is liable for the obligations of the limited partnership with all

of the general partner’s assets, and at least one of the persons (limited partner) is liable for the obligations of the limited partnership to the extent of the limited partner’s contribution.

Commercial association

Commercial association – a company for which the purpose is to support and promote the economic interests of its members through joint economic activity in which the members participate as consumers or users of other benefits, suppliers, through work contribution, through the use of services or in any other similar manner.

A commercial association is liable for its obligations with all of its assets. Members of a commercial association are not personally liable for the obligations of the association. However, the articles of association may prescribe that the members are solely liable for the obligations of the association with all of their assets, or liable to a certain extent.


Another way for a foreign company to permanently offer goods or services in its own name in Estonia is to establish a branch (filiaal). The business name of the branch of a foreign company must consists of the business name of the company and the words Eesti filiaal (Estonian branch).

The branch must be registered

in the Estonian Commercial Registry through submission of an application and certain required documentation.

Certain entities such as foreign banks or insurance companies located in non-EU states must also obtain a required license. Banks and insurance companies from EU member states must notify the Estonian Financial Supervision Authority that they intend to commence activities in Estonia.

It should be considered that a branch is not a business entity and the foreign enterprise is liable for obligations arising from the activities of the branch. The foreign enterprise is also liable to appoint one or more directors that are accountable to the foreign enterprise. At least one director must be resident in an EU state or Switzerland.

Representative offices

As a general rule, Estonian legislation does not recognize a representative office.

Sole proprietorship

In addition to the possibility of establishing a business entity, it is possible for any natural person to conduct business as a sole proprietor who must be entered in the commercial register before commencing with permanent business activity.

Taxation of corporations

All undistributed corporate profits are tax-exempt.

Estonia has no thin capitalization or CFC rules for corporate taxpayers.

The period of taxation is a calendar month.

Corporate income returns are due by the 10th day of the month following the taxation period.

All undistributed corporate profits are tax-exempt. This exemption covers both active (e.g. trading) and passive (e.g. dividends, interest, royalties) types of income, as well as capital gains from sales of all types of assets, including shares, securities and immovable property. This tax regime is available to Estonian companies and permanent establishments of foreign companies that are registered in Estonia.

Corporate profits are not taxed until the profits are distributed as dividends, share buy-backs, capital reductions, liquidation proceeds or deemed profit distributions, such as transfer pricing adjustments, expenses and payments that do not have a business purpose, fringe benefits, gifts, donations and business entertainment expenses.

As noted above, Estonia levies corporate income tax only on profits that are distributed as dividends, share buy-backs, capital reductions, liquidation proceeds or deemed profit distributions.

Starting from January 2015 distributed profits are generally subject to a 20% corporate income tax (20/80 on the net amount of profit distribution). For example, a company that has profits of 100 available for distribution can distribute dividends of 80, on which it has to pay corporate income tax of 20. From the Estonian perspective, this tax is regarded as a corporate income tax and not a withholding tax, so the tax rate is not affected by double tax treaties. Certain domestic and foreign taxes can be credited against the corporate income tax charge under domestic law or double tax treaties. Certain distributions are exempt from such tax (“participation exemption”).

From 2018 onwards, a lower CIT at the rate of 14% for those companies making regular profit distributions is available. The payment of dividends in the amount that is below or equal to the extent of taxed dividends paid during the three preceding years (20%) will be taxed with a rate of 14% (the tax rate on the net amount being 14/86 instead of the regular 20/80). In cases where the recipient of the 14% dividend is either a resident or non-resident individual, a 7% withholding tax (WHT) rate will apply unless a tax treaty provides for a lower WHT rate (5% or 0%).


There is a general anti-avoidance rule, which allows tax authorities to ignore the legal form of a transaction and reclassify it for tax purposes according to its “real” economic substance, if there are grounds to believe that the transaction was undertaken for the purpose of avoiding tax.

As of 1 November 2016, there is also a special anti-avoidance rule under which the participation exemption for dividends shall not be applied to an arrangement or a series of arrangements which are not genuine, because the main purpose or one of the main purposes is obtaining a tax advantage. The exemption is applied to the extent that they are put into place for valid commercial reasons which reflect the necessary and appropriate economic content for such business activities.

Taxation of Individuals

A flat 20% income tax applies to taxable income of individuals.

Estonian resident individuals are subject to taxation on their worldwide income. Non-resident individuals

are subject to taxation on the listed Estonian source income.

Tax on employment income is collected by employers.

Investment account

Individuals are allowed to defer their income tax liability on the income earned from the transactions with certain financial assets when using a specific investment account system. In order to enter the system, an individual has to have an ’investment account’ which is an ordinary current account in a bank operating in a country that is a member of European Economic Area or OECD. The number of investment accounts per individual is not limited. Payment of income tax can be deferred if qualifying financial assets are purchased for the money in the investment account and income from the transactions is immediately transferred to the investment account. All transfers in and out of the investment account(s) must be reported in an individual annual income tax return. Income tax at 20% is paid only when the payments out of the investment account exceed the amount paid in.

Business account

According to the law an individual will have the possibility to open a specific bank account (so called “entrepreneurship account”), where all income received will be taxed at a flat rate of 20%, if the total amount is below EUR 25,000 in a calendar year. If the total annual amount is equal or exceeds 25,000 euros, then tax rate 40% is applicable.

Scope of VAT

The following transactions are subject to Estonian VAT:

• the supply of goods and provision of services with a place of supply in Estonia;

• the import of goods into Estonia;

• intra-Community acquisition of goods in Estonia;

• other cases

Value added tax (VAT)

Estonian VAT legislation is based on the EC VAT Directive (2006/112/ EEC).

The standard VAT rate is 20% and the reduced rate is 9%.

Estonia applies extended reverse charge mechanism.

An option to tax is available in respect of certain domestic exempt and taxable supplies (such as specific steel products identified by CN codes).

Certain supplies are subject to a 0% rate (i.e. exemption with credit or zero-rating), including but not limited to:

• export of goods;

• intra-Community supply of goods; • the products listed in the Annex

V of the VAT Directive, which can be placed into a licensed VAT warehouse;

• supply of services which are not deemed to be supplied in Estonia.

VAT compliance Registration

If the taxable supplies of Estonian businesses or fixed establishments of foreign businesses in Estonia exceed EUR 40,000 in a calendar year, VAT registration is required.

Voluntary registration is also possible, even if the threshold is not reached.

Certain transactions of foreign businesses require Estonian VAT registration without any threshold (e.g. intra-Community supply of goods from Estonia).

Information in a VAT invoice

The following information is required to be stated on the VAT invoice:

• the name, address and the VAT registration number of the supplier;

• the serial number and the date of issue of the invoice;

• the name and address of the recipient of goods and services;

• the name or a description of the goods or services;

• the quantity of the goods or extent of the services;

• the price of the goods or services exclusive of VAT and any discounts, if these are not included in the price;

• the taxable amount divided by different VAT rates together with the applicable VAT rates or the amount of tax exempt supply;

• the amount of VAT payable in Euros;

• the date of dispatch of the goods or provision of services and/or an earlier date of receipt of full or partial payment for the goods or services if the date can be determined and differs from the date of issue of the invoice.

If you need additional information on doing business in Estonia, please do not hesitate to contact us!

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