Tax-free company in Estonia in 2023

Tax-free company in Estonia in 2023

Tax-free company in Estonia is not a myth, but a reality, although there is a nuance. Registering LLC or OÜ (osaühing) with zero tax rate on profit is possible. Such a company does not pay income tax unless paid in the form of dividends. This allows you to earn and invest in business development. However, when the company will distribute income in the form of dividends or another form, you will have to pay a tax of 20%.

Taxation of profits in Estonia: what you need to know

The country has a system in which the taxation of the company shifts from the time of receipt of income to the time of its distribution to shareholders.

There are two types of profit distribution:

  • Explicit - dividends;
  • Implicit - payments in the form of fringe benefits, gifts, donations, and non-business expenses.

The standard tax rate is 20%. The reduced rate applies only to explicit profits (14%) and applies if the resident company regularly pays dividends. If an individual receives payments at this rate they must pay an additional 7% tax (withheld).

Tax declaration

Estonian companies may not file an annual tax return. Income tax is calculated monthly on the TSD form with appendices. This means that the taxable amount has to be declared monthly each time profits are distributed or other expenses for which tax is due are paid.

Requirements for establishing an LLC with zero tax rate

  • LLC can be established in Estonia by both individuals and legal entities.
  • There are no requirements for the citizenship of the founder, or board member.
  • Only physical persons can be a member of the board, while legal entities are not allowed.
  • The salary to the director can not be paid, which is convenient if they are foreign founders. In this case, the business owner decides what is more profitable: to pay himself a salary or use the money to develop the company.
  • The authorized capital is €2,500, but if only one shareholder exists €0.01 is sufficient.

How to register an LLC with a zero rate

If you are a foreigner you can only open business in Estonia through a registered agent. Contact IT-OFFSHORE to get a local agent who will gladly help you with that in the most professional manner. Then you need to do the following steps:

  • Determine the legal address where the company will be registered. It can be either rented premises or a virtual office.
  • Draw up an electronic signature. This allows you to submit documents online and interact with tax and other state authorities.
  • Prepare the documents for opening a tax-free company in Estonia in 2023 - the memorandum of association, list of directors, shareholders, documents that confirm the identity of the founders, etc.
  • Apply for business registration at the Estonian Commercial Registry.
  • Get an identification number from the tax office, register there as a taxpayer.
  • Open a corporate account.

In addition, ask whether obtaining a license to conduct business in Estonia (for example, to work with cryptocurrency) is necessary. If yes, you also need to get it. 

How to start a tax-exempt company in Estonia

Contact IT-OFFSORE to register a tax-exempt company in Estonia.

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