Doing business in Estonia without taxes

The topic of registering companies for tax optimization is not new, but still popular. The information of “their first hands” is all the more valuable since it will allow to avoid mistakes and various kinds of surprises. Perhaps the experience of establishing a company in Estonia will be useful to someone.

Based on the needs of the business, it was necessary to choose a respectable country that is not a classic offshore (such as BVI or Nevis). As you know, a company from tax-free jurisdictions does not always inspire the trust of customers, especially from Europe and the USA. 

More prestigious onshores, both Asian and European, we also considered. But, despite the obvious advantages, there were always doubts whether you really gain more than you lose.

The option of registering a partnership (Scottish SLP and British LLP) was tempting, since profits are taxed at the level of partners, not the company. Accordingly, if the partners are non-residents, they do not pay taxes in the country of incorporation of the company. But partners need at least two, therefore, you need to find a second and pay for his services.

Incredibly popular Hong Kong was also interesting in the context of taxation on a territorial basis, but it was embarrassing to incur considerable costs for the annual audit and pricing for company registration.

The exception method was stopped in the Baltic States, and after careful monitoring Estonia was chosen.

First of all, interested in tax policy, in particular, income tax. And here we were in for a pleasant surprise - not only is the profit taxed at zero rate if it is not distributed among the shareholders (participants of the company). It also gives the right to not actually contribute the share capital (its size will be discussed further). That is, if the company makes a profit in the form of dividends and does not distribute it, then such income is not taxed. In this case, the minimum size of the share capital should be simply stated in the registration documents. In the case of distribution of profits, it is taxed at a rate of about 26.6%.

The VAT rate in Estonia is 20%.

The provision of a certain range of services (for example, in the field of IT - this is software development) does not require the payment of VAT in mutual payments with EU countries, and outside Estonia, in principle, VAT is not needed. Alternatively, invoices can generally be issued without VAT. Since Estonia is an OECD member, this creates additional convenience for transferring funds to a corporate account. In addition, you can take advantage of the benefits of treaties on the elimination of double taxation.

In Estonia, you can register several variants of companies, but the most popular are the Limited Liability Partnership (OÜ) and Joint Stock Company (AS). The authorized capital for OÜ is 2,500 euros, for AS - 25,000 euros. Above was described the option of how not to legally deposit this money into the company’s account.

Since Estonia maintains a public register of founders and directors, it was decided to use nominal services. This service, by the way, is often offered by law firms that deal with business registration. I will say right away that there is no nominal service legalized as in offshore companies, so there is a risk of suffering from “unscrupulous” business management and in the worst case, losing the company. Therefore, it is advisable to use the services of the nominal, which has recommendations from people you trust. And yet - let there be documents in your arsenal signed by the nominee shareholder that only appears in the register. Or you still need to register the company and provide your data for the registry. In the case of a nominee director, there may also be surprises, because you are acting by proxy on behalf, and you can also withdraw the power of attorney ... So there is reason to think.

• The registration procedure was crowned with the receipt of a package of documents, which consisted of:

  - Company Charter (in Estonian),
  - The company registration document (B-card), which contains information about the company, founders, activities, registration date, and legal address
  - Statements and letters of resignation of the director with a signature without a date (in English).

• For servicing, you can choose a bank both in Estonia and in EU banks - this is individual, depending on the conditions, tariffs, range of banking services. In Latvia, where the account was opened, the following documents were required:

  - Company documents
  - Beneficiary Summary (CV)
  - Statement of the essence of the company
  - Documents confirming the financial viability of the beneficiary
  - Details of counterparties
  - Documents confirming the source of funding
  - International passport

Regarding bookkeeping is a mandatory requirement for Estonia. As a rule, the company registrar helps to find a local competent accountant who will deal with financial statements. The cost of services varies from 500 to 700 euros per year.

For a competent and legal withdrawal of money to the accounts of their companies, you can use software development contracts or the provision of consulting services. But it is better to consult with professionals in the field of accounting.

Thus, a company in Estonia is a convenient option for doing business and tax planning.