Part 1. ABC: e-Residency and founding an Estonian company.
Updated: Mar 24, 2021
1. What is e-residency?
Estonian e-residency is a program which offers non Estonian residents the chance to establish an Estonian company and manage its operations worldwide. The program is especially suitable for digital nomads and freelancers as it allows electronic identification and personal authentication as well as the digital signing of documents, which means paper free management of your company.
It should not be confused with real residency though, as it does not confer any rights to reside in or travel to Estonia and is meant to be a tool to help run and maintain a paper-free company in a country where doing business has been made easy.
Official webpage of the program can be found here.
Before applying and registering a company, it should be clear what's the tax rate and where should it be paid to.
2. What’s the tax rate?
There is no corporate income tax on retained and reinvested profits.
Estonian resident companies and the permanent establishments of foreign entities (including branches) are subject to 20% income tax only in respect to all distributed profits (both actual and deemed).
Distributed profits include:
• corporate profits distributed in the tax period;
• gifts, donations and representation expenses;
• expenses and payments not related to business;
• transfer of the assets of the permanent establishment to its head office or to other companies.
Fringe benefits are taxable at the level of the employer which means employer pays income tax and social tax on fringe benefits.
Where is the tax supposed to be paid?
Companies established in Estonia through the e-Residency are automatically tax residents in Estonia. It is then the company´s duty to report and pay taxes in other countries according to their law if the source of taxable income is there. This means that even your company is registered in Estonia, if the company is not run and managed from Estonia, the tax residency might not be in Estonia. This does not apply, however, for digital nomads.
If your company has a strong presence in one country then this will be simple to determine, but if your company is operated across multiple countries then you will likely need help from a qualified tax adviser that can look at your unique situation.
3. How to apply for e-residency?
Becoming an e-Resident will require you to complete a short application, provide scans, copies or photos of your passport along with a photo and a written explanation of why you would like to become an e-Resident, all of which have to be sent (or rather uploaded) to the Police and Border Guard, who will review the application. If the application is accepted, within one (in rare cases two) months you will receive an invitation to an Estonian embassy in a convenient location, chosen by you, or at a pickup point in Tallinn, for a short introduction of the program and issue of the e-ID card.
4. How to set up a company?
After receiving the e-Residency card and setting up it's functionality (www.id.ee), the next step is to set the company.
It can be registered electronically, if:
all persons related to establishment (members of the management board, founding members, etc.) are able to sign the application of initial entry and establishment documents digitally, which means the possession of the e-residency card;
a licensed Estonian legal address and contact service provider, such as BRISQ, has been agreed to provide such service.
It should be registered at the notary, if:
If one of the founders does not have the e-residency or it’s a legal person (company), the new Estonian entity has to be registered at the notary. Either in person or authorizing a representative with a Power of Attorney.
Should the founders be private persons, the list of documents is short –
a Power of Attorney on the name of the representative with a clearly expressed wish to register a company in Estonia (including the company name, how the shares are split, address and who will be the members of the board, should it differ from the founders). The Power of Attorney has to be notarized and bear an apostle;
ID’s, preferably notarized;
a consent of becoming a member of the board.
If one of the founders is a legal person, the list of documents is longer:
articles of association;
registry card (a document where the representatives and shareholders of the company are listed);
information on communications devices;
Power of Attorney.