Stock Trading with an Estonian Private Limited Company
It is said that the best time to start investing is today. Besides the current situation in the markets, buying and selling stocks from anywhere in the world with a touch of a button is made incredibly easy for most of us with the rise of online trading platforms. However, for residents of some countries, it can be challenging to access the stock market due to legal and regulatory restrictions. This is where e-Residency comes in.
What is e-Residency?
For those who do not know, e-Residency is a digital identity program launched by the government of Estonia in 2014. It allows anyone in the world to become a digital resident of Estonia, giving them access to a range of services, including the ability to start and run a business, open a bank account, and even access the global stock market. To find out more about e-Residency and if it is right for you, see our previous post - Does e-Residency make sense for you?
How does e-Residency facilitate stock trading?
Estonian companies enjoy the opportunity to only pay corporate tax when profits are distributed. That’s correct – as long as profits are NOT distributed, but re-invested, there’s NO tax. This is why many individuals in Estonia prefer to manage their investments through a Private Limited Company (OÜ). That way the compound interest shows it’s true power, as at some point you start investing dividends, which generate more dividends and so on. According to a very smart man Albert Einstein,
„Compound interest is the eighth wonder of the world. He who understands it earns it... he who doesn’t... pays it.“
If the term „compound interest“ is unfamiliar to you, we suggest learning all about it!
Benefits of using e-Residency for stock trading
One of the main advantages of using e-Residency for stock trading is the ease of access it provides. As an e-Resident, you can access the global stock market from anywhere in the world and start accumulating wealth. A typical scenario to start investing through an Estonian Private Limited Company is as follows:
· Apply for e-residency - Application for e-Resident's digital ID (politsei.ee)
· Once you’ve collected your digital ID card (pick-up locations: Where to pick up your e-Residency card | 50+ locations worldwide (e-resident.gov.ee)) and set it all up (check www.id.ee), contact us to get your company registered.
· In the meantime, open a private account with a payment services provider such as WISE and investment broker like Lightyear. Once the company has been registered, open a corporate account as well before you start investing. Why WISE and Lightyear? First, they both have Estonian roots and second, they have access to the Estonian registry, so no excess paperwork, such as notary-certified corporate documents are needed (which might be requested by non-Estonian institutions).
· There’s one more registration you need before you can start investing under your corporate entity, an LEI number (Legal Entity Identifier). It will set you back about 50 EUR/per year, but there are plenty of providers online.
· Start investing!
Taxes
The Estonian perspective is clear – as long as no dividends are distributed, there’s no corporate tax for the company to pay (if you pay yourself a salary or have business expenses, ofcourse different taxes apply). Estonia considers Estonian companies to be Estonian tax residents.
However, your country of (tax)residence might have a different perspective on Permanent Establishment, so our advice is to define your exact situation with a tax advisor from your country. Different aspects should be considered such as how actively you are trading, is it done by yourself or is it automated, do you use the company for any other type of business, how big are the funds you are managing?
Annual duties
Before registering your Estonian company for investing purposes, keep in mind your annual duties:
· Renew the legal address and contact person service each year with your service provider
· Have your annual report filed for the previous financial year between January 1 and June 30.
· Keep your LEI number up to date
If these aspects have been covered, just sit back and watch as the compound interest does it’s magic!