The Estonian tax regime is attracting new investors every year. With no corporate tax on undistributed profits and a tax rate of 21% on the distributed profits, Estonia differentiates itself from other European countries. Estonia is also a member of EU, EEA, NATO this granting access to a market with more than 300 million consumers in very attractive conditions. Many treaties were signed in order to protect the investors and their profits, such as the double tax treaties which grant many exemptions from taxes and smaller withholding taxes on interests and royalties. Estonia is also following the Parent/ Subsidiary directive which is granting exemptions from paying withholding taxes on interests and royalties.
Many of the investors chose to open holding companies in Estonia because of the favorable economic conditions. The holding companies are entities which own shares in other companies, called subsidiaries. The amount of owned shares is establishing the degree of implication in the subsidiaries’ management.
The holding companies can be organized as limited companies with the following characteristics: at least one founder must register it (regardless the nationality) and a minimum share capital of 40,000 EEK for a private limited company and 40,0000 EEK for a public company must be deposited at registration. The capital is divided into shares of at least 100 EEK for the private companies and 10 EEK for the public companies.
There is also a state duty and a notarization fee. The state duty in 2012 was around 141 EUR and the notary’s fees depend on the amount of deposited capital. The incorporation of a company doesn’t take longer than seven working days; usually the registration in the commercial register takes around five days.
Besides the registration in the Commercial Register, there is also mandatory the registration for VAT (for companies with annual profits above 16.000 EUR) and the registration of the employees at the Central Sick Funds of Estonia.
There is also the possibility to register a company from abroad online, if the specimen signatures are attached or through an assignee authorized to represent the company and register it. Besides the short period of time necessary for incorporation, there is also another advantage of establishing a holding company regarding the residency of the shareholders which is not mandatory to be Estonian. In case more than a half of the members of the management board are not residents of Estonia or Switzerland or in a country from European Economic Area or, then the company must select an address from Estonia where the register and other persons can send the official documentation.
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