Invest in Estonia
Invest in EstoniaUpdated on Sunday 24th January 2021
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Even if it is a small country, Estonia attracts foreign investors through its pro-business legislation. The Estonian economy is based on the taxes levied on companies which is why the government offers incentives that are meant to draw businessmen from other countries. Businessmen who want to invest in Estonia should know that the most appealing investment fields in this country are the IT sector, the bio technology sector and regenerative industry.
The business environment in Estonia
The Estonian business environment draws investors mainly because foreign companies benefit from the same treatment in matters of incorporation as Estonian companies. Other advantages of investing in Estonia are:
- its geographical position at the crossroads between Europe and Russia;
- foreign companies are not subject to any tax on reinvested profits;
- a skilled and well-educated workforce;
- setting up a company in Estonia takes about 15 minutes through the online application platform;
- the Estonian banking system allows for almost all operations to be conducted online;
- Estonia is a member of the World Trade Organization, of the European Union, of the Organization for Economic Co-Operation and Development (OECD) and NATO.
If you want to invest in Estonia, our local lawyers can assist you, no matter if you want to open a new company in this country or to purchase a ready-made one.
Why invest in Estonia?
Estonia’s location in a dynamic and rapidly growing region is beneficial for the development of domestic businesses. Estonian economic environment is characterized by competitiveness and economic freedom indicators, which have shown that this country offers a favorable business climate, which allows for investment in high productivity.
Another aspect that makes Estonia an attractive country for foreign investors consists in the success of building up a conservative fiscal policy since 2009. The Estonian state budget deficit has stayed within the limits allowed by the Maastricht criteria, thereby allowing Estonia to join the euro zone. Thus, the government has declared Estonia ready to adopt the euro as national currency in January 2011.
An entrepreneur willing to invest in Estonia must also know that the Estonian state debt is less than 5% of gross domestic product and the public sector costs are relatively low, with a simple tax system. The Estonian state also encourages investment and the income tax is 21%.
Accession to the euro zone has amplified the business success, especially in the current global economic situation, where the introduction of the euro as national currency provides a clear and concise perspective on the security of the local business environment and increases reliability.
Estonia is an attractive country for foreign investors also due to economy’s flexibility, which plays an important role in the labor market, allowing responding to market signals. The economical restructuration has also accelerated the new Labor Law, applied since July 2009.
The Estonian government provides the basis for the necessary stimulus for the development of human capital and offers good opportunities for the regulation of the labor market, with unemployment insurance and retraining opportunities. In recent years, the Estonia's salary was lower than the EU average and, after the completion of the necessary correction, the average wage is expected to rise in accordance with the development of the overall economy. However, the main purpose is to assure that the Estonian economy remains cost advantage. If you need more details on how to invest in Estonia, our lawyers are at your disposal.
Estonia is an attractive country for foreign investors also due to a correct communication between the state and the citizen or business. A foreign investor can create a company online in less than 5 minutes and declare taxes on e-tax office in 10 minutes. Our lawyers can help you start a business in this country and can also assist you in a wide range of corporate matters, such as trademark registration or registering your company for VAT purposes.
What are the key opportunities for foreign investments in Estonia?
Estonia supports the growth of companies in multiple business sectors. The country is a leader in IT and also offers key opportunities in other areas, listed below:
- IT: the country’s digital environment is adequate for IT research and development; the sector is also aided by a skilled talent pool and a good track record for successful investments in the past (5 unicorns were born in Estonia – privately held startups valued at over 1 billion $);
- Blockchain: the country offers blockchain solutions that attract global clients and has a policy for integrating it into everyday services; blockchain was used in the country for the first time in 2008;
- Cyber security: Estonia is ranked #5 in the world in terms of cyber security and offers a good environment for the development of companies in security research and development, testing and management;
- Business services: opportunities in fields such as finance, customer services, HR and others;
- Many others: other interesting business fields that present opportunities are the logistics and the marine sector, electronics, e-Health, industrial R&D or the food sector.
The Estonian government encourages foreign investment through liberal regulations for exports. The government is seeking to attract foreign investments in Estonia by allowing 100% foreign ownership, but maintaining some regulation for certain industries. Estonia has switched to Euro in 2011 which led to market liberalization thus making investment more accessible for foreigners. According to the country’s conversion and transfer policies there is no restriction for transferring or converting currencies. Dividends can also be repatriated without any restrictions and so can be all the assets of a company that stops its activity in Estonia.
Foreign investors who want to invest in Estonia should know that they have the right to own properties in Estonia and expropriation is possible only in cases of buildings important for public interests with the appropriate compensation.
Dispute settlements are also available as the Estonian judicial system does not depend on the government and allows arbitration tribunals that facilitate dispute resolutions. Estonia has also adopted the Bankruptcy Act in 2004 that eases the process of company liquidation.
How are companies taxed in Estonia?
Estonia imposes a corporate income tax on the company’s distributed profits, instead pf applying an annual corporate tax. This corporate income tax has a rate of 20/80 of the net amount (20% of the gross amount) of the profit distribution.
A reduced rate of 14% was phased in gradually starting with 2019 for regular dividend distributions. The country does not impose a withholding tax on dividends or interest other than one the derived by a nonresident from an Estonian contractual fund.
There taxes for companies include the real property tax and social security contributions (the rate paid by the employer on cash and in-kind employee benefits is 33%).
Value-added tax applies in Estonia on the sale of gods and services, the import of goods and intracommunity acquisitions. The key VAT facts are listed below:
- 20% - this is the standard value-added tax rate, applicable for many types of services;
- 9% - the reduced rate for items such as medicines, accommodation, books or newspapers;
- 0% - some goods are zero-rates and these include the intracommunity supply of goods;
- Exempt – different from the zero-rate, postal, health, social and insurance services are exempt from the value-added tax altogether;
- 40,000 EUR – is the registration threshold for VAT purposes; this means that a taxpayer that has supplies (apart from imports) that exceed this amount in a calendar year must register for VAT purposes.
If you want to invest in Estonia, you should know that gifts, inheritances and real estate are not subject to taxes with few exceptions. Estonia has also signed double taxation agreements that enable the country to attract foreign investors.
Tax filing in Estonia is performed on a monthly basis and payment is to be made by the 10th day of the month following the one for which the taxation is made. Entities not subject to value-added tax are required to file only if they have taxed on profit distributions and payroll for the specific period.
What is E-Residency in Estonia?
E-Residency is an innovative opportunity for foreign entrepreneurs to manage their business online, from anywhere in the world. This is a digital identity issued by the Estonian Government that allows access to the government-provided digital services for companies.
Some of the advantages are the following:
- Work remote: foreign entrepreneurs can work from anywhere and incorporate their EU company in Estonia digitally;
- Minimize costs: the process allows for some of the traditional business costs to be cut altogether;
- Retain credibility: incorporating in Estonia means that the business will be seen as a trusted EU company and will have access to the significantly large EU Single Market.
- Easy banking: almost 100% of all bank transactions are done electronically when investors choose to work this way;
- Easy compliance: in more than 95% of the cases, income is declared electronically, simplifying company compliance even further.
In order to start a company using E-Residency, investors need to identify themselves online, and start by digitally signing the documents that are required for company formation. Our lawyers in Estonia can guide you each step of the way, with no need to mandatorily travel to the country while the process takes place. In the event in which physical presence is required, our team will guide you through the requirements and, as needed, can draw up a power of attorney to act in your name.
The digital environment in Estonia is well put together and this means that E-Residency allows for complete company establishment and management in an easy, online manner. This way, investors can not only open the company using digital signatures, but they can also manage capital digitally, submit tax reports and make important Board decisions online.
The E-Residency also acts as a trusted community through which entrepreneurs have the change to find likeminded investors and service providers.
The four main steps are the following:
- Become an E-Resident by submitting an online application and paying the fee;
- Choose the service provider: this is the Estonian contact person and legal address; our team of lawyers can help you during this step;
- Register the company: use the e-Business Registry to complete the process much in the same one as you would if opening a company in Estonia in the traditional manner;
- Handle banking: you can choose to work with a fintech partner in the E-Residency Marketplace;
- Start the business: launch your business and engage in the E-Residency community.
If you want to invest in Estonia by opening a company or purchasing an existing one and need details about the business environment you can contact our law firm in Estonia.