A guest post by Unicount with answers to common questions e-residents have after registering an EU company in Estonia
This article is a guest post by Adam Rang, Communications Director at Unicount. Unicount offers super easy company formation in Estonia for one-person businesses through a self-service online portal and is also a trusted e-Residency Marketplace member.
Registering an EU company in Estonia has never been easier. At Unicount, we’ve reduced it to a simple three-minute task. While working with new e-resident company founders over the past two years, we’ve noticed the same questions come up a lot immediately after their company is registered.
So we put together this list of ten of the most useful things to know when you register a company in Estonia as an e-resident. And if you’re not yet an e-resident, read this post first to find out how to apply.
10 things to know after registering a company in Estonia:
- Company’s registration certificate is available online for free
- Use your phone to sign documents
- Protected personal contact details from scraping sites
- There is no company tax ID or alternative trading name in Estonia
- Register for VAT in Estonia only when necessary
- The main activity code does not limit your business scope
- Annual report needs to be submitted even if the company was dormant
- Add new shareholders and investors online
- No need to register share capital immediately
- Keep your expense documents for accounting
1. Your company’s registration certificate is available online for free
You can download your new company’s registration certificate and shareholder data in English straight away from the Estonian Business Register. These documents are often necessary when applying for a business account with financial institutions, merchant account providers or any other service. Downloading certificates is free and takes just a minute or two.
For the registration certificate, go to the Estonian Business Register, search for your company name then select “The printout of valid registry card information in English”.
For the shareholders certificate, log into the Business Register using your e-resident digital ID card or Smart-ID. Then click on the name of your company. You can then select the tab for ‘Company data’ and print to PDF directly from your browser. This creates a PDF with more details than the public registration certificate, including information about the field of activity, founders, shareholders, and beneficial owners that is missing from the registration certificate.
Here is the Unicount manual with more details:
From the “Company files” tab you can also download your articles of association. Official articles are always in Estonian but formation with standard articles gives you the unofficial translation to English as well.
If you need certified documents, then the only way to certify a registration certificate or articles of association is by using an Estonian notary. Besides these two documents there are no other official incorporation certificates in Estonia. You can contact notaries directly or use a service provider as an intermediary to help with this process.
The Estonian Business Register does not issue certified paper documents in Estonia because, well, nobody needs them! That’s the great thing about being a digital nation.
2. You can use Smart-ID on your phone to log in and sign
Estonia’s digital ID cards may be famous around the world, but most Estonians actually now use their mobile phones for regular digital signing instead. This is also available to e-residents as an app called Smart-ID, which you can set up with your e-resident digital ID.
You can then leave your card and reader at home and don’t have to pull out a laptop every time you want to digitally sign. It even works if your digital ID card is lost or expired. Read more here.
Most Estonian government e-services now accept Smart-ID and since November 2018, it is a Qualified Electronic Signature (QES) — the highest digital signature standard in the EU. One of the remaining government e-service to accept Smart-ID signatures is the Estonian Business Register, which we hope will change soon.
3. Protect your personal contact details from scraping sites
You’ve just registered a new Estonian company but before you can even announce the launch of your business to the world, your company has already started receiving spam emails. This is a common complaint among e-residents and international residents of Estonia. This happens because your company email is listed publicly on the Business Register, which means it can be bought or scraped by spam marketers.
To be fair, Estonia has a very transparent business environment, which is a good thing, so public company email is just one part of that, even if the spam can be a bit annoying. However, there’s a nifty little solution that is commonly used by tech savvy Estonians looking to reduce unsolicited commercial emails — using the government-provided spam free email address.
Here, Unicount has set out what this is and how to set it up in detail:
The only thing worth noting is that you cannot activate spam proof email before your company is actually registered. So we would recommend using a temporary email when registering a company, but be sure to have one that you can actually access to see if the court has approved your application.
If you also published your phone when registering a company you should know that you can also delete it from the register as having an email is enough. The faster you do it the less time for scraping sites to collect your data.
4. There is no company tax ID or alternative trading name in Estonia
Some countries with less synchronised registers use a variety of unique identifiers for different purposes such as tax and social security etc. In Estonia you only have an 8-digit company registration code and your 11-digit personal identity code (isikukood). These work well for all institutions and services in Estonia.
This also means that you do not need to apply for any tax number to start trading in Estonia.
If you are requested to present your unique taxpayer number (sometimes called TIN) somewhere else in the world, then there is no other number to present besides your registration code. If you are being asked for VAT registration number then this is also not mandatory to have in Estonia (until your company exceeds certain thresholds; see below) and therefore should not be compulsory to access any service inside or outside of Estonia.
Similarly, some countries require you to register any alternative trading names used besides your legal name. Not in Estonia. There is generally no special requirement to register alternative trading names, but be sure not to infringe someone’s registered trademark or other rights prescribed in law. Besides the national trademarks, watch out for EU trademarks as they are valid in all member states including Estonia. Your registered company name does not grant you any trademark rights and there is only some protection for your legal name. You can check trademarks from Estonian Patent Office website.
Note that Estonian law requires you to list your company name and registered address on your website. This is also just good practise though in order to maintain high standards of transparency in business and trust among customers.
5. You can register for VAT in Estonia only when necessary
Registering your company for VAT in Estonia becomes mandatory when your company makes more than €40,000 of taxable income in a calendar year for which the place of supply is Estonia. Determining the place of supply is something to speak with your accountant about.
Before reaching that threshold, registering is optional. Whether you benefit from registration depends on the VAT amount on goods and services you buy and also whether your clients are individuals or VAT registered businesses. Being VAT registered means monthly tax reporting and most probably monthly accounting fees in Estonia.
If you decide to register for VAT right after formation, you can ask your accountant to submit the application or you can do it yourself by following the instructions here. Even if you register on your own we do not recommend submitting the monthly VAT reports on your own though. This is something a qualified accountant in Estonia should do. Also, any late filing might result in a 100 euro late filing penalty by Estonian Tax and Customs Board and the possibility that your VAT registration could be revoked.
Please note that you could be liable for VAT in other countries where you have a permanent establishment or have goods and services delivered. Determining these potential tax liabilities is something to check with your accountant or tax advisor.
For more information, visit the e-Residency Knowledge Base:
6. Your main activity code does not really limit your business scope
It is mandatory to pick one field of activity code when registering a limited company. Some clients ask if they can register more than one and the answer is no. Having a main activity code does not limit your business activities though as long as you are getting involved in other business lines that do not require a license or registration with authorities. You can read more about these here.
You can’t change your activity (called EMTAK) code in the Business Register later on. The main area of activity will be automatically determined based on which activity generated the most income according to your last annual report.
Also, your company can invest into all asset classes available to investors in general even if it is not registered specifically as an investment company (activity code being 64301). Some trading platforms might have no support for Estonian limited companies or legal persons though.
Engaging in finance related business models with your limited company is a potential regulatory minefield and you need to consult with experts before starting. For example consumer credit, e-money or ICO emissions. Regulations tend to be similar for financial institutions all over the EU.
7. Annual report needs to be submitted even if the company was dormant
Some of our clients have asked if they need to submit annual accounts if their companies have been dormant and no sales revenue was generated the previous financial year. Short answer is yes, you still need to submit annual accounts for each financial year. Standard financial year in Estonia is calendar year 1 January to 31 December. Annual accounts are called “annual report or majandusaasta aruanne” in Estonia and there is no simplified dormant accounts regulation in Estonia.
Technically it is possible for e-residents to submit annual accounts online via Estonian Business Register. Unicount generally does not recommend it if you are not familiar with Estonian GAAP (Generally Accepted Accounting Principles) and want to record any items such as expenses, assets or liabilities even if your company generated no sales. If you still feel strong then here is the Unicount manual for it. By following these instructions you would be able to submit micro-company annual accounts with no recorded economic activity.
The screenshots and instructions only apply for micro-company annual accounts (mikroettevõtja) and therefore cannot be used for any other type of businesses not qualifying as single physical person shareholder micro companies. If you cannot choose in the selection of standard “Mikroettevõtja” then probably you are not one according to Business Register information. This then means that you need to manually insert your Estonian GAAP or IFRS compliant accounting principles and most probably you do not know how to do that.
By the way, Estonia still expects you to submit your annual accounts in Estonian language even if the figures input can be done in English. Translation into English is only additional information data that the company chooses to publish. All accounting principles and activity reports need to be in Estonian language.
8. You can add new shareholders and investors online
Until recently any share transaction required a visit to Estonian notary or complicated legalised documents with government issued apostille to certify that a potential shareholder has given someone who is physically in Estonia a power of attorney for a share transfer in a notary bureau.
Luckily by now there are four alternative ways to add new shareholders.
The first method is using an e-notary, which was launched in February 2021.
Estonian notaries have launched an e-notary service so that company e-residents can transfer shares to another e-resident online, instead of at a notary office in Estonia. You can read more about this on the e-Residency blog here. All other aspects of the process remain the same so you will still need to book and pay for a notary, but at least you don’t have to fly to Estonia or get an attorney involved.
Managing your own shareholder list
The Estonian Parliament changed the law at the request of the startup sector so that shares can now be transferred to a new shareholder at the responsibility of the parties involved, if the company’s articles of association approves this. This option can only be added to the articles of association if it is unanimously agreed by all existing shareholders. The law came into force on 1 August 2020.
However, for this to work your company will need to have a share capital of at least €10,000 that has been fully paid in. That’s helpful for growing startups, but not useful for most e-residents and other Estonian small business owners.
Using NASDAQ depository service
Your company can register its shares with Nasdaq CSD, as an alternative to the Estonian Business Register managing your shareholder list. The restriction here though is that all the shareholders need to have a securities account at an Estonian bank. That can be a tricky requirement for even the most experienced venture capital fund investors if they are non-residents.
So what if your new shareholder doesn’t have an Estonian securities account and none of the other options are suitable for you? Well, there is one more option that we recommend to micro-companies with limited budgets.
Issue new shares of your Estonian company online
There’s one more way to add a new shareholder to your Estonian company and it’s surprisingly simple. We like to keep things simple here at Unicount so we’ve tried it ourselves multiple times with our own businesses and we are aware that it has successfully worked for other startups.
It is much easier because you don’t actually transfer any existing shares to your new shareholder. You simply issue new shares online directly to them instead. Therefore this involves no notary and no NASDAQ depository.
As outlined in Estonia’s Commercial Code, you will need to produce a digitally signed shareholders’ resolution that outlines the planned new share allocation with the details of all the shareholders. You’ll also need the proof of their payment for this previously agreed share from your company’s banking service provider. You can read more in Unicount’s handy guide here.
9. No need to register share capital immediately if you do not plan dividends
Estonian limited company (osaühing) requires a minimum share capital of €2,500. This is an investment in your company that can then be spent on developing your business. It also helps preserve trust in Estonia’s business environment, which benefits all Estonian company owners.
However, Estonia also has a clever system that allows you to postpone this investment for as long as you like. The only catch is that your company can’t pay out dividends until your share capital has been registered, but you can start trading and even pay out salaries before then.
If you do not have an accountant yet you can also wait until your first annual report to register your share capital. Reason being the legal requirement to declare any changes in company share capital by submitting an income tax declaration by the 10th of next calendar month.
Your company’s monthly income and social tax declaration (TSD) Annex 7 would need to include any share capital contributions and dividend distributions. When liquidating the company, your paid-up share capital can then be paid out to the shareholders tax free.
Unicount’s detailed guide for registering your share capital online via Business Register can be found here:
Please note that you should distribute dividends only after annual accounts have been accepted by a shareholder resolution and submitted to the Business Register.
10. You need to keep your expense documents for accounting
In some countries your accountant might be ok with bank statements only.
Not in Estonia.
You will learn quickly that until you provide receipts and purchase invoices the amounts paid from the company account are considered to be a director’s loan. In other words, your liability to the company. It is better to know it before you start spending company funds.
If you are not registered for VAT in Estonia you might otherwise learn after 18 months of business freedom that your accountant is not willing to submit your annual accounts with expenses recorded like you imagined but instead with a huge director’s loan account balance. Searching for year-old receipts is a nightmare for a busy entrepreneur.
And a fun fact is that the Estonian Accounting Act requires you to keep the documents for 7 years after the end of the financial year.
To go more into detail, Estonian VAT law § 37 prescribes what information needs to be on the invoices for them to be valid. VAT law applies to Estonian entities even if they are not yet registered for VAT in Estonia. Some of the required fields for example are the serial number and date of issue of the invoice; the name and address of the issuer with VAT number (if registered for VAT); the name and address of the acquirer of goods or the recipient of services; the VAT number of the acquirer of goods or the recipient of services (if registered for VAT); the name or a description of the goods or services; the quantity of the goods or extent of the services, and the list continues with some more specific requirements such as references to reversed or zero rated VAT clauses for cross-border sales.
This is also the reason why US based expense management apps work well and European ones look so complicated, due to EU VAT regulations demanding a lot of information from source documents. Here is a sample invoice from Estonian expense management and invoicing tool Envoice.
Note that e-Residency is not tax residency. While some companies belonging to e-residents do pay taxes in Estonia, others don’t. It all depends on whether another country can fairly claim that you have a permanent establishment in their country, such as a fixed office or a place of effective management (location of the company board). For personal tax residency, this won’t change unless you actually live in Estonia for at least 183 days over the course of a period of 12 consecutive calendar months. You can learn more here and if you have any doubts at all about your tax obligations then consult a qualified accountant.
This is important to know because if Estonian accounting firms detect that your company’s tax liabilities are outside Estonia they could potentially refuse to onboard you as they cannot help in other jurisdictions with mandatory tax reporting and accounting. Paying for a professional accounting and tax service in other countries might change your monthly business expenses drastically.
If you have no permanent establishment and place of supply elsewhere, your company is below the Estonian VAT registration threshold and does not employ people in Estonia, you can enjoy submitting annual accounts once a year with the help of a professional accountant in Estonia. This would keep you compliant while maintaining a low annual cost base.
Thanks for reading
We hope you enjoyed this article. If you have more questions check out Unicount’s extensive support articles here.
This article is a guest post by Adam Rang, Communications Director at Unicount. Unicount offers super easy company formation in Estonia for one-person businesses through a self service online portal, and is also a trusted e-Residency Marketplace member.