Delaware vs Estonia: where to start your company?

Comparing the features, pros and cons of company incorporation as a foreigner in Delaware vs. Estonia. Includes a handy quick-reference table showing the key features side-by-side.

Delaware vs Estonia company incorporation comparison - Which is better to start your business?
Where to set up a company?  Which business costs less to run? See the full comparison of Delaware vs Estonia company incorporation

Table of Contents

Thinking of starting a company? And wondering where to base it? There are many factors to think about when comparing countries, from the ease of company set-up, costs and taxation, to banking options, remote management possibilities and local regulatory conditions. Maybe you are considering whether Estonia is the place for your business but want to see how it compares with other countries like the US, UK, Ireland or Portugal. Indeed, we get a lot of questions asking for comparisons of Estonia with other locations – and now we have some answers. 

E-Residency recently commissioned research to better understand where Estonia stands in the world of business. The research compared a number of business market variables in Estonia with a number of other jurisdictions, including the USA (Delaware), Singapore, UK, Ireland and Portugal. These countries were selected because they represent a mix of top global business jurisdictions and economies.

This guide to Delaware is the first in a series comparing different business environments from around the world with Estonia (particularly from the perspective of foreign non-resident nationals starting private limited companies). The focus is predominantly on Delaware with key differences with Estonia highlighted. We’ve also provided a handy quick-reference table to show the key points side-by-side. If you want to read specifically about the advantages of Estonia as a business destination, start here.

Overview of Delaware’s company incorporation & business environment

  • Delaware is a US state with the 2nd lowest business costs in America (Forbes)
  • Delaware has higher annual business running costs than Estonia
  • Delaware enables foreigners to open a limited liability company (except residents of Cuba, Iran, North Korea, and Syria.

The State of Delaware is situated in the USA. It has a highly attractive economy for businesses. Forbes has ranked Delaware as a US state with the 2nd lowest business costs in America. The main types of companies targeted by the State are those trying to go global, mostly e-commerce, AI, B2B SaaS, but also fintech.

By comparison, Estonia is a member of the European Union, meaning it’s part of the largest single market in the world. Setting up a business in Estonia involves lower annual running costs than Delaware. Estonia is a great way to lower administrative costs and bureaucracy, bring business to the EU, and invest in the Eastern European / Baltic / Nordic regions. It’s the only country in the world providing foreign nationals with a fully digital access gateway to start and run a business remotely.

Foreigners can open a limited liability company (LLC) in Delaware with the exception of residents of Cuba, Iran, North Korea and Syria. A foreigner will need a local registered address, which can be acquired through a Delaware Registered Agent. Estonia welcomes foreigners to open limited liability companies (OÜs) using its pioneering e-Residency program. Unlike Estonia, Delaware does not have a digital access program like e-Residency in place.

Forming an LLC in Delaware vs registering OÜ in Estonia

A high-level overview of forming an LLC in Delaware:

  • Representation by a local agent required, no need to travel to Delaware
  • A need for an Employer Identification Number (EIN) to start your business
  • 5-15 working days to register an LLC
  • LLC in Delaware can be done online via delaware.gov
  • A business bank account needs to be set up in-person

A high-level overview of registering a company (OÜ) in Estonia:

  • Start a company 100% online
  • A local contact person and legal address are required (easily done via online services starting at €50 per year)
  • 1-2 working days to register a company
  • Registering a company can be done online via www.rik.ee/en/e-business-register
  • Opening a business bank account with Fintech can be done fully online

In order to start the process of registering an LLC in Delaware as a foreigner, you need a local agent representing you. There is no need to travel there. Your agent will act as your representative on the ground. While you will need an Employer Identification Number (EIN) as a prerequisite for starting your LLC, no national social security number is required to get an EIN. In Estonia, as an e-resident, you can start a company online yourself 100% online. If your company will be completely foreign-owned and managed, you will need a local contact person and legal address. But these are easily found online and often provide virtual office and bookkeeping services too. Plus, they are relatively cheap, starting at €50 per year.

It takes between 5-15 working days to register an LLC. Generally, filing of certification of either formation or incorporation takes two weeks, but for an additional fee, the process can be expedited for completion on the same day or within 24 hours. Contrast this quite slow process to Estonia – where the standard time to register a company takes 1-2 working days. The record for company incorporation is actually 15 minutes 33 seconds!

It is possible to file completely online with the exception of setting up a business bank account. Setting up your LLC can be done online via delaware.gov. Here, you can pay to reserve an entity name, submit certification of incorporation or formation, and pay for certification of status / good standing.  There is no way to procure a local agent via the system, but the website aggregates a list of them. Payment to register the LLC is non-refundable and can be made using Visa, MasterCard, American Express or a Discover card. Registering an OÜ is also done completely online in Estonia (also with the exception of opening a business banking account at a traditional bank in Estonia). Payment must be made by bank transfer from an Estonian IBAN or by paying with your Visa or MasterCard.

In Delaware, it’s possible to get a traditional business bank account by submitting the necessary documents. However, as noted above, you cannot set up a bank account remotely. A director or LLC member, for most banks, needs to be present at a branch. This is the result of anti-money laundering legislation. In Estonia, it’s possible to apply online and get pre-approval for a traditional business account with at least one Estonian bank. However, banks in Estonia will require at least one in-person visit to one of its branches to confirm your identity. And they are also more conservative about taking on non-residents as clients. Often a better option for e-residents is to open a business account with a fintech (such as Wise, Intergiro, Wamo, or Payhawk). Fintechs provide more flexibility as to which clients they take on and also allow setup to be fully online. A third option is to open a business account with a bank from another EU or EEA member state.

Running your company in Delaware

  • Remotely manage your LLC as a foreigner
  • Annual report is due on the following year – 1st March
  • Customer support is only available in English
  • Ability to use services remotely such as franchise tax, file an annual tax report, file a UCC, etc.

You can remotely manage your Delaware-based LLC as a foreigner. The company’s annual report is due on 1 March of the following year. Corporate tax returns are due on 15 April for a preceding year’s taxes. You must also keep the registered address of your LLC at corp.delaware.gov up-to-date. In Estonia, the annual report is due 6 months following the end of your company’s financial year. There are no annual tax filings as Estonia does not charge taxes on corporate income. Instead, taxes are charged only on distributed profits, such as dividends. Tax declarations can be made and paid fully online through the Estonian Tax Board’s e-tax platform.

In Delaware, customer support is only available in English. At corp.delaware.gov, it is possible to pay franchise tax, file an annual tax report, file a UCC (Uniform Commercial Code), check the status of an entity, search for an entity, check the availability of entity names, validate a certificate (for example, of incorporation, formation, and dissolution), and upload documents., all remotely. Those services which require a fee can also be expedited, for an additional fee, online (in addition to expediting to same-day and 24-hour delivery, there are options to expedite to one or two-hour delivery for some services).

A huge benefit for e-residents are the dedicated support and resources provided by the e-Residency team, a Marketplace of corporate service providers, the Estonian Tax & Customs Board, and an ecosystem of startup incubators, accelerators and business chambers. Plus, the Estonian digital business environment can be accessed in three languages: English, Estonian and Russian.

Comparing Delaware vs Estonia’s e-Residency programme

Total cost of opening business
Time taken to open business
Annual cost of maintaining company
Corporate Income Tax Rate
Stock transfer taxes
Digital ID card
Online set-up
Minimum share capital
E-services
Average time to file taxes per year
Estonia
€265
1-2 working days
€98
0 / 20% / 14%
No
Yes
Yes
€2500
Estonia has streamlined its e-services for the remote management of businesses. E-residents are provided with a transnational digital identity, which allows them to use Estonian public e-services.
50 hours
Delaware
€2753
5-15 working days
€565
8.7%
No
No
Yes, in part
NIL
Variety of E-Services Not considered user-friendly, variations across states Delaware promoting an upcoming streamlined “eCorp Business Services” (eCorp 2.0)
175 hours
Total cost of opening business
Estonia
€265
Delaware
€2753
Time taken to open business
Estonia
1-2 working days
Delaware
5-15 working days
Annual cost of maintaining company
Estonia
€98
Delaware
€565
Corporate Income Tax Rate
Estonia
0 / 20% / 14%
Delaware
8.7%
Stock transfer taxes
Estonia
No
Delaware
No
Digital ID card
Estonia
Yes
Delaware
No
Online set-up
Estonia
Yes
Delaware
Yes, in part
Minimum share capital
Estonia
€2500
Delaware
NIL
E-services
Estonia
Estonia has streamlined its e-services for the remote management of businesses. E-residents are provided with a transnational digital identity, which allows them to use Estonian public e-services.
Delaware
Variety of E-Services Not considered user-friendly, variations across states Delaware promoting an upcoming streamlined “eCorp Business Services” (eCorp 2.0)
Average time to file taxes per year
Estonia
50 hours
Delaware
175 hours

* Corporate Tax Rate in Estonia is 0% until dividend distribution, and flat 20% on net profit distributions (calculated as 20/80). If company pays out regular dividends for three years, Corporate Tax Rate lowers to 14% (calculated as 14/86). Estonia has a deferred corporate tax system.

Key advantages of incorporating in Delaware

1. Delaware is a tax haven in the US

Delaware is considered a domestic tax haven in the US. Delaware is particularly attractive for financial companies, due to its business-friendly usury laws and light taxation. A Delaware corporation can base their headquarters in any U.S. state, where they are then exempt from state corporate income tax in many cases. Furthermore, if the business does not conduct its operations in Delaware, the state’s corporate income tax may not apply. Instead of paying that income tax, those Delaware corporations instead pay a much lower franchise tax.

With respect to conditions in the state of Delaware specifically, it is very tax friendly. For example, if you are operating outside of the state of Delaware, there is no tax on goods and services. There are likewise no stock transfer, capital shares, ad-valorem, or VAT taxes. There is also a lot of flexibility: the Delaware General Corporation Law, revised annually, makes it easy for companies to move between corporate structures.

Most importantly, perhaps, Delaware (C-Corp) incorporation is preferred by venture capitalists: they do not impose pass-through tax, their shareholders do not have to be “natural persons,” and there can be 2 or more classes of stock. For C-Corps, there are also additional deductibles and tax benefits — employee benefits may be deducted with this structure. Venture capitalists, on that note, are also protected by the Delaware Court of Chancery, which has a reputation for siding with the Board of Directors in internal disputes.

2. Strong for startups

Delaware was ranked #1 in startup friendliness by CEOWORLD magazine in 2021. This index considered the following dimensions: human capital investment, research and development, entrepreneurial infrastructure, technical workforce, and policy dynamics.

The State has one of the strongest funding scenes in the world and the highest venture capital available for startups. There are numerous state grants, training programs, and financing options available to founders.

The final showdown: Estonia or Delaware?

The benefits of starting your business in Delaware are quite clear. The jurisdiction is really well known as a place to set up a company with good legal and commercial favour, is relatively cost-effective, provides a low-regulation tax regime and legal framework, and provides good investment and funding opportunities for startups. The downside is that foreigners will need a local agent to represent them and their company, meaning it is not a fully independent, remote solution (like Estonia with its e-Residency program).

An important factor to consider if you’re tossing up starting your company in Delaware or Estonia is where your main market focus is – the US or the EU – and where your main clients, partners and investors are located. If it’s the US, Delaware will most likely be the better location for your company. On the other hand, Estonia will be a better choice if your main business plans are in the EU single market.

Despite the advantages of setting up a company in Delaware, Estonia is the only country that has developed a program dedicated to supporting foreigners in all the aspects of establishing a business from abroad. Estonia doesn’t have the lowest incorporation costs or corporate taxes. However, the actual costs of running a business can be considerably low as most services are digital, and the service marketplace offers support services (accounting, legal, etc) relatively fast and cost-effectively.  Plus, the e-Residency programme has managed to build an active and open online community of foreign entrepreneurs. This is largely thanks to its dedicated content and support channels, including its blog, social media and support team. But it’s also thanks to a constellation of community-led groups and initiatives, such as EERICA and country-focused Facebook groups.

The author would like to acknowledge and thank Akkadian and SPIN Unit for their extensive research that formed the basis of this article.

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