Read this guest article by Sunny Business to understand the essentials of investing before you start
By Mati Annus, Partner and senior advisor at Sunny Business Services
This is a guest post by Sunny Business, an experienced corporate services provider helping founders of Estonian companies with the full range of business services. A member of the group, e-resident store by Sunny, has been serving e-residents since 2015 and is an authorised member of the e-Residency Marketplace.
Securities trading by first-time private individuals has seen a surge in interest lately due to people being stuck at home and a rise in investor communities on platforms like Reddit. The increasing number of online brokers who offer zero- or minimal service fees have also made it very handy for almost anyone around the world investing and trading online.
But did you know that you can also trade securities online with a company in Estonia through e-Residency?
Sunny Business has recently advised a number of e-residents from all over the world, looking to invest in and trade securities, such as stocks, forex, CFDs, EFTs, and cryptocurrencies, with their digital Estonian companies. Sunny has been advising international clients on structuring their investments with Estonian companies for over two decades.
Given such interest, we thought it would be helpful to share our guide for e-residents looking to use their Estonian companies as investment vehicles.
Visit the Sunny Business website to learn more about our services:
Online brokers for Estonian company investors
Estonian companies are fully eligible to have investing and trading accounts with online brokers, sometimes called investments platforms. E-residents can apply for a trading account with their Estonian company.
There are a number of online brokers available, although in this article we will not focus on any of them specifically. Be aware that an online broker must meet requirements set by the regulator in their licensing country, as well as requirements set by European Securities and Markets Authority, when offering their services to EU-based investors, including Estonian companies. So, make sure to do due diligence when choosing an online broker to check that they are licensed by these authorities. Many brokers operating in the European market are licensed by CySEC, so you could start here. You will also find several ranking services and reviews online about all commonly known brokers.
Learn how you can start an Estonian company with e-Residency:
Required documents for investing and trading
When applying for a trading account with an online broker, you will be required to provide and upload some of your corporate and private documents.
Depending on the broker, these could include your company registry document, articles of association, a copy of your passport or national ID card, and proof of your private residential address in your country of residence. With some brokers the simple digital extract in .pdf format will suffice, while others require certified documents with translation and apostille. Don’t worry, we can help you get such documents as well.
Digital extracts of registry documents about an Estonian company can be downloaded by anyone from the e-business register portal, while hard — and certified — copies must be obtained from a public notary in Estonia. While the registry extract (also called a Company certificate or Certificate of good standing, among others) comes in English upon request, the articles of association by default come in Estonian.
With most brokers, the notary-issued documents must also be supported with apostil. Your e-Residency service provider can help you obtain the right documents and apostil, have them translated, and deliver hard copies to you. Obtaining the full set of required documents costs approximately 50–200 euros, depending on the format and selected documents, whether translation is required, and your service provider.
It is worth saying that Estonia also issues electronically certified registry documents with electronic apostil, that come in .asice format. Currently, brokers do not accept electronically certified and -apostilled documents (and it might take some time until they do!).
You’ll also need to provide some personal information. For example, it is important to report to your broker your actual country of tax residency. Hiding information or providing incorrect details will result in denial or suspension of the account.
Find out more about corporate documentation in Estonia.
Bank account and payment card for investing
In order to make payments to invest and trade, and to (hopefully) receive profits from your activities, you’ll need to provide details of your business bank account and credit/debit card to your online broker when registering.
The name of the bank account must match the name of your company. The bank account does not necessarily need to be with an Estonian bank. Accounts and credit/debit cards with selected fintechs will also suit, as will an account from a traditional bank outside of Estonia. You can read more about business banking options for e-residents in this recent blog post.
In case you didn’t know yet, an Estonian company is also eligible to open a business account in traditional banks in other countries in the European Economic Area. This could work well if you apply with the same bank in which you have previously done your private banking and who therefore knows you as a person. Be aware though that the opening of an account is of course at the full discretion of the bank.
Most banks in Estonia offer convenient trader services with access to all common markets, including Nasdaq listed securities in Estonia.
Taxation when investing
We sincerely hope that your trading will be a success and that correct taxation of profits shall be your only concern.
The first thing to think about is where your company should pay tax. It may be Estonia but could be in another country if you reside and actively manage your company there. We recommend getting tailored advice on your specific situation, which Sunny Business is on hand to help you with.
If it turns out that your company pays tax in Estonia, there are some important things to know. Unlike in many countries, gains from investment activity in Estonia are not taxed differently from other type of incomes. If your Estonian company earns income or profit from investments and trading of securities, it will not be taxed immediately in the form of corporate income tax (CIT). The gains will be taxed only at the time they are distributed, for example as dividends to your company shareholder(s). Note that the subject of taxation is the value of dividends distributed, not the value of gains.
The CIT rate in Estonia is a flat 20/80 (20% on the gross distribution). To keep it simple, let’s assume the company distributes gross dividends of 100 euros. 20 euros shall be paid as CIT in Estonia and 80 euros is paid to the shareholder.
The good thing is, if a shareholder prefers to reinvest the profits, meaning postponing distribution of dividends into the future, the gains from investment and trading activities will also be taxed sometime in the future. Or the gains can be used for the good of other business activity by the company, e.g., for expansion of the business, new investments etc.
On the other hand, if you actively manage your company from another country, such as your country of residency, then it is possible the condition of permanent establishment (PE) will arise. This may create a taxable presence for your company outside of Estonia and categorise the company under corporate tax criteria in the PE country. Note that every country has a slightly different approach to PEs and the specific domestic definition should always be checked. After looking into the domestic law, be sure also to check the double tax treaty between Estonia and the PE state to see if you can benefit from the avoidance of double taxation.
Practically speaking, in case your broker has withheld any non-resident income tax on your withdrawal or profits already, make sure to request a tax form from your broker.
It’s also important to think about your own personal tax liability as a company shareholder. Any dividends received by shareholders personally should be reported as foreign earned income to the revenue office in their own country of tax residency.
Activity field of the OÜ and NACE code
An Estonian company is free to operate in many different fields of business, if its activities are legal and requirements are fulfilled.
When a company is first registered, the founder must register one field of activity in which the company intends to do business. This is reported in the form of an ‘EMTAK’ code, which is based on internationally recognised NACE coding. However, this does not limit the company from doing business in other fields.
If investing in and trading securities will be the main activity of your company, register EMTAK code 64301 in the Estonian business register. If it’s a secondary activity of the company, another code should be registered (noting again that this does not limit investment and trading activities of your company by any means). The code of a company’s main activity gets updated yearly, when its annual report is submitted.
IMPORTANT: your company will not need a business license in Estonia as long as its investing and trading activities are done only for the benefit of the company and its beneficial owners. The situation changes as soon as such activities are offered as a service.
Private account vs. Corporate account for investing
Some brokers only offer private accounts, while others offer both private and corporate accounts.
Occasionally we have heard of brokers suspending trading accounts that are registered in the name of a company. In their terms and conditions, brokers usually reserve the right to suspend accounts without a reason or an obligation to disclose a reason. While we cannot know for sure and can only guess, it seems that with some suspended accounts the reason may be the corporate nature of the account, which may not be the preferred account type of some brokers. This, however, is not a frequent practice.
As we’ve covered, having a trading account in the name of a company has a few barriers to entry, including providing proper corporate documents, maintaining an eligible business bank account and credit/debit card, and finally the possibility that the account may be suspended without reason.
There is one simple solution that can solve all these challenges. How? The investment and trading account at the broker could be opened and maintained privately, in the individual name of the e-resident shareholder or director of the company, while the account is still reported in your company as an investment and trading account for the good of business. By mutual agreement, the company may operate a trading account that is registered in the name of its shareholder or director.
DISCLAIMER: Trading and investing is risky. It is possible that you lose all money invested, thus you should only invest or trade the amount of money that you can afford losing. This article does not intend to provide any form of investment advice. Neither the author nor his employer Sunny Business Services nor e-Residency shall accept any responsibility or liability for your or your company’s investment and trading activities, or losses you may incur as a result.