UK vs estonia: where to start your company?

Your guide to forming and running a company in the UK versus Estonia. Learn the similarities and differences, pros and cons, costs, and more.

We get a lot of questions from e-⁠residents asking for comparisons of running a business in Estonia with other locations, like Delaware, Ireland, and the UK. 

You asked, and we answered. Last year, we commissioned research into this topic to better understand where Estonia stands in the world of business and to share our findings with our community. 

This guide to the UK is one in a series comparing different business environments from around the world with Estonia (specifically from the perspective of foreigners starting private limited companies). Previously we’ve looked at the different pros and cons of Estonia as a business destination vs. Delaware and Ireland. 

Here we focus on UK company formation and operation. Since Brexit created additional hurdles for UK business operations in the EU, we’ve added some considerations for UK residents when comparing their options. We highlight advantages and disadvantages in comparison with Estonia. Finally, a handy quick-reference table shows vital information at a glance. 

Company registration, tax, and business environments in the UK and Estonia

• The UK left the EU Single Market in 2020, whereas Estonia is a member of the EU single market, as well as the Eurozone and Schengen Area.
• Company formation in both the UK and Estonia can be done fully online.
• In the UK, the normal rate of corporation tax is 19% for the financial year beginning 1 April 2022 and will increase to 25% for the financial year beginning 1 April 2023.
• Estonia charges zero corporate tax on reinvested profits and a standard rate of 20% on distributed profits (reduces to 14% if regular dividends are made for three years or more).

Since the UK’s exit from the EU Single Market in 2020, increased border costs have affected both imports and exports. Supply shortages and higher energy and commodity costs mean inflation is also rising. According to a survey by investment bank JP Morgan, 69% of business leaders in the U.K. said they expect a recession in 2023. Less than half of business leaders surveyed across the UK (46%) have a positive outlook about the global economy today; last year, nearly two-thirds (66%) were optimistic. On the positive side 73% of UK business leaders surveyed say they’re optimistic about their company’s performance.  

UK limited company registration can be done fully online. This makes the company formation process quite a simple task. Company founders are not required to live in the UK but the company must have a registered address there. To work for their company in the UK, most non-British nationals will need a visa to do so. Several visa schemes help with this, like the EU Settlement Scheme, Innovator Visa, Start-up Visa, the Global Talent Visa, and the High Potential Individual Visa.

In Estonia, foreign nationals (except for Russian and Belarusian citizens) can use e-Residency to get digital access to Estonia’s business environment and the EU single market. With their e-Residency digital ID, they can open a limited liability company (OÜ) via Estonia’s online business registry and run it remotely from anywhere in the world. Think of e-Residency as a digital business gateway to the EU trading bloc. Estonia is thus a great option for British entrepreneurs looking for an EU base for their business. E-Residency is not a travel or work visa and does not give residency or citizenship rights. So if e-residents want to work in Estonia for their company at any time, they will also need to explore the various migration options.

The normal rate of corporation tax in the UK is 19%. It will increase to 25% for the financial year starting 1 April 2023. From 1 April 2023, a 19% small profits rate of corporation tax will be introduced for companies whose profits do not exceed GBP 50,000. The UK has in place 155 double taxation agreements. The UK also has many overseas territories, with the British Virgin Islands offering business-friendly corporate taxation laws.

While it’s not a tax haven, Estonia’s tax code has topped the Tax Competitiveness Index for nine years in a row. This is thanks to the transparent, innovative digital services in place for taxation. Estonia also has no corporate tax paid on reinvested profits. This means that corporate profits are not taxed until they are distributed as dividends, capital reductions, share buybacks, or other expenses and payments that do not have a business purpose. For distributed profits, the standard rate is 20% or 14% if dividend distributions are made regularly for three years or more. Estonia has signed 62 double taxation agreements.

How to start a company in the UK vs Estonia

• Incorporating a limited company in the UK online takes 24 hours. Estonian e-⁠residents can start a company in Estonia 100% online in 2 hours on average.
• No minimum share capital is required to register a company in the UK. Shares must be issued and paid for at company registration. Minimum share capital in Estonia starts at €0.01 per shareholder.
• Opening a business bank account in the UK can take anywhere from one week to three months, but neobanks are also an option. Estonian e-⁠residents have a wide choice of business banking options for their companies. 

With the necessary documents, a founder can register a limited company with the UK Companies House online. The service will automatically generate a memorandum of association, and allows uploading of articles of association. The entire process usually takes 24 hours. This process can also be done via post, using a company formation agent or third-party software, but it will take longer. If you are a foreign founder, you will need a registered address in the UK for your company. There are many service providers, local agents, accountants and lawyers who offer registered address services for a fee.

UK company registration doesn’t require a minimum share capital investment for private limited companies. Founders will need to register for Corporation Tax with HMRC (the UK tax and customs agency) within 3 months of registering their business.

In Estonia, e-residents can start a company fully online - the process takes less than a few hours. If you start and manage your business from abroad, you will need a local contact person, who must be either specially licensed or from a specified list of professions (e.g. notary, lawyer, accountant, etc). These, and other services, can easily be found online via the e-⁠Residency Marketplace, and start from as low as €200 per year.

In both countries, you can register your company online. For the UK, you’ll need three pieces of personal identification for yourself and your shareholders. The total registration cost is £12 and can be paid by debit or credit card. In Estonia, payment for registering a business can be made via bank transfer from an Estonian IBAN or by MasterCard/Visa. Minimum share capital for an OÜ (a private limited company) starts at €0.01 per shareholder.

The UK, and London in particular, are known for the strength of their financial institutions. The long-established banking systems in London are trusted and used by individuals worldwide. Opening a business bank account in the UK requires proof of ID for each company director, proof of business address, projected annual turnover, and a registration number from the Companies House. This process can take between a week and three months. Bank accounts are opened in person, although neobanks can open them online. 

For Estonian e-⁠residents, there are three options for business banking: 

1. Open a business account with a fintech, like Wise, Intergiro, or Payhawk, which have more flexibility regarding which clients they accept. Plus, these companies can open an account online. 
2. Open a business account with a bank from another EU or EEA member state. This is a good option for entrepreneurs with an existing client relationship with another bank.
3. A traditional bank account in Estonia. You can apply online for pre-approval, but eventually, you will need to visit the bank in person to confirm your identity. Estonian banks require your business to have a strong connection to Estonia.

Running your company in the UK vs Estonia

• In the UK, companies must submit an annual tax return and pay Corporation Tax every year. In Estonia, company owners must submit an Annual Report. Income, social tax and VAT declarations are made on a monthly basis.
• In the UK, WebFiling allows you to file your documents and information digitally. With their secure digital ID, Estonian e-⁠residents have 24/7 remote access to manage their companies online from anywhere in the world.

There is no requirement for founders to engage an accountant for their business, but many do in order to simplify reporting, accounts, and tax filings. Accountants in the UK can be quite expensive, starting in the range of £25 to £150 per hour. These costs can add up, especially when considering that the average time taken to file taxes per annum in the UK is about 114 hours.

The UK has several online services to support business owners. The Companies House offers a WebFiling service through which entrepreneurs can digitally file annual returns, confirmation statements, annual records, director/secretary changes, and other information. 

The Companies House also provides software that allows the sending of documents via an XML gateway. This can be useful for larger companies with a high volume of documents to file, as filing with the software service is considerably cheaper than filing online. Company accounts may also be sent in iXBRL (Inline eXtensible Reporting Language) format, allowing quicker processing (automatic confirmation of acceptance or rejection).

Within three months of registering a company, companies must notify His Majesty's Revenue and Customs (HMRC) of the company’s fiscal year-end. This triggers the HMRC’s notice of when tax returns are due. Company tax returns, including a self-assessment of the tax payable, are filed annually and due 12 months after the company's accounting period.

In Estonia, company owners can manage their businesses completely remotely. They can simply authenticate using their e-⁠Residency digital IDs and log in to file company annual reports, declare VAT returns, digitally sign contracts, and encrypt and send documents. An annual report must be submitted in the Estonian e-Business Register within six months after the end of the financial year. Income and social tax returns must be submitted by the 10th of every month in the Estonian Tax and Customs Board online environment - known as e-MTA - and VAT returns must be submitted by the 20th of each month in e-MTA. 

Accounting services for e-⁠residents on the e-⁠Residency Marketplace start at €50 per month and the average time taken to file taxes in Estonia is about 50 hours per annum.

UK vs Estonia (e-⁠Residency) in numbers 

The following table compares the process, cost, and services available to those wanting to form a company in the UK versus Estonia.

The final showdown: Estonia or the UK?

Advantages of running your business in the UK

There are several key advantages to starting a company in the UK, which make the UK an attractive option. That’s especially true for citizens and residents of the UK who don’t expect to operate their business in the EU. These individuals largely sidestep the hurdles that plague foreign founders. 

Firstly, the UK is a recognised world economic leader with a large educated and highly skilled labour force. In addition to having many highly-reputable post-secondary institutions across the country (including the leading MBAs in Europe), the UK is one of the few countries whose labour force is expected to grow over the next 15 years. 

The business support infrastructure in the UK is easy to access. Support schemes like government innovation funding can be easily searched for and applied for via gov.uk. Knowledge enterprises and R&Ds might prefer the UK for registering their business for the breadth of support they’re offered. According to QS, four of the top ten universities are in the UK, and these house many leading R&D facilities. 

London has a strong startup community, with more than 40 different hubs and ecosystems for startups. Tech Nation, for example, has different sub-networks for startups in various stages and fields. The Founders’ Network helps connect founders and entrepreneurs. There are currently 933 companies involved. 

Advantages of business registration in Estonia

Estonian e-⁠Residency offers a simple, online process for foreign entrepreneurs to register an EU business. While UK residents and citizens have a much simpler time registering a company in the UK, many find that access to the EU market is a serious hurdle. Whether a company will need to find clients, partners, and vendors in the EU should be a top-of-the-list consideration for anyone considering the UK as their business home base. This is where Estonia has a clear advantage. Incorporating in Estonia gives companies access to the EU single market. That access is valuable to all non-EU founders including those based in the UK.

Estonia has built a trustworthy, secure, efficient and entrepreneur-friendly business ecosystem with minimal red tape and innovative regulations. Its favourable business climate allows anyone, from micro-enterprises to large multinationals, to build sustainable and successful ventures. Estonia's startup scene is smaller in comparison to the UK, but it truly punches above its weight. A proactive IT sector coupled with business-friendly regulation and government as a service approach, has positioned Estonia as one of 6 fastest growing start-up ecosystems in the world.

Estonia also takes the edge in a few other categories. There are no taxes on reinvested profits.  And from April, Estonia will have a lower standard corporate tax rate than the UK. Plus, the costs of running a business in Estonia (e.g., accounting support) are relatively lower than in the UK. This is partly thanks to the support systems in place for foreign entrepreneurs. In addition to the Marketplace, many community-led initiatives, like EERICA (Estonian e-⁠residents International Chamber Association) and country-focused Facebook groups, have created a vibrant and active online e-⁠Residency community.

Deciding where to open and run a business depends on many factors like ease of set-up, costs, taxation, banking options, and remote management possibilities, to name a few. We hope that this comparison of running a business in the UK vs Estonia will help you decide where to start.

We’d like to thank Akkadian and SPIN Unit for the extensive research provided for writing this comparison and Do All Write for content writing.