The top 5 questions Ukrainian entrepreneurs should ask about starting and running an EU company online in Estonia with e-Residency
While you may think that starting a company online is complicated or risky, it is not. One of the best things about Estonian e-Residency for Ukrainian entrepreneurs is the ease of doing business in Europe and globally.
Estonian e-Residency makes it safe, easy, and accessible to register and manage your EU company online. It’s a trusted access point to the EU business environment with multiple benefits for starting and running a company online – as you can read in our earlier blog post on how e-Residency helps Ukrainians.
Like with any new venture, it’s important to do your homework before you start. E-Residency does not give you Estonian residency or allow you to live in or travel to Estonia.
Interested to find out all the necessary steps and fees involved? Here are five questions to ask yourself before starting your company online with Estonian e-Residency.
1. Which type of company is right for my business?
Private or public limited, sole proprietorship or non-profit — there are different types of companies in Estonia. It’s important to consider what type of company will suit your business.
Private limited companies (OÜ or “osaühing” in Estonian), are the easiest to set up and are the type that most e-residents choose. This type of company has a low share capital requirement of €2,500 (which can be paid in installments or deferred) and limits shareholder liability. Share capital is in no way “blocked” from use; it’s an investment into your business.
Keep in mind that if you operate in certain activity areas — such as tourism, construction or financial services — you may also need certain licenses. However, Estonia prides itself in having a relatively low-regulation business environment, so licenses are generally an exception rather than the rule.
2. What is a service provider and why do I need one?
When starting your EU company, service providers are essential. They can help you register and run it while you’re in Ukraine, or traveling elsewhere. Find a complete list of service providers in the e-Residency Marketplace that have been fully vetted and have the expertise to help with anything you may need. Their fees and services vary, but you will find a service provider to fit your budget. Estonia’s commercial code requires that every company has a legal Estonian address and contact person. So, at the very least you will need to hire a service provider for this function.
Once you have a legal Estonian address and contact person, you’re ready to register your company online through the Company Registration Portal.
Registration is quick and easy, and registering a private limited company costs €265.
A service provider can help you with business banking, bookkeeping, taxes and legal services — to help you grow your business and improve competitiveness in the EU market. Some e-residents choose to handle their own accounting, but using a service provider, at least in the beginning, can ensure that you get it right.
3. Traditional banking or fintech?
Running your EU business digitally means getting comfortable with doing things online, like banking. When it comes to choosing what kind of banking your business will use, rest assured that you have options. There are three main categories of business banking and payment services available to e-residents: EU/EEA payment institutions (fintechs), banks in EU/EEA countries, and Estonian banks.
While you may be inclined to choose a traditional bank, either in Estonia or in another EU/EEA country, more and more e-Residents choose fintechs. With fintech solutions, it’s quick and easy for Ukrainian entrepreneurs to open a business bank account online. Plus, they allow you to do business in multiple currencies. Some fintech banking solutions even offer working capital. Banking with fintech is both safe and flexible.
4. Will I have to pay tax in Estonia and Ukraine?
When starting an EU company with Estonian e-Residency, it’s important to understand what your tax obligations will be. Where should your company pay tax? If you live and manage your company from Ukraine, it will most likely be there due to the international tax principle of permanent establishment. But, you may be able to structure your operations to take advantage of Estonia’s tax environment.
Estonia is not a tax haven, but there are some benefits to setting up a company in Estonia. Corporate income tax in Estonia is 20% of gross distributed profits. However, if those profits are reinvested and distributed in the future, then profits will also be taxed in the future.
As mentioned, permanent establishment (PE) and dual tax residency may arise if you manage your business from another country. According to Ukrainian law, for example, if your company was established under the law of another country (e.g. registering a company in Estonia as an e-resident), but it is effectively managed from Ukraine, then it is recognised as a corporate income tax payer in Ukraine. E-Residency does not exempt your company from foreign tax liabilities in Ukraine.
The good news is that Estonia and Ukraine have signed a treaty to avoid double taxation. So, your Estonian company can distribute dividends exempt from Estonian tax on account of the taxed profits of the Ukraine PE. Read more about tax obligations in our comprehensive guide.
5. What about VAT?
Value-Added Tax (VAT) in the European Union may seem confusing. But don’t let it prevent you from registering an EU company. Here’s a simple breakdown of the rules:
- If your Estonian company earns more than €40,000 in a year, register your company for VAT. If your company earns less, then registration is optional.
- You may also want to apply for OSS or IOSS if you run an eCommerce business, which will keep you from having to register for VAT in each EU country that you do business in.
- VAT is applied as a percentage to the sale of goods and services. The rate varies from country to country in the EU. In Estonia, VAT is 20%.
- You can’t keep the VAT that you collect as it must be filed and paid monthly. But, if you pay more VAT to the government than you collect, ask for this money back at year-end.
With the help of a service provider, rest assured that your monthly VAT returns are filed correctly and on time.
Starting a company online with e-Residency may seem daunting, but our Knowledge Base has all the answers Ukrainian entrepreneurs need. Doing business in Estonia is simple, especially with the many e-services available to you with your e-Residency digital ID. Do your homework and get inspired by these success stories to be ready to take your company global.