Comparing the features, process, pros and cons of company formation in Ireland vs. Estonia. Includes a handy quick-reference table showing the key features side-by-side.
There are many business ideas out there that don’t require your company to be based where you are. In fact, starting your company in another country may be a smarter business decision. As many digital nomads know, running your businesses from anywhere a laptop can catch internet service can be easily done. However, just because it can be done, doesn’t mean that choosing a base for your business is clear-cut.
When comparing countries, you’ll want to consider the ease of company set-up, costs and taxation, banking options, remote management possibilities, and local regulatory conditions. Maybe you’re considering Estonia as the place for your business. Wouldn’t it be nice to see how it compares with other countries like the US, UK, Ireland, or Portugal? Comparisons of Estonia with other locations are a common request here at e-Residency – and now we can deliver!
We 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 several 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 Ireland is the second in a series comparing different business environments from around the world with Estonia (particularly from the perspective of non-resident foreign nationals starting private limited companies). The focus is predominantly on Ireland, with key differences with Estonia highlighted. There’s a handy quick-reference table to show the key points side-by-side. You can also find out how Estonia compares to Delaware, USA, in our first series piece.
Start a company in Ireland vs Estonia
- Ireland company formation & business environment
- How to set up a company in Ireland
- Running your company registered in Ireland
- Comparing Ireland and Estonia for company formation
- Key advantages of incorporating in Ireland
- Where to form your company: Ireland or Estonia?
Ireland company formation & business environment
Benefits of starting a business in Ireland:
- Ireland is an EU member state
- Ireland offers favourable corporate tax rates
- The only official English language jurisdiction in the EU
Ireland, while not connected to the European continent, is a European Union (EU) member. It is also the only official English language country in the Union since Brexit ended the UK’s membership in 2021.
Although Ireland suffered a severe economic decline with the financial crisis in 2007, it also managed to have one of the most impressive economic comebacks since. The country’s leadership had taken a major step in creating a business-friendly environment for the country when it introduced a flat 12.5% corporate tax rate in 1997. The environment was further supported by political stability, regulatory clarity, and copyright and intellectual property protections. This quickly led Ireland to become the top choice for EU headquarters of major tech corporations — leading Ireland out of its economic hardship. In fact, as of 2021, around 800 US companies have operations in Ireland, including tech giants like Twitter, Apple, Google, and META.
With a 2021 decision, the Organisation for Economic Co-operation and Development (OECD) members, including Ireland, are expected to adopt a minimum tax rate of 15%. While this will increase Ireland’s corporate tax rate, Ireland is expected to stay attractive as a business incorporation destination.
While Estonia doesn’t try to compete on the basis of low taxes, it has ranked first on the Tax Competitiveness Index for nine years in a row. That’s partly thanks to its neutral and transparent tax system rooted in innovative digital services. With no corporate tax on reinvested profits, companies benefit from tax-free growth. It is also first in Europe for most startup investments per capita.
While creating a company in Ireland or Estonia offers the ability to enter the EU single market, there are several major aspects of how the registration and management processes differ. Let’s take a closer look.
How to set up a company in Ireland
Key things to know when registering up a company in Ireland:
- 3-7 working days is how long it takes to register a company in Ireland
- Company, owner, and tax registrations are separate processes
- Incorporation of business is partially online
- Company registration in Ireland for non-EEA residents is more complicated
- Opening a bank account in Ireland for non-EEA residents is more complicated
Opening a company in Ireland has several steps but is relatively straightforward and can be done mostly online via Ireland’s company register. However, there are some hurdles for non-EU residents because of a requirement to have at least one director domiciled in the European Economic Area (EEA). It may be difficult for a brand new organisation, but if the company can prove a “real and continuous link with one or more economic activities that are being carried on in the State” (Companies Act 2014), then it may be exempted from the requirement for a resident director. To sidestep the residency criteria, the company will be required to hold an insurance policy (bond), which costs around €2300-2700 for a two-year period. Otherwise, the company can also designate a non-executive director to satisfy the residency requirement. This is often done through a service provider, which incurs an ongoing cost for the company.
There are several legal structure options for business incorporation in Ireland. However, the most common is the Private Company Limited by Shares (LTD). An Irish LTD can have a single director; however, in that case a company secretary is also required. This can be arranged through a service provider.
How to register a limited company in Ireland
The first step in company formation in Ireland is reserving and registering a company name. While this process can quickly be done online with the Companies Registration Office (CRO), you may wait some time for the official digital certificate. The application fee for reservation of a company name is €25, but this may be offset if the reserve name certificate is submitted with the new company application Form A1.
To complete company registration for an Irish LTD, there are two main steps: filing Form A1 and a constitution — both of which can be done online via CORE (the CRO’s online registration platform). In the constitution, you’ll need to provide the company’s name, describe its main activities, provide a physical address in Ireland for a registered office, provide the name(s) of your company officers, and update a register of beneficial ownership. A physical address, anywhere in the State of Ireland, is required for correspondence with the Companies Registration Office (CRO). Most companies with foreign owners use a Registered Office Agent (ROA) to fulfil this requirement, which also eliminates the secretary requirement.
The CRO usually takes three to seven working days to process the application and costs €150 (inclusive of the business name registration). It’s important to note that while the registration documents can be submitted digitally, they need to be physically signed and uploaded into the system.
Once the business is registered, there are a few more steps to complete. Beneficial owners with over 25% of company shares must be registered with the Central Register of Beneficial Ownership of Companies and Industrial and Provident Societies (RBO). While this can be postponed for up to five months from incorporation, it’s usually the next step business founders take because it’s a prerequisite to opening a bank account. Registering with the RBO requires an Irish Personal Public Service number (PPS). The number acts as a social security number for all of your government interactions. In addition, directors and shareholders receiving dividends or holding more than 15% of the company shares will need to hold a PPS. While the registration with the RBO is done fully online, applications for a PPS by non-Irish residents need first to be physically signed and witnessed and then emailed to the Irish Department of Social Protection.
Another critical step is registering with the Irish Revenue Commissioners (Revenue) through Revenue’s Online System (ROS). It’s important to note that your company registration number is not your tax number and is required before you can invoice your clients. Effectively, it’s a required step for operations.
Finally, you need to order a company seal, which is used as a company signature on physical documents.
Estonia’s company registration for e-residents is fully digital and benefits from the ease and speed of electronic signatures. It can be done in about as much time as it takes you to fill out the registration form and pay the state fee of €265. It’s up to you to try to break the current record of 15 minutes and 33 seconds, but the average approval process takes two hours (excluding weekends or out of business hours).
With e-Residency, non-resident founders can complete business registration fully online and in a simple process that doesn’t require a third party. E-Residency service providers can help individuals register and run their companies, but using their services is optional. The only service you will need as a non-resident of Estonia is a local contact person and legal address in Estonia. This and other services can be easily found online via the e-Residency Marketplace, with costs starting from €50 per year.
Opening a bank account for your Irish company
Having a company banking account is key to business operations. Ireland has a well-developed banking sector, making business banking in Ireland relatively easy.
Both residents and non-residents can open a traditional bank account in Ireland. Generally, you’ll need the company documents – including the original certificate of incorporation, your company constitution, and a copy of the A1 form. Additionally, the business owners will need to provide certified photo identification (ideally a passport) and certified proof of address. As with all EU members, Ireland’s financial institutions must comply with stringent Anti-Money Laundering (AML) / Countering the Financing of Terrorism (CFT) guidelines, which may slow down some applications and may require in-person visits to the banking institution.
Many non-resident-founded businesses in Ireland choose to open bank accounts through fintech companies.
The business banking options in Estonia are quite similar, with three options for business banking. Usually, the best option for e-Residents is to open a business account with a fintech company (such as Wise, Intergiro, OuiTrust, or Payhawk). Fintechs provide more flexibility as to which clients they take on and also allow setup to be fully online. You can apply for pre-approval online for a traditional bank account in Estonia. Eventually however, you will need to visit the bank in person to confirm your identity; and Estonian banks require the business to have a strong connection to Estonia. A third option is to open a business account with a bank from another EU or EEA member state. This is a good option for entrepreneurs with a good client relationship with another bank.
Running your company registered in Ireland
Key things to know about taxes in Ireland:
- The Companies Registration Office’s online filing system, CORE, allows filing taxes online.
- The corporate tax rate is 12.5% for trading income, 25% for income from an excepted trade, and 25% for non-trading income.
The Companies Registration Office has an online filing system, CORE, which makes it easy to file tax returns, among other things. Change of business name, change in address, and a change in directors/secretaries form can also be e-filed via CORE.
The first annual report is due to the CRO within six months of incorporation but doesn’t require financial statements. Then, an annual return must be submitted every 12 months before the Annual Return Date (ARD) with a copy of its financial statements.
An Irish company’s tax accounting period usually coincides with its financial accounting period unless it exceeds 12 months. A corporation tax return must be filed with the Irish Revenue within nine months of a company’s financial period ending.
Ireland’s corporate tax rate is 12.5% for trading income, which is a major draw for many companies. It’s a big reason why multinational companies locate in Ireland. Ireland’s tax rate for income from an excepted trade and for non-trading income is 25%. Meanwhile, Ireland’s Capital Gains Rate is 33%. Transactions on shares are taxed at 1% of the amount paid or the market value, whichever is higher (if the value is less than €1,000, this duty can be exempted). For asset deals, the rate is 2%. The Irish Competition and Consumer Protection Commission reviews mergers. Ireland relies heavily on trade and has an extensive Double Tax Treaty network with more than 70 DTAs.
Another draw for registering a company in Ireland is the variety of incentives. There is corporation tax relief for start-up companies for the first three years of trading if the corporation tax due is €40,000 or less in a financial year. Partial relief may be awarded if the corporation tax due is between €40,000 and €60,000 in a financial year. Money spent on R&D may qualify for the R&D Tax Credit, which is calculated at 25% of qualifying expenditure and reduces corporation tax.
Part of the reason Estonia consistently ranks first on the International Tax Competitiveness Index is the clarity and simplicity of its tax code and the tax filing and payment processes. Estonia is similar to Ireland in its trade focus, with more than 60 DTAs. Estonia has no tax on capital gains.
In Estonia, an annual report must be submitted within six months after the end of the financial year, which can be done entirely online. Income and social tax returns must be submitted by the 10th of every month, and VAT returns must be submitted by the 20th of each month. This, too, can be done entirely online.
Even though Estonian is the country’s only official language, its digital business environment can be accessed in three languages: English, Estonian and Russian. It’s the place where all company-related activities can be done digitally — including tax filings and payments, changes in incorporation docs, and business information.
Another huge benefit for e-residents running a business in Estonia is the dedicated support and resources provided by the e-Residency team, a Marketplace of corporate service providers, the friendly and responsive Estonian Tax & Customs Board, and an ecosystem of startup incubators, accelerators and business chambers.
Comparing Ireland and Estonia for company formation
* Corporate Tax Rate in Estonia is 0% until dividend distribution and flat 20% on net profit distributions (calculated as 20/80). If the company pays out regular dividends for three years, the Corporate Tax Rate lowers to 14% (calculated as 14/86). Estonia has a deferred corporate tax system.** Standard Corporate Tax Rate on income (“trading rate”) in Ireland is 12.5%. There is a higher Corporate Tax Rate on passive income (“passive rate”) of 25%.
ˇ 1% on transfer of shares. 7.5% or 10% (shares on deriving value respectively from Irish non-residential property and residential buildings). Stamp duty on the transfer of assets between associated companies may be fully relieved from stamp duty if necessary key conditions are met.
Key advantages of incorporating in Ireland
1. Favourable tax conditions
Low corporate tax rates have attracted foreign businesses to Ireland for years. Ireland’s corporate tax rate is 12.5% for trading income, 25% for income from an excepted trade, and 25% for non-trading income. Transactions on shares are taxed at 1% of the amount paid or the market value, whichever is higher (if the value is less than €1,000, this duty can be exempted).
In addition to the already low tax liabilities, Ireland offers many tax credits for R&D expenditure, like a net effective corporation tax benefit of 37.5%.
While Ireland is set to lose the competitive advantage of having a 12.5% corporate tax rate, the expected minimum level of 15% for corporate taxes will still be low compared to many other EEA jurisdictions. Ireland is not planning on raising corporate tax rates above the required minimum.
2. Developed startup ecosystem
It’s no surprise that Ireland, where many global tech companies are based, boasts a strong startup ecosystem. With seven unicorns (private companies valued at over $1 billion), the Irish startup scene is taking advantage of the tech talent concentrated in the country. In 2021, Irish startups and SMEs brought in €1.3 billion of VC capital.
The Irish startup community is bolstered by Enterprise Ireland’s efforts and multiple startup hubs across the country that organise regular startup networking events. The Local Enterprise Offices (LEO) provide support, mentoring and networking. Enterprise Ireland offers funding, training and development support.
Where to form your company: Ireland or Estonia?
Registering your company in Ireland offers some clear benefits. The country is known for its low corporate tax rates and wide range of incentives for companies. With English as the primary language, it’s also an easy place to interact with service providers and governmental agencies when needed. However, those interactions may be quite frequent since services are usually only partially digital and, especially in the early stages, require several steps to get your company off the ground. Without EEA residency, company founders will be required to have a company representative in Ireland, meaning that it’s not a fully independent option for company incorporation, like the one available in Estonia through e-Residency.
While Ireland is the only officially English-speaking country in the EU, Estonia offers almost all business-related services online accessible in English. Both countries give your company access to the EU single market, with Estonia having only a slight advantage of being in mainland Europe which may impact businesses with transport costs.
Estonia doesn’t rely on the lowest incorporation costs or corporate taxes. Instead, it has invested heavily in lowering the costs and time of running a business by providing digital services. Through the e-Residency Marketplace, founders can access fast and cost-effective support services (accounting, legal, banking, tax, etc).
Plus, e-Residency has built an active and open online community of foreign entrepreneurs through its dedicated content and community channels, including blog, social media, webinars and events. Not to mention the wealth of support founders can find in community-led groups and initiatives, such as EERICA and country-focused Facebook groups.
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The author would like to acknowledge and thank PwC Estonia and their Irish network partners for their extensive research that formed the basis of this article and Do All Write for their draft.