The Ultimate Guide to Estonian E-residency, Banking, and Taxes

The internet seems to have been buzzing a lot about Estonia in the last few years, and a lot of it is due to the innovative new e-residency program that was launched in a limited form in December 2014, and has been rolling out additions and improvements ever since.


This is a companion discussion topic for the original entry at https://nomadgate.com/estonian-e-residency-guide/
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You do state it at the bottom, but I think it bears highlighting that from January 2019 (3 weeks from now) you don’t need an Estonian bank account, and it’s perhaps worth considering the possibility that one reason that this rule was changed was because foreign customers were underwhelmed by the services offered by Estonian banks, but here’s the official explanation: https://medium.com/e-residency-blog/estonian-companies-now-have-greater-freedom-in-business-banking-f8c6984ce3e5

I’m an e-resident, and while the application process and embassy visit were smooth, their national websites and the (Windows) card software are badly designed and full of bugs.

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Honestly, I think LHV is one of the best banks I’ve ever had to deal with. I’ve also had good experiences with SEB. However, it is true that many e-residents have struggled with being approved for local Estonian bank accounts so it’s definitely a welcome change.

Unfortunately, the major Estonian banks have started to charge higher fees for non-residents this year, sot that’s another good reason to do your banking abroad.

Regarding the websites, it seems at least some of them have been improving lately. I also think the software has improved since DigiDoc4 launched. I haven’t noticed any bugs on Mac other than occasionally having to restart for it to recognize my card in a browser.

But that has also been less of an issue since Smart-ID launched (which I should probably also mention in the article). Basically, it will enable you to do most of the things you would normally need your ID card for through a secure app on your phone.

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If anyone is looking for banks that are willing to open accounts for Estonian companies, outside of Estonia I know of 2 (first hand experience), who are willing to do it in Poland:

https://en.ingbank.pl/ing-business
https://www.ideabank.pl/

ING charges monthly fees, and fees for each transfer. It’s also nice, since you have an option to open accounts in multiple currencies (including USD). Idea Bank has some free options.

But please keep in mind that your milage may vary - I’m a Polish resident, and our company was started 2.5 years ago, so the entire procedure was likely simplified (still required documents from Estonia translated to Polish though).

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this article references VAT tax - in the 10,000euro scenario described above, VAT tax is not dealt with…where does VAT tax present itself in the estonian e-residency and business process?

The example in the article talks about distributing profits/salary. VAT is charged on sales to consumers in the EU. Sales to any EU company with a VAT number is VAT free (reverse charge mechanism), and sales to any person or entity outside the EU is also VAT free.

For sales to individuals in the EU you will have to charge either Estonian VAT (20%—among the lowest in the EU) or the customer’s local VAT rate (depending on what you are selling).

Also non-EU companies are supposed to charge VAT to individuals in the EU, although not all companies follow the rules.

Note that the VAT registration threshold in Estonia is €40,000, meaning that if you have a lower turnover than this per year you don’t have to register or charge VAT to your customers.

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i am a screenplay writer and i’m hoping to sell screenplays to european production companies…i’m selling a service, not a product…how would the VAT play in that scenario?..my estonian company is going to be a film company that sells films that i’ve written…

In that case (selling your services to EU companies with VAT numbers, or non-EU companies) there will be no VAT.

is there a type of company like a ‘sole proprietor’ where there are no taxes paid to estonia?..also, can i write off expenses against revenue that might be taxed otherwise?..you and others that i’ve read refer to taxing ‘profits’, but i’m wondering if your definition of profit is the same as mine…revenue minus costs = profit

You can only be a sole proprietor in the country where you live, since sole proprietorship isn’t a separate legal person.

And yes, that’s the definition of profits: Income minus legitimate business costs (including salary paid to yourself).

the example in the article reads like the taxation could be excessive, but i think that’s due to the fact that it starts with ‘profits’, and then distributes those profits as a taxable income…however, if one were to take the distribution as ‘salary’ it would be considered an expense and thus not taxed in estonia, but taxed in the employee’s domiciled country as employment income…

is this correct? - in my scenario could i just drain the company of its profits by taking more employment income personally…i did this with a corporation in california and it was all perfectly legal…

thomas - i thank you for taking so much time with me, for some reason i’m struggling to comprehend the 20% extonia tax as anything but double taxation…

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Yes, of course. Your salary is a perfectly legitimate business expense. In that case you’ll just pay whatever taxes you owe on your salary locally where you live.

The 20% is the corporate income tax, and you will only pay that once. If you pay corporate income tax to Estonia, you won’t corporate income tax where you live (and vice versa). Estonia also don’t have any withholding tax on dividends.

So whether it makes sense to pay yourself mostly a salary or mostly dividends depend on your personal tax situation. What would you end up paying most for where you live (after accounting for the corporate tax that precedes any dividends)? And since you’re American, you need to take into account that FEIE only applies to earned income, meaning salary, not dividends.

Do you for example qualify for the special tax regime for foreigners in Spain? (That would only apply if you’re working for a Spanish company as well.)

You should also check with a local accountant/lawyer where you live, and ask how the Spanish tax authorities will treat your Estonian company. If they will tax it as a company resident in Spain, it doesn’t serve much of a purpose—at least from a tax perspective. Then you might be better off just incorporating in Spain instead.

So you could build/invest your money in your Estonian company. Then after 10 years move to a country where they don’t tax on personal income. And then get all the money as a salary without paying anything because salary is a business cost? This would be better then paying yourself a dividend because then then the money will be taxed at 20% right?

What happens when you live in a country where CFC rules apply. A condition to be seen as a CFC is that the taxes are maximum the halve of the taxes of a similar parent company.
Belgium: 25% taxes (main country)
Estonia: 20% taxes
So every country below 12.5% taxes would be seen as a CFC and CFC rules will apply according ti the Belgium government. But what if it’s not seen as a CFC? like for example Belgium and Estonia? Then it would be OK for Belgium?

I was wondering, if i were to setup e-residency and then create a private limited company in estonia, move savings to that company and then buy index funds which i will not touch for a while would that cause any trouble?
I reside in Belgium.

Also would that mean that if i pay out dividends on e.g. 10000 Euros i would pay 2000 Euros to Estonia and then 25% dividend tax in Belgium?

BR,
Christoph

A word of caution: I have set up an e-company as an e-resident. The process was expensive (€ 700,-) and cumbersome. After it was set up, I found out that I actually will not use it due to changing circumstances. Cancellation costs: € 1200,- for a registered company without any transactions or a bank-account attached to it. My impression is, that the e-residency program is a modern layer over an ancient bureaucratic infrastructure, that not only drives you crazy by continuously trying to communicate with you in Estonian, but above all will spam you a lot - not only in Estonian, but in Finnish and/or Swedish as well. For me as a Dutch citizen, the benefits do not outweigh the cons.

I’m curious to hear which service provider you used who charged you this much? Opening a company should be about €200 (+€100 for the e-residency), and while I’m not sure about the costs of closing it down €1200 seems extremely excessive. Might have been better to just sell it off as a shelf company.

I’ve been an e-resident for more than 4 years now, and while the emails from the state often arrive in Estonian, you just need to scroll down to read the English version.

That being said, if you’re a full-time (tax) resident in another developed country, then opening a company abroad probably wouldn’t make sense.

EDIT: I just checked, and LeapIN is charging €200 for the liquidation of a company, which I’d say is very reasonable.

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Thanks for this informative guide!
I’m trying to put my head around the taxes again using some examples.

Please correct if I’m wrong in any part.

From what I understand so far, as non-resident Estonian company owner:

  1. You don’t pay any corporate taxes (20%) until you distribute the money. Awesome.
  2. Following other posts - you don’t obligated to pay board member salary to yourself and thus pay almost 40% taxes for this salary. Worst case you pay a really low salary. Awesome.
  3. Really depends on your situation, but in general you can “drain” the money by paying yourself a regular employee salary and pay taxes only in your country of residence for personal income. Awesome.

So far so good?
The only part I’m missing is regarding #3 - you as employee shouldn’t pay taxes to Estonia but your home country. However, should you-as-company pay extra taxes for this paid salary? As a company, paying for your employee a salary carry any additional expense? If so, how much? and what is the lowest salary you can pay to yourself to avoid that?

You are right . 20 % Corporation Tax is paid in the event where the company pays dividend to its shareholder. A lot of companies take decisions to not distribution profits only re-invest

You need study double taxation agreement between Estonia and your country of residence and you will find opportunities of friendly and effective tax optimization.

F.e in most cases royalities are taxed in country of residence. Estonian company can pay non residents and f.e if work is performed out of Estonia, salary will be taxed out of Estonia. But remember you should avoid constitution of permament establishment (PE)

First of please accept gratitude :slight_smile: for writing such an elaborate and excellent article. Through this article many of my doubts are clear and I am a fan already. However :

I have a question. I am working on a website on which a particular kind of items will be sold. For which I am currently contacting companies. The buyer will be making a payment on my website. I will be taking payment on behalf of the companies that will be selling on my platform, after deducting my commission from the entire amount I will forward the entire amount to the companies. In that case, I will be generating an invoice on behalf of companies in my name for the buyer of the product, so will it still be part of my turnover or just the service that I am providing will be part of my turnover. Because I am not buying anything from the company, I will be just providing them a platform to sell. Kindly advice on the same, also how will VAT work, on the service or the entire Invoice of the good sold? I know it is a mind-boggling question but it will help me a lot

Thankful.

Is LeapIn could Manage a company for dropshipping