The Attractiveness of the Estonian Business Environment

Taxation is often the most essential aspect when choosing a location for business. Estonian tax system supports business growth and lets international companies reduce their tax expenses. 

Key among its advantages is a tax rate of 0% on undistributed enterprise earnings. Until profits are distributed to founders, a business will not face corporate or income taxes. It enables companies to reinvest profits for further growth. It is one good reason why entrepreneurs choose to register a company in Estonia.

Key Aspects of Estonian Tax Rules

Estonia follows a straightforward regulation, deeming a company as a tax resident if established under Estonian law. If you’ve registered an Estonian OÜ, it signifies your business’s tax residency in Estonia and its subsequent taxation obligations.

However, various countries adopt different criteria for tax residency. Aside from the incorporation location, the effective management’s locale also dictates tax residency. Operating your business based on such criteria may result in dual tax residency. 

If a company conducts its activities outside Estonia or is managed internationally, the earnings are taxed in that foreign nation. Estonian tax system, however, ensures the elimination of dual taxation.

The Estonian Government’s website provides a comprehensive list of double taxation avoidance conventions.

Taxes in Estonia

Given the complexity of international taxation, which varies based on your business type and location, we recommend consulting a Legal Vaspex expert before making important decisions.

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Estonian Tax Rates

Tax and VAT Registration for New Businesses

When launching a business in Estonia, registering for taxes is an essential step. After registration with the Trade Register, a business should proceed with its tax registration.  Additionally, companies need to sign up for social contributions as employers.

As a next step, companies have the option to register for VAT. VAT registration is not mandatory in Estonia if your annual taxable turnover is below €40,000.

However, it’s crucial to understand that if your goods and services surpass 40,000 euros, VAT registration is no longer optional but required in Estonia. The rule holds for individuals and businesses that offer VAT-taxable products and services. Learn more about VAT registration.

Estonian Tax System

How are Dividend Taxes Calculated in Estonia?

One of the major perks for Estonian companies is that you don’t pay taxes on your profits until you decide to share them (like when you give yourself dividends).

In Estonia, the dividends you distribute get taxed at a rate of 20%. If you live in another country, you are also required to declare these dividends there, and the tax rules might differ.

Here are some basic rules about dividends for Estonian companies:

  • You can only start giving out dividends after your company has finished its first financial year and shared its annual report.
  • Before distributing dividends, your company’s share capital has to be fully paid and recorded in the e-Business Register.
  • The dividends you give out can’t be more than the saved profits shown in your annual report.

Leverage the Estonian Tax System for Your Business

Estonia offers a business-friendly tax environment with a notable 0% tax on undistributed enterprise earnings. The straightforward tax residency rules and efforts to prevent dual taxation further enhance its appeal. 

The Estonian Tax and Customs Board (EMTA) supervises the Estonian tax system, and its official website offers valuable information on Estonia’s tax framework. If you need help understanding the Estonian tax system or help with the company formation in Estonia, Vaspex Legal experts are here to help.