When digital nomads think about setting up a company, many will consider setting up an Estonian e-Business.
Estonia does a good job marketing their e-Residency and their e-Business. Furthermore, you can almost do the whole process online; a big advantage.
Yet, before going ahead with setting up your Estonian e-Business I want to point out some attention points. I’ll even share why I’m mostly actually not a big fan of setting up your company in Estonia.
What is the Estonian e-Business?
Estonia provides you with the opportunity to set up an Estonian company fully online without the need to set a foot in the country.
We should applaud this digital way of working. Definitely for digital nomads, this is an easy way to get your company registered from distance without the need to visit Estonia.
You can also file all follow up documents and compliance (e.g. annual reports) online.
You should know that an Estonian e-Business isn’t a particular type of company or legal structure. It just refers to the fact that you incorporated the company fully online.
Just like any other country, Estonia has various types of companies available, something for everybody’s needs.
Why I Think the Estonian e-Business is a Poor Option for Nomads
So, you can set up an Estonian company fully remote; that’s great. Consequently, most people opening an Estonian e-Business barely spend any time in Estonia or don’t even have ever set foot in the country.
This also means that if your company is a one-man show, you probably don’t actually manage your business from Estonia. And this might cause you problems because of the rules regarding permanent establishments.
If you run your business from another country than where it was incorporated, that other country can still tax its profits based on these rules.
The reason is that they will find it hard to believe you are actually managing your company from Estonia. Even more because the Estonian e-Business is promoted for the fact that it can be managed fully online.
Even if you’re not (yet) a tax resident somewhere but you spend a lot of time in a certain country they might deem that you are running your business from their country.
And if you have a permanent establishment in the country, it has the right to tax (part of) your companies profit. This undercuts your whole setup and also comes with additional costs of figuring things out with the different tax authorities involved in the process.
If you are lucky, there is a tax treaty between the concerned country and Estonia and you will only pay in one of both countries. If you are unlucky and there is no tax treaty, you might end up paying in both countries.
Apart from the rules regarding permanent establishments, many countries started implementing anti-abuse rules regarding owning a company abroad. This is definitely the case for developed countries in Europe.
There are ways to minimize these risks but they will make your setup even more complex.
Therefore, a lot of times it’s easier to just opt for another more straight forward structure that suits your situation.
Taxation for Estonian e-Businesses
If you decide that the Estonian e-Business is right for you after all, you should of course know which taxes you’ll end up paying in Estonia.
Estonian Corporate Tax
The corporate tax rate in Estonia amounts to 22% since 2025, up from 20% before.
This is definitely not a terrible rate as there are countries in Europe with higher corporate tax rates but it definitely isn’t great either. There are many other countries, for example Bulgaria or Cyprus, where you can find a lower corporate tax rate.
The good thing about Estonian corporate tax is that it only becomes due if you take money out of the company.
So, as long as you reinvest the proceeds within the company, you don’t need to pay the corporate tax.
Furthermore, you can of course take money out via a salary. This is a tax deductible cost for your company. Hence, the corporate tax doesn’t apply to the amount you take out as a salary. Nevertheless, taking out a salary from your Estonian e-Business can have consequences for personal income taxes.
Estonian Personal Income Tax
If you plan to pay yourself a salary as the director of the Estonian e-Business, you will pay personal income tax on this salary in Estonia.
Even if you don’t live in Estonia and you get a director salary, you will stay pay personal income tax in Estonia because of the provisions of the double tax treaties.
The personal income tax rate in Estonia is a flat 20% tax rate.
In certain instances, there are some different rates that can apply but most of the time this 20% rate will apply.
Yet, if you get a remuneration as an employee from your company and you are not a tax resident of Estonia you will normally not pay Estonian income tax.
However, in this case you need to assess the tax consequences in your country of tax residency as you will often have to pay tax on the income there.
Social Contributions in Estonia
Apart from personal income tax, you also need to take social contributions into account.
You will need to pay social contributions on the wage you take out as a director of your company.
The rate of the social contributions is 33%.
Just as for income tax, as an employee you can get an exemption from paying social contributions if you don’t actually live in Estonia.
Process to Start an Estonian Company
Let’s have a look at the process of starting a company in Estonia.
Obtain e-Residency
The first step is to apply for e-Residency.
We’ll come back to this later in the article but do know you need to know that it actually has nothing to do with living in Estonia. It’s merely an digital identity with the Estonian authorities. Do know that you will still need to visit an Estonian embassy or consulate to pick up your e-Residency kit.
The fee for the e-Residency is EUR 150 if you pick up your e-Residency in Estonia and EUR 170 in other cases.
So, many people state you can set up your Estonian e-Business fully remote but that’s only through if you already have your e-Residency.
Prepare Details for Company Registration
Next, you need to prepare some details to be ready for your company registration.
This includes that you need to come up with a company name.
Yet, more important is that you will need a business address in Estonia to use as the legal address of your company. You can look for service providers who provide such an address.
Furthermore, you will need to appoint a local contact person who is a resident of Estonia. Also here some local service provider could help you out.
Register Your Estonian e-Business
After these preparations you’re ready to actually register your company online.
Apart from the information we already mentioned, you’ll also need to include information about the shareholder(s) and director(s) of the company.
The fee for registering your company is EUR 265.
Furthermore, you’ll need to register your Estonian e-Business with the tax authorities.
Open a Bank Account
After opening your company, you’ll need a bank account to be fully operational. You can apply with a local Estonian bank or online with some of the well-known fintechs.
Yearly Compliance
Once you opened your company and it starts operating, you can’t forget about your yearly compliance.
You need to keep and file annual financial statements. Furthermore, you’ll also have to file a corporate tax return.
Depending on your situation, your company will also have to file VAT returns.
How Can I Close my Estonian Company?
If you want to close your Estonian company, you need to take a few steps. Hereby a brief overview:
- Decision shareholder(s): the shareholder(s) should draft a decision confirming they want to end the operations of the company and liquidate its assets.
- Appoint liquidator: you need to appoint someone who will oversee the liquidation process. You can basically do this yourself as for most companies the process shouldn’t be too complicated.
- File liquidation documents: you need to file a notice of liquidation and liquidation plan – including financial statements – with the Estonian Chamber of Commerce.
- Settle debts and liquidate assets: if you have any outstanding debts, these need to be paid off. Furthermore, any assets can be liquidated. If you run a freelance business, you probably won’t have any debts or other assets than cash in your bank account. So, you might be able to skip this step.
- Final closure: after all these steps, the liquidator can file for the deletion of the company.
If your company pays out any proceeds to the shareholders as part of the liquidation process, the corporate income tax will become due. In any case, you’ll have to file a final corporate tax return for the year of closure of the company.
Other Estonian Digital Initiatives
Apart from the e-Business, Estonia also advertises its other digital applications in a proficient way.
There is for example the e-Residency you can obtain. You’ll even need this if you want to open an Estonian e-Business. This residency is open to every person, irrespective your nationality.
Again, I welcome the digital way of working of the Estonian government and they seem to be way ahead of a lot of other administrations.
However, the e-Residency is often mistaken for a proper residency permit. This isn’t the case at all.
The e-Residency just provides you with the possibility to communicate with the Estonian administrations in a digital way, it’s a digital identity. As mentioned, you need the e-Residency to set up your Estonian e-Business. Do know that you will still need to visit an Estonian embassy or consulate to pick up your e-Residency kit.
Furthermore, Estonia encourages their people to handle all their other arrangements with the government electronically (e.g. income taxes). Yet, in many countries these days things can be done online. They just don’t market so well as Estonia does.
Work With Me And Reduce Taxes
Before incorporating a company or going for a certain tax setup, I would always recommend getting assistance of an advisor.
In this way you can verify you didn’t miss any important points about the set up you’re considering and at the same time ensure you know all your options.
Furthermore, we can provide a network of local advisors who can be your feet on the ground and handle things locally. In this way it you can do most of the setup from the comfort of your home, just like with the Estonian e-Business.
Reach out if you need to help of an experienced digital nomad tax advisor.
