Doing business in Estonia
Located in the north-east of the continent, Estonia is a great place to start a company for several reasons: the business culture is open and entrepreneurial, the tax system is favourable, and there are many funding opportunities available. The country is also one of the most digital ones in the world. Although a very small nation, due to its extremely well-developed digital infrastructure and strategic position between Scandinavia and the Baltic countries, it can be the right business destination for you.
In this article, we'll give you an overview of everything you need to know about doing business in Estonia.
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Business opportunities in Estonia
The opportunities for business in Estonia are varied and plentiful. The country is home to a large number of startups, and there are many incubators and funding opportunities available to help them get started. The IT sector is especially well-developed, but there are also opportunities in other sectors such as agriculture, tourism, and life sciences.
The business culture in Estonia is open and entrepreneurial, and the country is ranked highly for its ease of doing business. There are few bureaucratic hurdles to starting a company, and the tax system is favourable to businesses. In addition, the legal system is transparent and stable, making it a safe place to do business.
Challenges of doing business in Estonia
Despite the many advantages of doing business in Estonia, there are some challenges that businesses should be aware of. One such challenge is the small size of the market. Estonia's population is only 1.3 million, which can make it difficult to reach a large number of customers. Another challenge is the country's lack of natural resources, which can limit opportunities in certain sectors. Finally, businesses should be aware that Estonia is a relatively new EU member and that some regulations may not be as well developed as in other countries.
On the other hand, Estonia is a very open economy that offers easy access to the entire European market. The country is fully integrated into the European economy, as it is also part of the Euro currency.
Company formation in Estonia
1. To set up a company in Estonia, you'll need to complete the following steps:
- Choose a business name and register it with the Commercial Register.
- Register your company with the Tax and Customs Board.
- Open a bank account.
2. You can do all of this online, and the process is relatively straightforward. The Estonian government has made it easy to start a company, and there are many support structures available to help businesses get started.
Registering a company in Estonia remotely
There are 2 options for registering your company in Estonia remotely:
- One is via an Estonian e-Residency, which you can apply for online. The application review can take up to 90 days.
- The other is via notarised Power of Attorney. One of our professionals will send the text of PoA to be taken to the notary to be certified and apostilled. They will then request you to send an original of it along with a notarised and apostilled copy of the passport. It takes approximately a week and a half for the company to be fully registered after they receive all the originals by post.
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Estonia Tax & Accounting
The country's tax system is transparent and stable, making it a safe place to do business. In addition, Estonia has been ranked highly for its ease of doing business, meaning that there are few bureaucratic hurdles to starting a company.
???? Why Estonia Ranks #1 for Tax Competitiveness
Estonia has ranked #1 in the OECD for tax competitiveness for 12 consecutive years. Here's what makes it stand out for entrepreneurs:
Flat and Simple
Estonia charges a flat 22% on all income: employment, capital gains, rental income, pensions. No progressive brackets. No complicated calculations.
Example: A household earning €161,000 takes home about €124,500 after tax. The same income in the UK? About £97,500. That's over €27,000 more in your pocket.
Taxes You Won't Pay
- No inheritance tax - What's been taxed once won't be taxed again
- No stamp duty - Estonia uses an annual land tax (0.1-2% on land value only)
- No double taxation on dividends - Corporate profits are taxed once at 22% when distributed. Shareholders don't pay personal income tax on top of that
The Trade-offs
- VAT is 24% (vs. UK's 20%)
- Employers pay a 33% social tax on top of salaries
- Property taxes are minimal (0.6% of total revenue vs. UK's 12%)
The real advantage? Transparency. You can calculate your tax liability in minutes. No hidden cliff edges. No erosion of personal allowances. For entrepreneurs building a business, that simplicity means less time on compliance and more time on growth.
Note: E-Residency doesn't automatically make your company a tax resident of Estonia - you could still be liable for taxes elsewhere. Moving to Estonia would change that.
Estonia has a favourable tax system for businesses. The corporate tax rate is 22%, which is relatively low compared to other European countries. More importantly, corporate income tax is levied when profit is distributed, not when it is earned. In addition, there are no withholding taxes on dividends or interest payments, and no capital gains tax.
Corporate income tax is not charged on dividends, which are passed on after being received from a company domiciled in an EEA Member State or Switzerland, if at least 10% of the shares or votes in that company is held by the Estonian company. Businesses can also benefit from various tax deductions and exemptions.
Looking at the total shareholder taxation (corporate tax + tax on distribution of dividends), most European countries have rates in the 40%-50% range. Because of the above the total taxation in Estonia is only 22%. The map below shows the beneficial regime in Estonia.
Another feature of Estonia is the very low personal income tax residents pay. A flat tax rate of 22% for the 2026 tax year, with a progressive basic exemption (tax-free allowance) based on income level.This applies to all worldwide income, regardless of where it is sourced. In addition, there is a social security contribution.
The accounting system in Estonia is also relatively simple. All businesses must keep track of their financial transactions and submit regular financial reports.
Q: Can I loan profits from my Estonian company to another company instead of distributing them?
Tax on Undistributed Profits
Estonian companies do not pay tax on undistributed profits. Any profit reinvested or retained within the company is not subject to corporate income tax. Only distributed profits (such as dividends) are taxed at 22% (increasing to 24% from January 2026).
Inter-Company Loans: Key Rules
Estonian companies can loan money to other companies, but strict conditions apply:
1. Arm's Length Principle
Loans to related parties (including companies you own) must follow market conditions. Interest rates and terms must be comparable to what an unrelated third party would offer. This is a transfer pricing requirement.
2. Documentation Requirements
You must maintain proper loan agreements with clear terms, repayment schedules, and market-rate interest. For loans exceeding 48 months, you may need to prove the borrower's ability and intent to repay if requested by tax authorities (with at least 30 days to provide evidence).
3. Quarterly Reporting
Loans to parent companies or sister companies must be reported quarterly to the Tax and Customs Board (form INF 14, Section IV) by the 20th of the month following each quarter.
4. Tax Treatment of Interest
Interest received by your Estonian company is considered income. However, consistent with Estonia's deferred tax system, this income remains untaxed as long as it's not distributed as dividends.
5. Hidden Profit Distribution Risk
If loan terms suggest the loan won't be repaid (e.g., no realistic repayment schedule, below-market interest, or lack of repayment ability), tax authorities may reclassify it as a hidden profit distribution subject to 22% corporate income tax.
Cross-Border Considerations
If the borrowing company is in another country, withholding tax may apply to interest payments in that jurisdiction. Tax treaties between Estonia and the other country may reduce or eliminate this withholding tax.
Need expert guidance? Contact our Estonian tax and legal partners or explore our Estonia country guide. The Estonian Tax and Customs Board website also provides detailed information on these topics.
Residency and visas in Estonia
If you want to do business in Estonia, you'll need to be registered as a resident of the country. This means that you'll need to obtain a residency permit if you don't already have one. The process for obtaining a residency permit is relatively straightforward.
In addition, if you're not a citizen of an EU member state, you'll need to obtain a visa to stay in Estonia for longer than 90 days. More information on visas can be found on the website of the Estonian Ministry of Foreign Affairs.
An alternative for digital nomads and all sorts of other entrepreneurs is to become a so-called E-resident in Estonia.
Estonia E-Residency
Estonia's e-residency is a digital identity issued to non-Estonian citizens that allows them to establish and manage a business in Estonia remotely.
What is it?
An e-resident is a foreigner who receives a government-issued digital identity card from Estonia. This digital ID lets you conduct business activities that require a secure digital signature, without physically being in Estonia.
Key Benefits
- Establish and manage an EU-based company 100% online
- Access Estonia's advanced digital business infrastructure
- Digitally sign documents and contracts with legal validity
- Handle banking and payments remotely
- Complete tax declarations online
What e-Residency is NOT
- Not a citizenship or physical residency permit
- Does not grant visa-free travel rights within the EU
- Does not provide tax residency automatically
Application Process
- Complete an online application form
- Pay the €120 application fee
- Provide identification documents
- Wait for background check (typically 4-6 weeks)
- Collect your digital ID card at your chosen pickup location
Who it's for
Ideal for digital entrepreneurs, freelancers, and business owners looking to operate within the EU market framework regardless of their physical location.
The process is relatively simple, and more information can be found on this website.
E-residency & Taxation
E-residents need to understand international taxation, especially if they live outside of Estonia. There are two types of taxes to be aware of: corporate taxes and personal taxes. A company pays corporate taxes and an individual pays personal taxes.
E-Residency does not determine where either of these taxes needs to be paid.
International tax treaties already exist to determine where you pay your taxes. Determining your personal tax agency is usually straightforward for residents because they have a physical address and a country where they are from. Determining your corporate tax agency can be more complex.
Generally, a company has to pay taxes where it's permanently managed or where it generates its primary value. Estonia has tax agreements in place to ensure a smooth process, but if a second country can claim taxes, then the company will pay taxes to that country.
We recommend you to speak to one of our tax advisors to determine your own tax situation when choosing e-residency in Estonia.
Business bank account in Estonia
If you want to do business in Estonia, you'll need to open a business bank account. For Estonian residents, this can be done easily and online and a range of different banks are available.
One of the advantages of doing business in Estonia is that the banking system is relatively straightforward. All businesses must keep track of their financial transactions and submit regular financial reports.
When opening a bank account in Estonia, you'll need to provide some basic information about your company, such as its name and address. You'll also need to provide your personal details, including your passport number.
Many banks in Estonia offer online banking services, which allow you to manage your account from anywhere in the world. This makes it easy to keep track of your business finances and make payments online.
Legal compliance in Estonia
To become legally compliant when doing business in Estonia, you need to register your company and open a bank account. In addition, you'll need to keep track of your financial transactions and submit regular financial reports. The banking system in Estonia is relatively straightforward, and most banks offer online banking services that allow you to manage your account from anywhere in the world.
Most businesses doing business in and from Estonia should also have some legal contracts in order. For example, a business with multiple shareholders should have a shareholders' agreement. This is not required by law, but is common practice to arrange the relationship between shareholders. Furthermore, employees should have a written employment contract in place. Finally, Estonia falls under the GDPR privacy laws and therefore businesses should have the right GDPR documents in place.
Office and real estate in Estonia
The office market in Estonia is relatively small, but growing. Office space is expensive, and there is a shortage of quality office space in the major cities. However, the government is investing in new office developments, and the market is expected to grow over the next few years.
When it comes to real estate, the market in Estonia is still relatively small. However, prices are rising, and there is a growing demand for both residential and commercial property. The government is investing in new developments, and the market is expected to grow over the next few years.
Fund your company in Estonia
There are many different ways to fund your business in Estonia. One option is to apply for a loan from one of the country's many banks. In addition, the government offers a variety of grants and subsidies for businesses in various stages of development. Finally, there are also a number of private equity funds that invest in Estonian companies.
Hiring employees in Estonia
When hiring employees, you'll need to comply with the country's labor laws. The main requirement is that employees must have a written employment contract in place. This contract should specify the terms and conditions of employment, including the employee's salary and benefits.
In addition, there are a number of other regulations that employers must comply with when hiring employees in Estonia. For example, employers must pay social security and income tax on behalf of their employees, and must also provide health insurance.
The labor market in Estonia is relatively competitive, and it can be difficult to find qualified employees. However, there are a number of recruitment agencies that can help you find the right person for the job.
Welcome to E-stonia
Estonia offers a number of advantages for businesses looking to start up or expand. The country has a pro-business environment, a simple tax system and a well-developed infrastructure. In addition, it is an attractive destination for digital nomads and other entrepreneurs looking for an easy place to do business from anywhere in the world. With its growing economy and thriving startup scene, Estonia is definitely a country worth doing business in.
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