Tuokko’s office has been operating in Tallinn, Estonia, since 1992. Our range of services in Estonia includes financial administration services and tax advisory, as well as all services related to starting a business and establishing a company. We are well-acquainted with Estonia’s business environment and its specific characteristics.
Starting a business in Estonia is relatively straightforward. Investor confidence in Estonia has grown, and trade, communication, and labor legislation are flexible. Foreign nationals have the same rights as local businesses, including the ability to purchase and own real estate and land. Various local networks provide information on current legislation, economic developments, and useful contacts.
Private Limited Partnership (Osaühing)
A Private Limited Company (Osaühing, abbreviated as OÜ) is the most common and popular company form used by small and medium-sized businesses. It is characterized by a flexible organizational structure.
Starting from February 1, 2023, a private limited company can be established without share capital; the practical minimum is €0.01 (previously, the minimum share capital was €2,500). A private limited company, also known as an associated company, is founded through an agreement between shareholders. The minimum content of the agreement is defined by law. In addition, shareholders can agree on the rights and obligations of the partners.
The share capital of a private limited company is divided into shares. There can be one or more founders and shareholders, who may be either private individuals or companies. There are no restrictions on the nationality of the shareholders. At least half of the members of the board of directors must reside within the EU.
Shares in the company can be freely transferred to other partners. When shares are transferred to external parties, the other partners always have a right of first refusal. Shareholders are not personally liable for the company’s obligations; their liability is limited to the amount of their shareholding.
Governance of a Private Limited Company
A private limited company has two mandatory bodies: the shareholders’ meeting (üldkoosolek) and the board (juhatus), which can consist of one or more members. A supervisory board can be appointed if specified in the articles of association. The board is responsible for the company’s general management and the day-to-day business operations. It also represents the company in its dealings with third parties. If there is only one member, they are called the director (juhataja). Each board member can represent the company alone unless restricted by the articles of association. Restrictions only apply to third parties if registered with the commercial register. Estonian law does not recognize a CEO. However, a company may still have a CEO (in addition to the board), but the CEO does not have the right to represent the company in dealings with third parties by law. The CEO cannot be registered with the commercial register. The shareholders can make decisions either in meetings or without meeting, in which case the board sends a proposal for approval. Shareholders can also choose to make decisions on individual matters that fall within the board or supervisory board’s authority.
Registration
Establishing a private limited company must be registered with the commercial register (äriregister) in the company’s location. Once registered, the company is allowed to conduct business. Contracts made on behalf of the company can transfer liability to the company after registration. A VAT-registered company can apply for VAT liability. Legal documents such as the partnership agreement and registration notice must be notarized by an Estonian notary.
Public Limited Company (Aktsiaselts)
The minimum share capital of public limited company is 25,000 euros. All shares must be registered in the Estonian Central Securities Register under the securities system. Shares can be freely transferred unless the company’s articles of association impose restrictions. This business structure is mostly used by larger companies. The founding documents for a public limited company are the founding agreement and articles of association. There can be one or more founders and shareholders, who may be individuals or companies, with no restrictions on nationality. A public limited company has three mandatory bodies: the general meeting of shareholders (üldkoosolek), the board (juhatus), which can have one or more members, and the supervisory board (nõukogu). General meetings can be regular or extraordinary. If there is only one shareholder, holding a general meeting is not mandatory; this shareholder can make decisions as shareholder resolutions. The supervisory board oversees the actions of the board. Its consent is required for actions deviating from the normal business operations, such as acquiring shares of another company or real estate transactions. The supervisory board must have at least three members, with no residency requirements.
The company is established at a notary office. It is recommended that the founders and board members be present in person, but representation via power of attorney is also possible. The company to be established must have a postal address in Estonia.
An apostille certificate is a verification issued by a public notary at the Registry Office, confirming the authenticity of a document, its signature, and the signer’s position. An apostille certificate is required, for example, when establishing a company, for an extract from foreign trade register.
A company must register for VAT when its annual turnover exceeds 40,000 euros. It can voluntarily apply for VAT registration earlier. The tax authority may remove a company from the VAT register if the company submits zero reports for several months or has no turnover.
A limited liability company must always appoint an auditor, and auditing is mandatory. An audit is required for a limited liability company in the following cases:
| Audit | Review | |||
| If at least 2 conditions are met | If at least 1 condition is met | If at least 2 conditions are met | If at least 1 condition is met | |
| Turnover or income | 4 MEUR | 12 MEUR | 1,6 MEUR | 4,8 MEUR |
| Balance sheet value | 2 MEUR | 6 MEUR | 0,8 MEUR | 2,4 MEUR |
| Average number of employees | 50 | 180 | 24 | 72 |
The auditor must be an authorized auditor or auditing firm in Estonia. Estonian law does not recognize a deputy auditor.
Estonia’s tax system is simple and transparent. The personal income tax rate is 22% (earlier 20%).
The corporate income tax rate is 0% if the profit is retained in the company for investments.
The general VAT rate is 22%. Accommodation and accommodation with breakfast VAT rate is 13 % and medicines, books and newspapers VAT rate is 9 %.
The unemployment insurance contribution is 2.4%, of which the employee’s share is 1.6%. Social taxes total 33%, with 20% for social security contributions and 13% for health insurance contributions.
