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Doing Business in Estonia: An Overview

Estonia is a small country with a significant influence on various businesses worldwide. It has economic ties with Scandinavian and Western Europe and is a prospective country with a vast potential to invite foreign direct investment. Estonia shares its borders with Russia and EU countries, facilitating business activities across various member nations. The country is equipped with digital technologies, which will help ease of doing business in Estonia.

Estonia believes in an entrepreneurial system and a liberal taxation policy. It not only encourages the business to invest in the country but also reduces the operating cost of businesses in Estonia. Being a member of the European Union, the transportation route plays a significant role in conducting business in Estonia. Duty-free transportation reduced the overall cost of the product and aimed at unhindered supply.

Why doing business in Estonia is advantageous?

1. Tax is comparatively low, and the tax is not levied on retained earnings
2. Low authorised capital rate starting from 2500 EUR for starting a company
3. Management of the business can be carried out from outside Estonia
4. Less Set up and Operational cost
5. Application for company registration can be made online, which helps in minimising the involvement of the third person.
6. In the Modern Banking structure, the accounts of the accompany can be operated from anywhere in the world.
7. There is no tax on the transfer of shares in a holding company
8. There are professional service providers who will help in correspondence activities with the regulatory authorities of Estonia.

What are the opportunities for doing business in Estonia?

The business opportunities in Estonia are very favourable to the needs of the start-up business as it offers a low taxation rate, less setup and operational cost, a convenient registration process and much more. The IT sector is also developed and enables technology-driven companies to conduct their business in Estonia freely. The below-mentioned measures determine why doing business in Estonia is more favourable than in any other country, especially for a start-up company.

1. Business Environment

The business environment of Estonia is more favourable to the companies as the economic policies are framed to invite foreign direct investment from various businesses. The policies are aimed at inviting long-term investments for archiving long-term economic growth. Due to relaxation in the registration process, many companies are willing to invest in Estonia. This not only increases the completion in the market of Estonia but also creates newer opportunities for consumers.

2. Legal Perspective

Estonia systematically updated its legal system after it regained its independence. The country has simplified their legal system with the main aim of encouraging entrepreneurship. The laws are framed to make the environment more attractive to new entrants so that the company could avail benefits of tax revenues. The legal structure of Estonia favours an entrepreneurial mindset. Foreign entrepreneurs are placed on the same footing as local entrepreneurs. However, to provide transparency in doing business in Estonia, the legal system provides for appointing a service provider (contact person) of the company at its registered address and is obliged to report to the commercial register. The foreign business entities in Estonia are subject to the same accounting obligations as local business entities. They are obliged to submit financial statements^[1] at such periodic times as prescribed.

3. Competition policy and Consumer Rights

The competition policy of Estonia is in line with the EU competition policies. It is one of the few countries that provide for the initiation of criminal proceedings against anti-competitive agreements and the formation of cartels. Moreover, the Estonian Competition Act prohibits agreements that directly or indirectly fix the prices. There is also a restriction on vertical agreements such as fixed retail prices. The competition act facilitates the ease of doing business in India by maintaining fair competition in the market and preventing any dominant powers from influencing the market in Estonia.

To safeguard the interest of the consumers, the Estonian government has enacted the Consumer Protection Act, Advertising Act, Trading Act and the Law of Obligation Act. The implementation of these acts is vested with the CPA (Consumer Protection and Technical Regulatory Authority).

4. Intellectual Property Protection

The Copyrights act governs the intellectual property law in Estonia, Trademarks Act, Patents Act, Utility Models Act, Geographical Protection Act and Industrial Design Protection Act. Estonia is a business-oriented country that aims to protect the company’s interests. The registered companies’ names, novel inventions and literature work are protected under theCompetition act and Commercial code. To fulfil its commitments to the world, Estonia is a member of the WIPO (World Intellectual Property) and abides by all its rules and regulations.

5. Banking Services

Estonia has a central bank named The Bank of Estonia (Eesti Pank). The central bank regulates the financial market in the country and makes rules & regulations that facilitate the ease of doing business in Estonia. It also controls the activities of subsidiary banks. The Estonian banks offer the same banking services to local and foreign companies as they receive in other countries. The banks in Estonia have achieved success in online banking transactions and provide various solutions to businesses.

6. Taxation System

The taxation policy of Estonia is varied and stable. The country offers a more favourable corporate taxation policy so that doing business in Estonia becomes easy. The corporate tax levies only on the earned profits used for distribution as dividends. It means the tax is not levied on the profits earned by the company; however, it is taxable when these profits are distributed as a dividend to the investors. Moreover, the tax is also not charged if the dividends are reinvested in the subsidiary company, provided that the Estonian company holds at least 10% shares or votes in the subsidiary company. Further, the resident of Estonia pays less tax on their incomes as compared to other European countries.

Conclusion

Estonia offers an independent country whose aim is to achieve long-term investment goals. To achieve this objective, the country offers a broad spectrum of benefits to the new entrant, especially foreign entrepreneurs. The ease of doing business in Estonia encourages foreign businesses to invest in the country and earn profits. Moreover, the country’s taxation system is more stable & liberal and provides a uniform taxation regime for local and foreign businesses. The country also offers various exemptions and business deductions to foreign businesses that reduce operating costs.

Read our Article: Establishing a Company in Estonia