Getting started with your Estonian company as an e-resident
Creating the company
Assuming you are already an e-resident and have received your Estonian ID card, then the next steps are fairly easy.
First of all, there is a very important site you must know about – rik.ee. An e-resident can easily log in to the site by just using the ID card, a.k.a e-Residency card sent to you upon registering as an e-resident.
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At rik.ee you can create your company, start petitions regarding your company and submit the annual report that must be submitted once a year per company.
You can also find information about other companies in Estonia when you use the rik.ee search engine. Just type in the name of a company into the search tab and you will find all the public information.
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The easiest way to create a company for an e-resident is to find an experienced e-residency service provider who will set everything up for you. All you have to do is to sign a few signatures online with your Estonian e-Residency ID card. Send an email to info@buukify.com if you’d like to get started with us.
Or you can try and do it by yourself. You can find a walkthrough here.
The state fee for creating a company is 265 euros. If you wish to buy a service where your company’s creation will be done for you according to your wishes, then please contact info@buukify.com. It will take about two days before your company gets registered at the registry and you are ready to start with your business.
Opening a bank account for your company
After your company is created, you will need a bank account to collect payments and to pay for the services and goods your company needs.
At the moment, the most widely used bank for e-residents is Wise. You can easily create an account for your company online with no in-person meetings. Though if you prefer, there are many other online banks you can use. You can find them by googling. You just have to make sure the bank you choose can fulfil all the needs of your company, since some of them have transaction restrictions.
If you would like to open an account in a local Estonian bank, then it might get a bit tricky, since you need to first fill some requirements.
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• You would need to pay yourself a managing board member salary, which is taxed in Estonia.
• You will also need at least one business partner in Estonia.
• It would be great if you also have an office or an employee from Estonia.​ But in that case, the employee should pay taxes in Estonia.
So overall, you must have at least three connections with Estonia in order for the banks to take your application for review.
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To sum it up, the easiest and smartest way to start with your business is to use an online bank. Later on, once your business gets bigger and your online bank can’t fulfil all of your needs, you can also open an account in a local Estonian bank. A lot of e-residents stay with Wise for a long period of time, since Wise is a good enough online bank to support your small or medium-sized business.
Accounting
If you have a company and a bank account for the company, then it is time to find an accountant sooner than later.
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An accountant will keep your company’s financial records in order so you always have an overview of the many details you must keep an eye out for. A good accountant has the knowledge on how to organize your financial records and many other tips that you would not come to realize on your own.
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For example, it is almost always recommended to register your company as liable to full VAT (value added tax) from the start, so that your company will have a VAT number and will not create unnecessary liabilities. Most companies buy immaterial services. However, when buying immaterial services without being liable to full VAT, you will have to register your company liable for limited VAT. This means that you will be paying 22% of VAT on any immaterial purchase basically as long as your company is active. With the full VAT liability, you won’t have to pay any VAT when buying immaterial services.
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So let’s say you are not liable for full VAT and you start buying 5000 euros worth of advertisements from Google every month. In this case, you will pay an extra 1100 euros every month as VAT from these purchases.
Being liable for full VAT, you’ll pay 0 euros of VAT from the same 5000 euro purchase.
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If you’re looking for an experienced accountant, send us a message at info@buukify.com.
Sales taxes
Before you start issuing invoices, your company should have a bank account and an accountant. The accountant will give you the details about how to correctly issue invoices and what are the main VAT rules. But the most important aspects you must know are as follows:
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When you are not liable for full VAT, then you cannot add any VAT to your sales or ask any VAT back. You won’t have to submit a VAT declaration either.
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Selling services when liable to full VAT
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1. When selling regular services (car wash, etc.) in Estonia with your Estonian company.
• When selling to another Estonian company that is liable to full VAT – add 22% of Estonian VAT.
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• When selling to an Estonian company that is not liable to full VAT or when selling to an Estonian private individual (regular person) – add 22% of Estonian VAT.
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• When selling to another European Union company that is liable to full VAT – add 0% of VAT (when the company does not have a VAT number, then you must sell with 22% of VAT added).
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• When selling to a European Union citizen – add 22% VAT.
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• When selling to a company outside of the European Union – add 0% VAT.
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• When selling to a citizen outside of the European Union – add 22% VAT.
Keep in mind that on the invoice, you must show the VAT percentage even if it is 0%.
So overall, when you’re selling regular services in Estonia locally, then you must add 22% VAT to almost every issued invoice.
The exceptions are the invoices you issue to other European Union companies liable to VAT and the also invoices you issue to companies outside the European Union.
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2. When selling virtual services (the services you can offer virtually by only using a computer, e.g. consultation and accounting services).
• When selling to another Estonian company that is liable to full VAT – add 22% of Estonian VAT.
• When selling to an Estonian company that is not liable to full VAT or when selling to an Estonian private individual (regular person) – add 22% of Estonian VAT.
• When selling to another European Union company that is liable to full VAT – add 0% of VAT (when the company does not have a VAT number, then you must sell with 22% of VAT added).
• When selling to a European Union citizen – add 22% VAT.
• When selling to a company outside of the European Union – add 0% VAT.
• When selling to a citizen outside of the European Union – add 0% VAT.
Keep in mind that on the invoice, you must show the VAT percentage even if it is 0%.
In conclusion, when selling to Estonian companies, Estonian private individuals and European Union private individuals, you add 22% of Estonian VAT. Selling to anyone else, you add 0% VAT.
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3. Selling digital services (services that are automated and can be sold without human interference).
• When selling to another Estonian company that is liable to full VAT – add 22% of Estonian VAT.
• When selling to an Estonian company that is not liable for full VAT or when selling to an Estonian private individual (regular person) – add 22% of Estonian VAT
• When selling to another European Union company that is liable to full VAT, add 0% of VAT (when the company does not have a VAT number, then you must sell with 22% of VAT added).
• When selling to a European Union citizen – add VAT according to the VAT rate of the country where the buyer is located at. Use OSS or IOSS – see detailed information below.
• When selling to a company outside of the European Union – add 0% VAT.
• When selling to a citizen outside of the European Union – add 0% VAT.
Keep in mind that on the invoice, you must show the VAT percentage even if it is 0%.
Note – OSS and IOSS are special schemes used to pay VAT to other countries through the Estonian Tax office. You must keep track of the location of every private individual in the European Union that is buying your digital services. Then you must declare the VAT through the OSS/IOSS system and pay/forward the VAT to the country where the customer who bought your digital services was located. When you have a system to keep track of the buyer’s location, then it is fairly easy to declare and pay the VAT accordingly. Otherwise, it’s quite impossible, so you must have this system in place before you start selling your digital services or physical goods.
Salaries
When you pay yourself a salary with your Estonian company, there are salary taxes that also must be declared and paid.
If you do not work in Estonia, then you do not pay salary taxes in Estonia. You should declare and pay the taxes in the country where you work. There might be different laws in some countries, but that is the main consensus.
Simply transfer the salary from your company’s account to your private account with the description “salary” and there is nothing else that your company has to do, only you as a private individual will have to take care of declaring your income in your country of residence. This also applies to freelancers who work for your company.
If you work in Estonia, then you must be registered in the Estonian employment registry, which your accountant can help you with. Ask for your accountant to declare your salary and for instructions on how to pay the taxes. You can pay your salary taxes through your Estonian company once they are declared.
Dividends
In order to pay dividends, you must:
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• Make a payment for your registered amount of share capital;
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• Submit an annual report;
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• Have a profitable financial year.
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Once all of this is in place you can pay dividends in the next financial year, but only if you have enough profit in the current financial year to cover the taxes for the dividends.
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The dividends are only taxed with income tax, so it might be one of the best ways to pay out your profits. However, it is possible that if you pay yourself dividends and pay the income tax in Estonia, then you will also have to pay taxes in the country of your residence. You can find this out from your local tax expert before you make any dividends payments. There are quite a few countries that can tax you double, so it might be best to pay out your profits by paying yourself a salary.
If you have any questions regarding your Estonian company or want some extra information about some of the tips provided here, then please feel free to send us an email at info@buukify.com
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