6 things You absolutely must know before starting an e-Residency company.

Estonian e-Residency program is a well-executed concept of digital identity and it’s a great marketing strategy for the country. Estonia has an excellent infrastructure in place for its citizens, and the fact that these possibilities have been extended to foreigners is somewhat remarkable — we’ve never seen country-as-a-service platform before. Different countries are trying to emulate what Estonia is doing, but it’s not easy. Some will succeed, eventually, but there’s plenty of time for Estonia to make most of it, and to think how to leap forward even further. That said, nothing is perfect, especially when it comes to tech solutions. The ID- card readers don’t always work properly, some browsers don’t work properly, and the whole experience on Mac computers have been quite a dreadful one — though reportedly things have been improved in the last couple of years. Most Estonians use the mobile ID or the smart ID solutions instead of the ID-card, hence, I don’t have the latest user experience to share in that regard. Alright, so you’re an entrepreneur, and you are considering registering your company in Europe. Estonia is often one of the first options that come to mind. The starting fees are low, the tax system is excellent, the bureaucratic burden is way smaller compared to old Europe or Scandinavia. Yet, there are some things that you should know before getting started. Let’s check them out.
- E-residency is a governmental program, but it doesn’t mean it’s free.
I often read feedback from the e-residents online, and from time to time some people complain that they have to pay for services to operate the Estonian company. Therefore, the whole e-residency is a scam. They have to pay to accountants, consultants, lawyers — dependent on the needs. Doesn’t matter that the fees are way lower compared to most of Europe, it’s a problem that there are fees at all. This one puzzles me — why should an accountant or a lawyer work for free? E-residency program is not a social program. You’re opening a company, and you have to manage your company, and you need certain help to do that correctly. These expenses occur in every country you’re gonna open and run a business in. If you can’t pay 50€ per month for accounting, it’s not a problem of having expenses. You simply don’t have a business.
2. You don’t have to pay taxes if you register a company in Estonia — wrong!
Estonia has a very competitive tax regime for companies. OECD has placed Estonia as a number one tax jurisdiction in its tax competitiveness index for 4 years in a row. Estonia does not have a corporate tax. What you make, you get to keep, unless you distribute profits. Unless… unless you have a permanent establishment in another country, which means that this country where you have the permanent establishment, can in theory tax your company. Whether the risk realizes is another story. So be mindful of the tax treaties between the countries. We’ve written about the CFC rules and permanent establishment matters briefly in this blog post.
3. Liquidation of the company takes time.
It takes about 8 months to liquidate a company. There’s a 6 month buffer period for creditors to oppose the liquidation. This is in place to avoid the situations where you loan a lot of money and then liquidate the company to avoid paying back the debts, etc — there are plenty of examples where it would be bad if the company could be liquidated in a few days, or even in one month. It’s generally not expensive to liquidate the company, but it depends on the situation of the company and its finances/accounting, and are there any creditors.
4. Tax reports and statistics reports.
Estonian companies have to report the VAT and salary taxes every month. In some countries in Europe, it’s required once per year, but in Estonia, it’s done monthly. Your accountant will take care of that, but again, something that you should know. The annual report is also mandatory, which is submitted once per year, and the deadline is usually the 30th of June (it’s different for some regulated industries). Then there are statistics reports for the Estonian Bank. The system sends them out randomly, and most of the time, they are a waste of time (accountant will take care of that as well), yet mandatory.
5. Banking
Banking is a big issue for e-residents. It doesn’t help if you’re from a country which is far away from Europe. In Estonia, LHV is the go-to bank for e-residents, and it does open accounts for e-residents if the business model is simple and the background of the entrepreneur is clean. Things can get more complicated when you’re dealing with physical products, cryptocurrencies, or doing business with North-Korea. Luckily, the FinTech industry is booming in Europe, and these so-called online banks are filling in the needs of the e-residents perfectly. Online account opening, advanced internet banking — it’s all there. You may not be able to loan money from these online banks (E-money institutions by definition), but they enable you to transact, collect payments and make payments. As there are many EMIs now, they are competing for the market share, which means there are EMIs who are opening accounts for more “risky” client profiles to stay in the game.
6. Service providers helping e-residents
Like in many industries, it’s differentiate or die. For most companies, it means a death spiral of competing on price. Competing on price means they need a big volume of clients to make money. With a big volume of clients, you have a lot of demands on your time, meaning, there’s not so much time you can give to each client that you have. This also means that the quality of the service goes down, as your accountant does not have enough time to look into the business and transactions that you do — there might be plenty of tax risks or opportunities which are not paid attention to, and this can turn out to be costly. I am not advocating for pricey services, but also not recommending the cheapest ones. If the entry-level service is provided on par with the cost to get you in the door, it means the fees will add up rather quickly on the back-end. We’ve seen that happening way too many times.
Let us know if we missed anything, we’d be happy to hear from you!

