The Most Popular Questions From The Estonian E-residents

We’ve compiled some of the most popular questions in the e-residency Facebook community. The goal of this post is to simplify the life of the e-residents by answering to the FAQs, so the new community members would have an easier way to navigate through the questions they probably have. Bear in mind, answers given to these questions are general, and your specific situation might require more information for the proper answer.

Additionally, there are certain questions that can not be answered in this post, and these are usually related to the country where the e-resident is from. For example, if someone is from Spain, and asks how the taxes should be reported in Spain, then I am not addressing questions like these here, as they are country-specific and describing the procedures of each country is too broad and exhaustive. It would be valuable, though, but the community is more than helpful to give an hand on such occasions. Also, if we have Spanish/German/Italian/Russian/Turkish etc e-residents that have gone through these processes and are willing to contribute to this article, I would absolutely be happy to include the information.

So, let’s dig in.

What are the costs of the e-residency card and opening the company?

The cost of the e-residency card is 100€ — this is the state fee that has to be paid when you submit your application. To open the company, you need to pay the state fee of 190€ — this is the same amount everybody pays in Estonia for establishing the company. The minimum share capital contribution is 2500€, but you do not have to pay it in when you start. Instead, you can choose the time-frame when you’ll pay it, for example, 3 years, 4 years, 5 years, or, something else. I really don’t know whether there will be problems if you actually won’t pay it in during the time you said you will. I haven’t experienced any problems nor I know anyone that has.

One thing you will need to take into account — every company needs an address. Virtual office, if you will. So you need to get in touch with some service provider before establishing the company. The prices are usually around few hundred euros per year. The more prominent address can be more expensive, though I am not sure what can be considered as prominent here in Estonia and whether it makes any difference. It might — we always say to our clients that address in a known brand like WTC gives more credibility.

Do make sure what additional fees apply. If you pay very little, then the digitalization of the mail and forwarding costs might be high. The service provider has a low entry price but will ask higher fees later. That’s pretty common. Avoid that, if you can.

From the 2018, you’ll also need a local contact person. It can be a legal entity, i.e, the service provider of the virtual office or the accounting company. Just make sure they offer the service as it will become mandatory.

How long does it take to get your e-residency card?

They say it’s one month. I think it was 2 weeks when the program started, but with the rising popularity, the verification process takes more time due to the big demand. As much as I’ve understood from the e-residents, they sometimes wait 6 weeks and maybe even more. I guess it varies per case. if you don’t need it by tomorrow, then a week or two additional waiting time shouldn’t be the biggest problem. If it’s already 3 months you’re waiting, then better get in touch and ask what’s the status of your application.

How long does it take to register your company? How to do it?

Once you have the e-residency card, you have downloaded the software and everything is set and ready, you can start the process by going to the rik.ee web address. The time it takes depends on you, really. If it’s your first time, it can take up to 2–3 hours, as you might want to read everything that is written and you’re kind of testing the system. However, the articles of association and the constitute of the company is standardized — you can customize some parts, but you don’t have to. Hence, it can be done really fast — for example, I’ve established many, many companies and I know already what’s there. So I do it in 20 minutes.

The second part of the question — how to do it, is something that’s easier to show. I have done instructional videos for that, so if you’re interested in getting them, send me an e-mail to estonia@comistar.com — and I will tell you how to get them!

Accounting costs?

This depends first and foremost on your business. How big is your volume, do you have employees, what kind of business do you do and whether you need more than basic accounting. Different service providers have different pricing structures. Most common ones in Estonia are either entry based or hourly based pricing structures, while fixed pricing is less common. However, it’s a definite trend of the accounting industry in Estonia. I would say it’s difficult to get pricing below 50€/month if you actually do some business. If you don’t do anything, then yes, everything is possible, as you probably won’t need to submit VAT declarations monthly. Be wary of the” hard to believe” cheap prices. It won’t do your business any good.

When it comes to choosing your accountant, there are obvious things to look for. For example, it’s easier if he or she speaks English, right? It’s also important that the accountant is capable of giving a sound tax advice, and, has the capacity to understand the business you’re in. Why? Because it gives the extra dimension for the accountant to generate useful reports based on your numbers. For example, which clients are the most profitable, what are the biggest expense categories and how these expenses correlate with the revenue, and a lot more. There are many things that can be measured, and should be measured, in the business.

In conclusion, it depends on your business and what you need. The more precise description of your business you can give to the accountant, the more realistic offer you will get.

What are the additional services that you’ll need?

The first thing that comes to my mind is a tax advisory. A lot of e-residents mix e-residency with tax residency, which it is not. You’re still a tax resident in the country you live in, and you have to pay all your taxes to that country.

Moreover, there’s a rather wide belief that once you establish a foreign company, in our case, an Estonian one, you’ll get to enjoy all the tax benefits Estonia enables.

Because of the OECD standards and the tax treaties between the countries, it’s not the case. Unless you have a substance, you’re still liable for all the taxes in your own country.

To give you an example: Let’s say you’re a French tax resident. You establish the Estonian company, but keep living in France. Although you would guess the company’s tax jurisdiction to be Estonia, very likely it is not. Unless you don’t have a local office or a manager in Estonia (there are few other ways to create permanent establishment).

It means France can tax your Estonian company just like they would tax a local French company, with 30% corporate tax. And this is important. It depends on the country, but these tax decision can be done x years retrospectively. In Finland it’s 5 years, in Canada it’s 10. So in 2021, France tax department might tax you for all the profit your company made starting from 2017.

So, what you need, is a substance. For example, if the company has actual office and employees in Estonia, and a manager in Estonia. A local manager.

Or, you move to Estonia.

Tax treaties rely heavily on the information exchange. It is not very good yet with the most of the countries and because of that, the scenario of being taxed in your own country might never realise. But it’s a possibility, especially as technology is making information exchange easier all the time. The OECD standard of Automatic Exchange of Information is already effective and binding for the countries. However, there aren’t many countries that are capable of such automation, because they lack the right technological solutions. But it’s very naive to think they never will.

To give you an example, then Estonia and Finland already have automatic information exchange system implemented.

Taxes are a very nuanced topic and they depend heavily on your current tax residency, so it’s useful to have an advisor who can help you with these matters.

Apart from the taxes, the services that you need are, of course, the virtual office, which we already spoke about and probably legal services, if you need some licenses/permits or contracts. What else you might need depends on your business. For example, mentoring or marketing advice, or help in figuring out the ways to grow your company or maybe market entry services to different markets.

These services aren’t necessarily tied to the Estonian e-residency, but they might still be important for your success.

Opening the bank account

That’s probably the most popular question of all. As frequently advised on the e-residency community, there are digital banks, which don’t have all the functions of the traditional banks, but they offer a lot of services that are useful to get the business started. Services like Holvi, Transferwise Borderless, and there are more. You can make and accept payments using these service providers.

The most popular choice of a traditional Estonian bank seems to be LHV. It’s not too easy to get the bank account opened, because most of the businesses owned by the e-residents do not have any ties to Estonia, except for registering the legal entities. Whichever industry you’re in, seek out potential business partners, or if your business is a B2C, then possible distributors, get in touch with them and list them as your partners. If that’s possible. Of course, you can’t lie in your application, and you really should have the intent of cooperating with local companies. I am not saying this will guarantee the opening of the bank account, but it might help.

As much as I’ve understood from the founder of the LHV, they can’t open the bank accounts easily because there are EU (or OECD, can’t remember anymore) regulations for non-resident bank accounts. There can only be a certain percentage of the non-resident accounts in relation to the total bank accounts or deposits of the customer base. So they have to work within those limits.

At the moment, you need to travel to Estonia to identify yourself in the bank. Before, it was possible to open the bank account with the power of attorney as well, but it’s no longer possible.

The story is that in 2018 the video identification will be made possible by the LHV bank. Let’s hope.

My recommendation is to think through your business, what relation it can have with Estonia, and how you can prove to the bank that you will actually do business in Estonian market.

Also, you can open an account in your home country. I have opened an account in Estonian bank for the UK company, for example, and I know more examples like this.

VAT and other company taxes

This is not a tax advice. Please contact your tax advisor to ask about your specific situation.

Value Added Tax

Estonia does not give a VAT number automatically to the new companies. You have to apply for it separately. You can do that in the e-tax office or you can ask help from the service provider. It’s not too complex, but sometimes people prefer to have those things done for them.

B2C business.

There can be exceptions and it can differ depending on your business activities, but generally, if you’re selling services, you need to add the Estonian VAT to your invoices. It’s 20%. If your business meets certain criterias, you might have to add the VAT of the country you’re selling to.

If you’re selling physical products to the consumers in other EU countries, you need to take into account the fact that each country has a threshold. Once you exceed the threshold, you need to apply for the VAT in the country where the threshold was exceeded. For example, most of the EU countries have a threshold set on 35 000€. If you sell more than 35 000€ worth of products to Finland in a calendar year, you have to apply for the Finnish VAT and report the VAT in Finland instead of Estonia. And if you exceed the threshold in six different EU countries, you have to report VAT separately in each of these countries. Doesn’t sound too convenient, but this is the way it is.

Selling digital products to consumers? First, find out whether your product is qualified as a digital product. You can do that by clicking here. Digital products are taxed with the VAT in the country where the consumer resides. To simplify the VAT reporting, EU actually has a convenient system (for once) called MOSS — a one-stop shop for collecting the VAT. You have to register for the MOSS in the tax office. Reporting of MOSS is done quarterly and your accountant will take care of that.

To comply with the MOSS you’ll need to have a software solution on your website that will do the heavy lifting of adding the correct VAT to the transactions. You’ll need to collect proof that the clients are actually residents in the countries they say they are. They might have incentives to choose another, lower VAT jurisdiction, to get a better price. Fortunately, current software solutions collect proof and match them quite seamlessly. By proof I mean things like the phone number (country code) matches with the given address and so forth.

Popular ecommerce platforms all have these EU VAT plugins by now.

B2B business.

Doing business with other EU companies.

If you have a valid VAT number and your partner has a valid VAT number, then the VAT rate you’ll use is 0%. You can control whether the VAT number is valid from the central EU database. You can control the validity of the EU company VAT numbers from here. I recommend to do that as if your partner gives you a VAT number, and you use the 0% VAT rate, but it turns out the VAT number was not valid, then you end up paying 20% VAT yourself. It’s because you should’ve added the Estonian VAT to the invoice.

If you yourself do not have the VAT number, then you can’t add any VAT to the invoice, as you don’t have the VAT number that gives you the right to add the VAT.

Also, be aware how the service you provide is qualified by the tax treaties. Some services are generally assumed to be carried out on the clients’ premises, i.e in the country where the client resides. This could mean that you need to apply and add the local VAT instead.

Also, there can be source taxes or withholding taxes to some services, unless you’re in local registries. I don’t know the laws of different countries well enough to know exactly how foreign companies are treated in each, but it’s something to pay attention to. This can be relevant to, for example, construction industry, when you’re working on the clients’ premises.

Company taxation.

Estonian company has 0% profit tax unless the profits are distributed. However, this might not apply if you reside in another country, as I described before. Dividends are also important. Estonian business owners love to take dividends as it’s favorable — you pay the 20% (on brutto amount) and that’s it.

I was asked, by the e-resident Demetrios, to clarify the dividend tax rate a bit, as it’s something that’s often misunderstood. We, Estonians, like to talk in brutto amounts, i.e if we talk about 100 000€ brutto dividends, 20% tax is applied and the shareholder receives 80 000€. However, as a business owner, when you’re distributing dividends, you probably calculate tax on the net amount. It means that if you pay out 100 000€ net, then you’ll need to pay 25 000€ for taxes, or 25% tax. It can be a an unpleasant surprise, if you pay out certain amount and expect to pay 20% tax, and instead you’ll have to pay 25%.

As a foreign tax resident, when distributing dividends, you are obliged to pay the 20% (from brutto amount)to Estonia, and whatever taxes may apply in your home country. This can mean progressive personal income tax and so forth. I recommend you to contact local authorities or try to find information on getting dividends from foreign company and what taxes you have to pay in your own country and whether you can or can not deduct dividends from your local taxation. Very often it doesn’t make sense to pay dividends as a foreign tax resident.

Capital gains from selling the company — if the company does not own real estate in Estonia (more than 50% of assets), then Estonia does not tax your capital gains from selling the shares of the company.

Salary taxes are paid in the country where you are a tax resident. Salary tax cannot be double-taxed, at least not in the countries that have a tax treaty with Estonia. Dependent on the country, you might be required to register your Estonian company as a foreign employer there. On some cases you can declare all your salary taxes as an individual without the need of registering the company.

Estonian salary taxes are quite high. There are certain websites where you can play around with different salaries and see the tax burden that will come with it. You can find one here.

What kind of businesses can you do?

You can do all kinds of businesses, it doesn’t really matter. It’s just setting up a business like everywhere else. You can do service business, dropshipping or any other business you want to do. Just be aware that some businesses require applying for the licenses, like selling medicine, financial services etc.

How to register an EORI number?

Diego from the Estonian E-Residency community highlighted the steps to register the EORi number. It only takes few minutes to complete:

- Log in as a representative ( of your company)
- choose Contract and settings
- choose Administrate power of attorneys
- Press change (on Your name)
- Add a new power of attorney
- Choose type- bookkeeper package
- Insert the date of when your new rights start
- End day (you may leave it blank)
- Click save (don’t forget this step)
- Log out and log in again as a representative
- You will see e-customs -> EORI → Register

That’s it for now! I will be adding questions from the e-residency group and suggestions or additions that you may have. Together, we can make this article a great source of information for all the e-residents.