To run a successful location independent business, you may want to open a company for legal reasons. Luckily, there are countless opportunities all over the planet on where and how to incorporate a business. Today, we’ll show you how easy it is to open a completely location independent company in Estonia. It only takes one single day.
Note: If you are new to this, no worries, it is indeed super simple to open a company in Estonia. However, you do need the Estonian e-residency to do so. In case you don’t have it yet, you may first want to learn how to become an Estonian e-resident.
Why Incorporate A Company In Estonia?
You may of course open a company in your home country, if you wish. You might even have some first experiences or knowledge on legal aspects on how to operate a business back home.
But since as a Digital Nomad you may incorporate your company anywhere on this planet, you might as well look into different options out there. Either because you want to save tax, save time or simply be more flexible. And, of course, because you can.
Many a nomad may recommend you to found in Hong Kong or other tax havens such as the British Virgin Islands to evade taxation as much as possible. This might make sense for some nomads, and is certainly an interesting option for high-net-worth individuals.
However, especially when you are starting out and aren’t (yet) earning huge amounts of money, we highly recommend you to rather emphasize the ease of founding a business. After all, your idea is to get started, and not get stuck in endless bureaucratic paperwork.
Which is why we want to introduce you to a solution as uncomplicated and digital as location independent business incorporation can get: Remote company incorporation in Estonia.
Ever Heard Of Estonia?
Estonia is a tiny country with 1,3 million inhabitants in the Baltic Region in North-East-Europe. After gaining its independence from the Soviet Union in 1991, Estonia needed to find an area of expertise to specialize in, to find its niche in an ever-further globalizing world. They found… the internet. Ever heard of TransferWise or Skype? Yep, they are Estonian.
As you might or might not know, Estonia is part of the European Union. This not only is extremely convenient when dealing with European clients at any stage, but also adds a lot of trust to your business venture. BVI (and many others) simply do carry this aftertaste of tax evasion, which usually nobody says about Estonia.
Estonian E-Residency: The Easiest And Fastest Way To Open And Run A Location Independent Business
Estonia introduced a so-called e-residency back in December 2014 as the first country on this planet. (We haven’t researched most other planets yet – forgive us our negligence.)
This means that you can become an Estonian e-resident without actually living there. In fact, you would not even ever have to visit if you wouldn’t want to. (It is a beautiful country, though.)
The entire process works from the screen of your laptop, and -boom- you are an Estonian e-resident. (Together with several thousand others – check out some fun stats on e-residency here.) The only reason you have to leave your laptop for is to pick up that smart ID card. And to celebrate being Estonian. (Don’t do that on your laptop, please.)
Then you’re all set to incorporate your company in Estonia – your new digital home country.
How To Open A Location Independent Business In 18 Minutes
Estonian e-residents have the right to open a company in Estonia. Again, this can be done entirely online! Simply visit e-Estonia’s Digital Society and follow the steps mentioned. (Today’s Trivia: Estonia holds the Guinness World Record for “fastest time to register a new legal entity”: In 2009, the entire process took as little as 18 minutes!)
The most common business form for a company in Estonia is an OÜ. (OÜ stands for “osaühing”. We assume you knew this means ‘private limited company’, right?) Incorporating an osaühing takes less than half an hour, and costs a total of 208 EUR (if you do it all by yourself). An OÜ company can be entirely owned and operated by one single person. And in the end you do want to have full control over your own business, don’t you?
Since you need a registered address in Estonia to open a company there, and might also be happy about a hand when opening your business or support with the accounting, we recommend to work with a service provider such as LeapIN. They are specialized in setting up digital nomads’ businesses, have a superb support and do all that at a very fair price. Check out their website and send them an email – we bet you will love them as much as we do.
Opening A Business Bank Account In Estonia
The only reason you will need to visit Estonia is to open an Estonian business bank account. Choose a bank (LHV, Swedbank and SEB currently support e-Residents, with LHV probably being the most popular choice amongst Digital Nomads), get in touch and follow their guidance. Again, LeapIN can get most of the bureaucracy out of the way for you. Nevertheless, for the moment you still need to have one face-to-face meeting with the bank before they will approve your application.
Note: We have heard from other digital nomads who run their Estonian business with overseas bank accounts. Albeit difficult, it is possible. Whether this makes sense for you and works with the jurisdiction and the bank you would like to open the account in, we leave up to you to discover. To keep things simple and get you going as quickly as possible, we recommend establishing both bank account and business in Estonia.
Update April 2017: As of April 2017, the Finnish digital banking leader Holvi offers digital nomads to open a business bank account completely online, without ever visiting a branch. It comes with MasterCard and built-in paperless bookkeeping, but does cost 35 EUR a month, plus extra fees for using your MasterCard, >500 SEPA transactions and online store transactions. Nonetheless, if you like simplicity, take a look! (Note: By August 2017 still only available for business owners in the EEA, not e.g. for US residents.)
Update November 2017: Apparently first nomads managed to set up their company in Estonia with a fintech company account such as Revolut or Transferwise Borderless. Should you have any experiences to share, please do so in the comments below or in our Facebook discussion.
Estonian Tax Regulations For Location Independent Business Owners
The tax regulations for people running a company in Estonia are so simple that every normal person who never dealt with taxes in their life before understands this in under 5 minutes.
Here are the rules:
Businesses pay 0% tax before distribution. This means, in case you re-invest your Estonian company profits into your business (which is actually a great idea for start-ups), you won’t pay a single Cent in tax.
Tax After Distribution
Distributions of your company’s profit can be made in two different ways – and are taxed in two different ways:
a) Pay yourself a dividend as company director: Pay 0% tax on the dividend.
b) Pay yourself a salary as company employee: Pay flat 20% tax on the salary. Note: Salaries up to 180 EUR per month are tax-free. (Website Estonian tax authorities on income tax.)
That’s it. Now you know all about the Estonian business tax system. Questions?
Tax Evasion In Estonia
One question that often arises: Why would I pay myself a salary, when I can simply pay myself a dividend?
Good question. The answer is not as simple as the tax system, and has several facades to it. First and foremost, we hope that you are not looking for tax evasion advice on our website, since we clearly are the wrong people to talk to for that.
However, to maximize the cash in your pocket, most advisers recommend to find a fair balance between dividend and salary payment, such as 30/70 or 40/60. If you only pay yourself dividends, and no salary, the Estonian authorities might become a little suspicious after a while.
After all, the government doesn’t mind earning a little something with your Estonian business venture, and as an honest digital nomad you should agree that supporting such a breakthrough system is certainly worth a few euros. If you are looking to evade taxes completely, there are probably more suitable and discrete jurisdictions out there. But, as stated, we won’t give any information on that.
Tax-Free Travel Allowances
Another wonderful bonus the Estonian tax system offers are travel allowances. Per month, you may withdraw up to 1,230 EUR for travel expenses – tax-free, that is. That often is enough already for most digital nomads to survive. Luckily, many digital nomad’s expenses can be seen as business travel expense. But this of course depends on your lifestyle, and you may want to consult a professional tax adviser first.
Declaring Taxes For Your Company In Estonia
Same as the understanding the system, actually filing your tax declaration also only takes 5 minutes – or even less. The Estonian government pre-fills your tax declaration with previously collected data. All you have to do is add or amend a few numbers, and you’re done! Of course, the entire process happens online. (But don’t just take our word for it – Politifact investigated Estonian tax filing times in more detail…)
Note: This is no official tax advice, and you should always discuss your personal situation with a professional Estonian tax adviser first.
Running And Maintaining An Estonian Business
Maintaining an Estonian business is as simple as the tax rules already hint at. Everything can be done online with your smart ID card. Accounting documents are exchanged via Dropbox, Google Drive or other cloud hosts. Communication works flawlessly via email or Skype, all in perfectly fine English (unless you want to learn Estonian). What’s not to like?
Your call: Will you open a company in Estonia? Or have you already incorporated your business there? If not – what holds you back? Let us know in the comments below or join our Facebook discussion on company incoration in Estonia. It’s always good to exchange thoughts and ideas with like-minded people.