The Complete Guide to Estonian e-Residency 3/5

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This post is Part 3 of our 5 part “Complete Guide to Estonian e-Residency.” We will release a new chapter every 2 weeks. Subscribe to our email list to get updates when we release new posts!

3. The True International Company: Opening a Business as an E-Resident

By and large, the main appeal of Estonian e-residency is what it means for starting a company. However, what people think when they hear “e-residency” and its reality are two different things, especially when it comes to business. The imaginations of entrepreneurs run wild, and there’s a lot of misconceptions about taxes and special privileges. On the other hand, the program still grants plenty of wonderful benefits that make more than worthwhile. So how do you know if opening an Estonian company through e-residency makes sense for you?

In this chapter, we’ll separate fact from speculation and explain who stands to benefit most, and how.

 

Why Start a Company in Estonia?

In theory, you could always start a company in your mother country and do business internationally, so why bother with the e-residency program in the first place? Here are some concrete reasons to pique the interest of experimental entrepreneurs:

 

Operating Within the EU

This is probably the strongest incentive to start a business through the e-residency program. European countries may take this for granted, but for the rest of the world — especially less developed countries — operating a business in the EU is an enormous step forward.

The European Single Market removes a lot of obstacles and red tape from transactions and international trade, as well as establishes standards for consumer safety. By extension, Estonian companies are also protected by the OECD (Organization for Economic Cooperation and Development), which regulates common concerns, formulates agreements, provides economic data, and presents a forum for the discussion of all matters related to economics.

 

Legally Binding Digital Signature

Characteristic of Estonia’s commitment to a paperless future, the e-residency program allows members to “sign” documents remotely using a legally binding digital signature. This may not seem like a big deal at first glance, but in practice it’s quite useful.

The digital signature means business owners from anywhere in the world can finalize deals and solidify contracts regardless of location. This foregoes the need for proxies and saves the time and hassle of scheduling all necessary members in the same place.

On top of that, for business owners in countries of ill repute, this digital identity gives them the legitimacy they need to do business on a large scale. The e-residency ID comes with security features and protections that eliminates risks of doing business with said e-resident.

 

Tax Benefits

While not applicable to all companies, Estonia has a few unique tax laws that could save companies some extra cash, particularly young businesses. We’ll discuss these in the next section.

 

Convenience

E-residents enjoy all the online services Estonia’s paperless government is known for. This means a lot less bureaucracy and no more needless running around to and from government buildings. In fact, in most cases, all of your business processing — from incorporating your business to filing taxes — can be handled online from the comfort of your home.

 

Taxes with E-Residency

One of the most confusing aspects of the e-residency program is taxes — so confusing, that most advice you’ll find on the subject ends with “consult a tax professional.” The reason is that e-residency does not exempt you from paying taxes to your home country.

And, although Estonia may be a digital utopia, it’s own tax policies are fairly standard, meaning don’t expect some miraculous savings. Most taxes come out to about 20%, with the exception of social taxes:

  • 20% corporate tax
  • 20% VAT
  • 35% social taxes for Estonian employees
  • 20% income tax — for Estonian citizens only

However, there is one unique tax advantage that, for the right company, could save some money:

The corporate tax only applies to distributed profits. Undistributed profits have 0% tax.

In laymen’s terms, if you reinvest your profits into your company — as opposed to distributing them among shareholders as dividends — they you can get off tax-free. This can be a huge boon to fledgling companies that require both extra investment and tax breaks to grow.

(For the record, distributed taxes are paid by the company, not the shareholders.)

So, in short, an e-resident who opens an Estonian company will have to pay:

  • the income tax of their native country
  • the VAT
  • and any social taxes if they’ve hired Estonian employees…

… but how much they pay in corporate taxes depends on how much they choose to distribute with shareholders.

 

Holvi Business Features

It’s worth mentioning that e-residents who open a Holvi business account also acquire access to a few special features.

Echoing the advantage of convenience we mentioned before, Holvi automatically connects the various aspects of your business for easy, effortless bookkeeping. All purchases made with the account’s Business Mastercard® are automatically categorized, with real-time notifications for added security.

Likewise, invoices are automatically added, with the options for print in case you need to send an invoice by post or wish for a physical receipt. Moreover, you can schedule recurring invoices to be sent out regularly, just one less thing to worry about.

If you’re starting an ecommerce company, you can take advantage of the online store app, designed for ease-of-use so that even the IT-challenged can set it up in minutes. Unfortunately Holvi does not offer APIs to integrate into existing platforms or already established ecommerce sites. However, account-holders are welcome to build entirely new online store through the app.

Holvi’s online store accepts limited payment methods — mostly Finnish banks — but can process most global credit cards. Any transactions made online are automatically added to your records as well.

The icing on the cake is the mobile app that ties all these features together. Managers on the go can check balances, pay and send invoices, receive real-time notifications, or review online purchases and sales analytics.

 

Third-Party Tools

As with Holvi, the e-residency program partners with a few other business service providers to facilitate the process of opening and operating your Estonian business abroad:

 

LeapIN

Authorized by Estonia’s Financial Intelligence Unit (FIU), LeapIN is a “turnkey solution” that covers nearly every step of the process: incorporation, banking setup, accounting, tax fulfillment, and compliance. If opening an Estonian business seems intimidating this could be the assistance you’re looking for, as long as you have the cash to spare: €59-99 per month, depending on the plan.

 

1Office

In addition to e-residency application support and traditional accounting services, 1Office also offers virtual and serviced office space services if you’re interested in making your remote Estonian company a little less remote.

 

Lettica

The financial and accounting consultants at Lettica offer specialty assistance packages of scalable prices for help with issues related to e-residency, including company formation, legal address acquisition, tax consultation, translations, and virtual services.

 

Conclusion

It’s a mistake to think that Estonian e-residency can solve all your business troubles. The truth is that it’s only worth the investment under the right criteria… That said, if you and your business goals fall under that criteria, then e-residency really could be the game-changer futurists are making it out to be.

On that note, in the next and final chapter, we’ll discuss the implications of e-residency on the world as a whole. What does a business without borders mean for the world, seen through the lens of current affairs like Brexit and India’s startup boom.

 

This post is Part 3 of our 5 part “Complete Guide to Estonian e-Residency.” We will release a new chapter every 2 weeks. Subscribe to our email list to get updates when we release new posts!

  1. What Is Estonian e-Residency… and What Isn’t It?
  2. Banking without Borders: Financial Services as an E-Resident
  3. The True International Company: Opening a Business as an E-Resident
  4. How to Apply
  5. E-Residency and the World of Tomorrow

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