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Taxes

If you’re opening a company in Estonia, you’ll need to understand what that means for your accountancy. From taxes to annual dividends to paying employee salaries, our straightforward article walks you through the basics – and how Companio handles all of it for you! Click here to learn more.

In order to perform the accounting correctly, each and every bank movement in your corporate account must have documentary support or justification. The Estonian authorities are very strict in that regard.

Each payment to suppliers needs a purchase invoice, and all earnings from customers need an income invoice. Salaries must be declared as such, as well as dividends. Everything else, you must inform us so that we know how to declare them.

The golden rule is: each invoice must have a bank movement and vice versa.

If you are a tax resident in a country with CFC rules (like most European countries, US, Canada, UK, Australia, etc), there might be situations in which the local authorities may claim that your company needs to pay taxes there instead of in Estonia.

How can that happen? According to the low, for entities that:

  • Have been constituted in accordance with the local laws.
  • Have their registered office in the local territory.
  • Or that they have their effective management headquarters in the local territory.

The first situation will never happen if you founded your company in Estonia.

The second one means you cannot have your permanent headquarters, like an office, outside of Estonia. You cannot rent or buy an office for your company in Germany, the US, or Australia, for example.

The third one varies from country to country but generally means that the majority of the board cannot reside (i.e: be tax resident) of a country with CFC rules. If you are the only board member, for example, and live in Germany, The German authorities will conclude that your effective management headquarters are in the country and, as such, ask your company to adhere to the German fiscal laws and pay taxes in Germany.

In that scenario, you will lose the benefits of taxation on profit distribution only, and we would not be able to continue offering you our services.

IMPORTANT NOTE: with the new European Directive on tax avoidance of January 2020, these CFC rules don’t apply to European citizens under certain conditions. That means you can live (and be a tax resident) of any European country and manage your Estonian company online from there, without the need of being a digital nomad. More info here.

If your company experienced losses during the financial year, to prevent a bankruptcy scenario, it is required to balance out the books of the company so it reaches the minimum amount required to cover your share capital, as required by law. This can be done in a few ways:

  • One option would be increasing the share capital of the company and making the payment effective for this share capital. We have a tutorial on how to pay (and optionally increase) the share capital.
  • Another option is, for startups or tech companies, declaring these expenses as intangible assets, for example, costs of development and design, that can be proven (i.e: development and building of the technological platform or infrastructure). In that case, we need a letter signed digitally by the shareholders of the company where you explain that the costs are due to intangible assets X and Y, and that its value is inherently invested in the company and its technological platform.
  • Finally, if you gave a loan to the company, and the company has not paid back, that also triggers the bankruptcy situation. To prevent that, you can resign or give up your rights of asking that money back from your company. In that case, we need also a letter signed digitally by all shareholders, expressing this resignation.

If you have any doubts about what may be the best option for you, let us know.

If you are not a tax resident in Estonia, your salary is not contributing to your pension. This means that you will not be able to benefit from retirement in the future. If you need it, you should look for a private pension plan.

Regarding social security, if you pay the minimum social security fee for your salary as an administrator (board member salary), you are eligible for health insurance coverage in Estonia. This would give you access to public healthcare and get medical attention in Estonia.

There is no clear jurisdiction on whether, in this case, you can opt to apply for the European health card. If interested, it’s better to ask for your specific situation to the tax authorities in Estonia.

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