Company formation in Estonia

Before deciding to set up a new company in Estonia, read the information below to understand the characteristics of a Private Limited Company (PLC) / Osaühing (OÜ):

Shareholders: at least one shareholder (may be a natural or legal person).

Director: at least one director; there must be a management board.

Minimum share capital: €1.

Legal address: it is necessary to have a legal address in the territory of Estonia.

Liability: the company has limited liability only with its share capital.

Accounting: Estonian companies must file annual reports, salary declarations every month, monthly VAT reports (if the company is registered for VAT).

Corporate income tax (CIT)

The CIT rate is 20%, calculated as 20/80 from taxable net payment.

Personal income tax (PIT)

The PIT rate is 20%.

The amount of basic exemption depends on a person’s income (up to € 654 per month and up to €7,848 per year). In order for the basic exemption to be calculated, the person must submit a written application to the employer or the person making the payment.

Value-added tax (VAT)

From 1 January 2024, the standard rate of VAT in Estonia is 22%.

There are two transitional provisions for the transition to the 22% VAT rate:

• until 31 December 2025, provided that the goods or services supplied are subject to a standard VAT rate, the user of cash accounting of VAT may pay VAT at the rate of 20% on the supply of the goods or services generated after 31 December 2023 if an invoice was issued to the purchaser and the goods were dispatched or made available or the service was supplied before 1 January 2024. (subsection 24 of § 46 of the Value-Added Tax Act);
• the second transitional provision concerns transactions relating to long-term contracts, in particular transactions relating to immovables. Until 31 December 2025, a taxable person will be entitled, on the basis of a written contract concluded before 1 May 2023, to apply the 20% VAT rate applicable on the supply of goods or services until 31 December 2023, provided that the relevant contract provides that the price of the goods or services includes VAT at a rate of 20% or VAT at the rate of 20% is added to the price and the contract does not provide for a change in the price resulting from a possible change in the rate of VAT. (Subsection 25 of § 46 of the Value-Added Tax Act).

According to subsection 25 of § 46 of the Value-Added Tax Act, the exact wording in the contract is not the most important factor, but whether according to the contract the seller has the right to increase the price of the goods or services due to the increase in the VAT rate or it is not possible. If the taxable person is able to increase the price, for example based on the Law of Obligations Act or the general terms and conditions of the contract, a tax rate of 22% will apply from 1 January 2024, regardless of when the contract was concluded. If the company that signed the contract has an exceptional situation where it is not possible to change the price and they do not want to terminate the contract, the VAT rate of 22% must be applied from 1 January 2026.

Reduced VAT rates:

• 9% for books and educational literature, medicinal products, accommodation services or accommodation services with breakfast;
• 5% for press publications;
• 0% for exported goods, goods where their transfer and transport to another Member State or transport to another Member State without transfer is deemed to be intra-Community supply of goods; sea-going vessels navigating in international waters; goods transferred and transported to another Member State to a diplomatic representative, a consular agent (except an honorary consul), a representative or representation of a special mission or an international organization recognised by the Ministry of Foreign Affairs, headquarters of an international organization, a diplomatic representation, a consular post, a special mission or a Union institution; services where the place of supply is not Estonia, excluding cases where the supply of such services is exempt from tax; port services to meet the direct needs of vessels navigating international waters and many others.

Double taxation avoidance agreements in Estonia: Albania, Armenia, Austria, Azerbaijan, Bahrain, Belarus, Belgium, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Finland, France, Georgia, Germany, Greece, Guernsey, Hong Kong, Hungary, Iceland, India, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Kazakhstan, Korea, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Malta, Mauritius, Mexico, Moldova, Netherlands, North Macedonia, Norway, Poland, Portugal, Romania, Serbia, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Thailand, Turkey, Turkmenistan, Viet Nam, Ukraine, United Arab Emirates, United Kingdom, United States of America, Uzbekistan.