Many entrepreneurs who own a company in Estonia, but do business elsewhere have to translate their websites or at least a summary of their webpage into Estonian. This also includes e-residents who have founded Estonian OÜs. Silva Hunt will explain in detail why and how this can be done and added to your webpage easily. The basis of these requirements is the Estonian Language Act that can be found in English here – https://www.riigiteataja.ee/en/eli/512012016001/

Under Chapter 4, § 16. Language of information is stated that:

(1) Signs, signposts, business type names and outdoor advertisements, including outdoor advertising, installed to a public place with the purpose of political campaigning, and the notices of a legal person shall be in Estonian.

(2) The translation of the text into a foreign language may be added to public signs, signposts, business type name and outdoor advertisements; thereby the text in Estonian shall be in the forefront and shall not be less observable than the text in a foreign language.

(3) Upon using a brand as a sign of the place of business of a person or in outdoor advertising the part of a brand in a foreign language that includes essential information about the place of business and goods or service offered shall be presented also in Estonian, without damaging the distinctiveness of the brand and without applying subsection (2) of this section. The specified information may also be presented at the entrance to the place of business.

(4) If the agencies, companies, non-profit associations and foundations and sole proprietors which are registered in Estonia have a web page in a foreign language which is directed to the public, it shall include at least a summary in Estonian about its field of activity or the goods and services offered.

(5) At public events the organiser shall ensure the translation into Estonian of the essential information in a foreign language.

E-residents of Estonia should especially be aware of number 4. To avoid any issues or fines from the Language Inspection, simply add summary information in Estonian about its field of activity or goods or services offered. This is also the case if the company does not offer the service in Estonia and operates only in foreign markets.

Besides using Google Translate, there is one other, Estonian-developed option that we can definitely recommend – using Aligner.io. Aligner is a language translation platform created by Estonians that was created to speed up the process of managing and translating multilingual web content and also helps e-residents meet the requirements of the language laws. The uniqueness of Aligner technology is content management, which can be changed and updated in more than 100 languages in just seconds, using the best machine translation engines and delivering instantly. And the good news is that it is and will remain free of charge.

What is the easiest way to create an Estonian summary for your website?

The easiest way is simply to add a new page to your website, for example under the name “Summary of offered services foods” or “Summary in Estonian”. This can be done similar to any website where there is also a policy on the use of cookies or privacy.

You can use the English-language summary of your company´s activities and services and open the page https://app.aligner.io/ Paste the summary text into Aligner or import it directly from Google Docs, then choose an Estonian machine translation that will appear immediately and for free. Another option would be to pay for a human translation that will be completed in a few hours. Afterwards simply copy and paste the completed translation onto your website in Estonian.
NB! If you do not plan to offer services in Estonian at all, we recommend that you do not translate the entire page, but add only a short description and mention that the products and services s in English. Otherwise, it might create false expectations among users that the service will continue in Estonian.

If you have any questions about the language requirements, our team is more than happy to help!

Personal tax residency

First of all, regardless of your e-Residency status, you must always pay personal tax in the country in which you are a tax resident. It is very important to understand the difference between e-Residenct and residency – the first one is a  digital status, the second one a physical residency with residential benefits and obligations. E-Residency does not necessarily mean you are an Estonian tax resident as an individual.

An individual is a tax resident in Estonia if

  • his or her place of residence is in Estonia or
  • he or she stays in Estonia for at least 183 days over the course of a period of 12 consecutive calendar months.

Generally, residents are taxed on their worldwide income in their state of residence. This means that the country where you submit your annual personal income tax returns requires you to tax income you have earned from everywhere else in the world. Generally, there are also both domestic as well as international measures in place to avoid double taxation if this income has already been subject to tax in the country where you received it from. 

For that reason, you should have proof of taxes paid or taxes that have been withheld in Estonia always available to be presented to your local tax authorities. Local tax treatment could be different for each type of income (dividend, salary, directors’ fee) and it could also be affected by what has been agreed in the tax treaty your country has concluded with Estonia.

If you are location-independent, you should understand the tax system of your home country and any country in which you work for an extended period of time. Everyone’s personal tax situation is unique, so we strongly recommend you seek professional tax advice – from your home country or from your service provider´s tax specialist. In case tax advisors in your home country are not yet familiar with the term of e-Residency, please provide them with this explanation from the Estonian Tax and Customs Board.

Corporate tax residency 

Estonia has a simple rule which says that a company is a tax resident in Estonia if it is incorporated under Estonian laws. If you have registered your Estonian OÜ, then this means your company is an Estonian tax resident and subject to tax in Estonia.

However, some countries have different rules for deciding if a company is tax resident. It is common that in addition to the place of incorporation, the place of effective management triggers (tax residence) (parem on öelda, et tekib püsiv tegevuskoht – Permanent establishment). If you run your company from a country with such rules, then the company might end up having (justkui) dual tax residence – this happens when two states believe that the company is tax resident in their jurisdiction and will want to tax the company’s profits. Nad usuvad, et neile õigus ärikasumit maksustada enda riigis.

In case business activities of this company are carried out elsewhere or the company is managed from outside of Estonia, the income received in a foreign state will be taxed (parem oleks: võib olla püsiva tegevuskoha korral maksustatud) in this foreign state and Estonia will ensure avoidance of double taxation. Estonian Tax and Customs Board has a list of all Conventions for the avoidance of double taxation

Estonian tax system

In Estonia, income tax is not assessed on the profit earned every year. Income tax is assessed on a monthly basis and only when profits have been distributed (when you pay out dividends for example). The corporate tax rate is generally a flat 20%, calculated as 20/80 from taxable net payment. Since 2019, if regular dividends are paid out, a reduced rate of 14/86 may apply.

Estonia’s taxation system does have favorable features for investors — including a unique corporate income tax system that has worked well for almost 20 years — but a company can only benefit from it on its profit attributable to Estonia.

Besides corporate income tax, e-residents with businesses in Estonia will also need to consider the following Estonian taxes:

  • 20% income tax from the director’s or member of the board management fee;
  • 33% social tax from the director’s fee.

Find an overview of tax rates at the Estonian Tax and Customs Board website. 

VAT registration

If your annual taxable turnover is below €40,000, VAT registration in Estonia is not obligatory. Learn more about VAT registration.

Nota Bene

  • NB! Please note that the information presented above is a generalization of a complex set of rules depending entirely on laws applicable in your state of residence and the treaty it has concluded with Estonia and is therefore only for illustrative purposes.
  • Never rely on general advise, however, when it comes to taxation. International taxation rules may be complex and are dependent on the specifics of your business activities and location.
  • Although international taxation is complex, having e-Residency can make the tax paying process more transparent and easy through e-services available in Estonia. For example, if you do owe corporate taxes in Estonia, you can declare all taxes entirely online.
  • Silva Hunt has its own tax and legal consultant on the team who can help you figure out your tax situation – please contact us and book a consultation.

Further reading

Tax residency basis on the EMTA website

Further information about corporate taxation on the EMTA website.

Further information by the Head of the Tax Department at the Estonian Tax and Customs Board (ETCB) on How do e-residents pay taxes?Why tax avoiders are disappointed in Estonian e-Residency

In businesses everything is structured. Weather forming a new company or combining already active companies need of creating a business structure and placement of shares may arise.
To arrange this we use term of holding structure – association that holds shares in subsidiaries or is defined as parent company. According to the Estonian Commercial Code, the criteria of being a parent company is majority in votes or controlling influence in another company.

Holding companies can be classified by function as following:

  1. Holding company with independent economic activity. The parent company is actively engaged in economic activities and its subsidiaries operate as agencies and branches in other countries.
  2. Administrative holding company. The parent company determines the principles and procedures for making and managing decisions in all subsidiaries, including strategic and capital flow management.
  3. Financial holding company. Such a parent company is mainly intended for asset management, it does not perform any control or management function. Holds and supplies capital to subsidiaries or new business lines and expansions.
  4. Organizational holding company. The parent company regulates the internal organization and allocates activities and responsibilities across business areas.
  5. Holding company as shareholder. The parent company acts as a shareholder and the economic activities are carried out in its subsidiaries.

Holding companies with all these functionalities can be established in Estonia. As an example headquarters providing centralised functions (marketing, human resources, financial and corporate governance) or holding companies with the aim of holding shares of subsidiaries.
The advantages of setting up the holding structure in Estonia are easy tax system, good economic environment, skilled workforce and good access to e-services.

7 reasons why Holding Company as a shareholder in Estonia is a good idea:

Business friendly tax system

The Estonian corporate tax system is unique in Europe as the profit for the financial year is not subject to income tax. This allows the taxation of profits to be deferred indefinitely and reinvest the earned profits. The income tax liability arises from the distribution of profits, which is usually the payment of a dividend. The tax burden on dividends is 20% and the tax amount is calculated on the net basis – on the amount of the dividends paid out.

A lower tax rate of 14% can be applied to regular dividends. In addition, there is a 7% withholding tax, which applies if the dividend is paid to a natural person. In the case of a non-resident individual, the withholding tax rate may be reduced by means of tax conventions. However, in the case of dividends paid to resident and non-resident legal entity, the final tax is 14%.

Well-functioning e-services

The business registry is an e-service. Establishing companies and making changes to the register is done online. Shareholders and board members can apply for e-Resident status and receive a smart card with a chip that allows access to all e-services, including the digital business register and documents. Further information on applying for e-residency can be found here: https://e-resident.gov.ee/eesti/

The holding company is 100% owned by its owner

A shareholder of a holding company can be both a shareholder and a member of the management board. The business register is public and changes to the register can only be made by a shareholder or board member. All changes will be notified immediately.

A shareholder may transfer his shares to another person in public notary with regular contract or on the basis of a simple written agreement if the shares are registered in the securities register.

The transfer of shares in a holding company is tax free

If a shareholder of the holding company decides to transfer his shares it is considered tax ree in Estonian income tax law. The tax issue may arise if the property of the holding company is real estate located in Estonia.

The holding company shall not pay income tax on the purchase or sale of the shares in the subsidiary

If the holding company decides to sell its shares in a subsidiary located in Estonia or in other countries, the holding company will not be liable to tax on the profits arising from the sale of the shares. Thus, it is possible to sell shareholdings and use the capital tax-free for investments or to lend.

Acquisitions of shares in other companies no tax liability arises. Often, natural persons who own shares transfer them to their holding company. Participation in other companies can also be used to increase the share capital of the holding company.

Existence of professional service providers

There are a number of professional service providers in Estonia that provide the services required by e-residents to meet the requirements of Estonian law. Such requirements are usually the contact address, the contact person and the organization of accounting, the submission of the annual report and the tax report. The list of service providers is out in government page https://e-resident.gov.ee/marketplace/service-providers/. More information about us can be found here: https://www.silvahunt.ee

Professional tax advice

The main objective of holding companies is to improve tax efficiency. That is why it is important to get professional tax advice in order to find better and more cost-effective solutions for managing your capital, dividend flows and therefore reducing tax risks. Our aim is to help holding companies take full advantage of the tax system without adding extra costs or bureaucracy. If you find holding structure interesting and useful contact us right now.

In conclusion

This article was written by Silva Hunt Tax Expert Meelis Krautmann.
Meelis is a tax expert with 18 years of experience. He has led the legal department of Estonia’s tax and customs board and worked as a tax attorney. 
Silva Hunt is a e-Residency service provider who offers a safe haven to active companies while being experienced in structuring holding companies.
If you are ready to open a Holding Company in Estonia or have questions about Holding Companies, write to Silva Hunt team info@silvahunt.ee and we will get back to you.

Onboarding with Silva Hunt

In the following article I am going to write about our onboarding weekend with Silva Hunt’s new friend and client Lukas Sprung. He came to Tallinn, Estonia to complete the first step of joining Silva Hunt circle and create his new Estonian company. I’ll tell you a little bit what we did during his stay, share you his feedback and the impact his visit had on me.

We were onboarding for two days – Friday and Saturday. The whole board of directors:  Kadri Kaasik, Meelis Krautmann and Kaspar Karik were with Lukas every step of the way.

Read more

The last week was big for Silva Hunt. We managed to get the approval for our license (No. FIU000284). It was given to us by Ministry of Economic Affairs and Communications (where you can check it right away and at all time). It allows us to offer services to trust funds and companies, which in essence means that we can start offering our services as e-residents’ company service provider to you!

This ’’little project’’ of ours has been going on since September. We are still a young wolf pack, who is getting to know each other, also growing stronger day by day. When Kaspar, one of the founding members, was asked what is his biggest take away and thought, he answered:

’’I think we have a strong team with a variance of personalities and strengths. I believe each one of the members has their own peculiarity which enforces the team and brings us to a whole new level. We are definitely here to make things happen for our clients and help Estonia to get a wider recognition throughout the world.’’