BUSINESS IN ESTONIA

The Estonian economy has become highly competitive, supporting both large international companies and newly established start-ups. In recent years, Estonia has become the world leader in IT, and the country invests heavily in the sector.

Estonia has world-class human capital, and its skilled workforce will be a great asset for any entrepreneur establishing a business in Estonia. The Estonian workforce is highly qualified and multilingual. English is widely spoken in the country.

Establishing a business in Estonia has been made extremely easy. It has become the first country in the world to offer e-residency. This means that entrepreneurs around the world can set up a business in Estonia if they are e-residents. It also allows the entrepreneur to run the business remotely.

COMPANY ESTABLISHMENT

Before undertaking business activity in Estonia, it is necessary to choose which type of legal entity to form. The Commercial Code of Estonia governs business establishment in the country. According to the commercial code, there are five forms of legal entities. These are private limited company (OÜ), public limited company (AS), general partnership (TÜ), and limited partnership (UÜ). The most common forms of business are a private limited company and a public limited company.

For private limited companies (OÜ), the share capital must be at least 0,01 EUR if there is one founder of the company. Even though the share capital can be only 0,01 EUR, it is highly advisable to establish a company with at least 2,500 EUR share capital.

For public limited companies (AS), the share capital must be at least 25,000 EUR.

Please note that the share capital has to be fully paid in before the establishment of the company.

There are two ways to establish a new company in Estonia. The first is the electronic registration through the Company Registration Portal. This option is available only for a natural person who has an e-residency or Estonian ID-card. A natural person- founder has an opportunity to establish a company with no contribution. The second option is registration through a notary.

TAXATION

Due to its relatively low tax rates and the absence of corporate income tax on retained and reinvested profits, Estonia has one of the most competitive tax systems compared to other countries. To ease business operations, all tax declarations can be submitted online.

In Estonia, companies are not subject to traditional corporate income tax. Estonian resident companies and the permanent establishments of foreign entities (including branches) are subject to 22% corporate income tax, calculated as 22/78, only on all distributed profits (both actual and deemed). Retained and reinvested profits remain taxed at 0%. The tax period for companies is one month, and corporate income tax must be declared and paid by the 10th day of the following month.

The personal income tax rate in Estonia is 22%. The taxation period for personal income tax is one calendar year. Taxation of employees’ income is generally performed by withholding income tax at a rate of 22% from the employee’s gross salary. Employers withhold taxes each month, meaning there are no additional payments or filing obligations for employees. Estonian tax residents must declare their worldwide income in Estonia, regardless of the income’s origin. Non‑residents are taxed only on the income they earn within Estonia.

Starting from 2026, all employees are entitled to a uniform monthly basic exemption of 700 euros, regardless of their income level.

From 1 July 2025, the standard VAT rate in Estonia is 24%. The reduced VAT rate of 9% applies to books, medical products, and periodic publications. A reduced VAT rate of 13% applies to accommodation services. A 0% VAT rate applies to all goods and services related to international business.

For more information regarding taxation in Estonia, please visit the Estonian Tax and Customs Board’s website.

EMPLOYMENT

The core of Estonian labour relations is regulated by the Estonian Employment Contracts Act (ECA).

Expats are liable to pay resident taxes in Estonia only if they stay in Estonia for at least 183 days over a period of 12 consecutive calendar months. When a foreign employee fulfils the criteria for tax residency in Estonia, he/she must register the form for the determination of residence.

To employ people for business activities in Estonia, it is always necessary to register employees in the Employment Register, which is maintained by the Estonian Tax and Customs Board. If employees do not yet have an Estonian ID number, they must obtain one from the local government.

The employer cannot ordinarily terminate an employment contract. If the employer decides to extraordinarily terminate the employment contract for a good reason as prescribed by the ECA, the written notice period must be determined according to the employee’s length of service. The notice period ranges from 15 days for employees with less than one year of service to 90 days for employees who have worked for more than ten years at the company.

The employee may ordinarily cancel an employment contract entered into for an unspecified term at any time by notifying the employer at least 30 calendar days in advance in a form that can be reproduced in writing.

The employer is required to justify the termination of the employment contract. The employee does not need to justify ordinary termination.

BEING AN EXPAT

Estonia is a member of the European Union so moving and working inside the EU for the citizens of EU-countries is free. However, if a foreign national wants to stay and work in Estonia for more than 90 days, a residence permit has to be applied.

The expat community is the biggest and liveliest in the capital, Tallinn. However, Tartu also hosts a rather big group of foreign students and workers.

For more information regarding residency in Estonia, please visit the official website of the Estonian Police and Border Guard Board.

INTERESTING FACTS ABOUT ESTONIA

• Estonia was the first country in the world to introduce e‑elections.
• Over 50% of Estonia’s territory is covered by forests.
• More than 40% of people of working age in Estonia have higher education.
• Estonia has been ranked first in the OECD’s International Tax Competitiveness Index for eleven consecutive years.
• The University of Tartu is the only university in the Baltics to be among the top 1.2% of the world’s best universities.
• The Estonian Song Festival (in Estonian “Laulupidu”) was first held in 1869 and has been recognized by UNESCO as a masterpiece of the oral and spiritual heritage of humankind.
• Estonia has over 2,300 islands, with a combined permanent population of more than 40,000 residents.
• Over 134,500 people worldwide have joined Estonia’s e‑Residency programme, establishing more than 39,300 companies in Estonia.
• Estonia’s digital state model enables more than 99% of public services to be used fully online.

If you’re interested in starting a company in Estonia, contact our experts for a consultation.