Why do entrepreneurs choose Estonia?
Entrepreneurs thinking about opening or growing their business under favourable conditions should consider the Estonian market. Due to the E-Residency program, which has been functioning in this country since 2014, creating and running a company is extremely easy. Moreover, it allows benefiting from the well-known “Estonian CIT”. In the scope of the following article, the basic principles of E-Residency and the benefits that come with it will be widely discussed and analysed.
Digital ID card
The E-Residency program provided by the Republic of Estonia offers simple and secure access to digital services, allowing the so-called ‘hand-to-hand’ handling of various issues (significant from the entrepreneurs’ point of view) via the Internet. Therefore, in 2022 alone, the Estonian government has already registered nearly 100,000 E-residents* (the number of Polish entities is also constantly growing). Among these services we can distinguish, among others:
- founding and managing a business,
- signing documents,
- handling matters related to banking and file ciphering.
E-residence can thus be called a “digital ID card” which the Estonian authorities provide to non-citizens of this Baltic country. The program gives registered entities access to several Estonian E-services. Hence, an increased interest in such services can be observed not only among Polish entrepreneurs and investors but also on a global scale. For example – many law firms also provide legal support to the entities interested in such services; Estonian Marketplace is therefore very useful for entrepreneurs in generating leads.
What does the registration procedure look like?
E-Residency is therefore the easiest and fastest way to start a business in Estonia. The registration procedure is done almost entirely remotely – any interested entrepreneur can apply online via the application website of the Estonian Police and Border Guard. The decision on granting the E-residence card should come within 30 days if the formalities are properly completed.
The next step towards getting an E-residency requires visiting one of the Estonian diplomatic institutions or the Estonian Police and Border Guard. This is the only part that requires the physical presence of the interested entity on Estonian territory. It is possible to receive a physical card confirming E-Residency at the chosen institution. After passing the two-step procedure, an entrepreneur can open a company in Estonia without the necessity of physical presence in the country. What is more, after receiving the E-residence card, the entity can easily perform formal operations related to the current management of the company (opening bank accounts and communicating with government institutions and administration authorities), which would be much more complicated and time-consuming without completing this procedure.
It is therefore an extremely simplified process for setting up a business in other countries; in comparison to the traditional models. Usually, during such procedures, the physical presence of the entrepreneur is required, as well as the submission of several documents requiring legalization or an Apostille.
How to avoid disappointments during the registration process?
While it may seem tempting to obtain an Estonian e-residency and start up a new business on preferential terms offered by the country’s authorities, it is important to know a few crucial registration conditions:
- the registered activity must not be fictitious – this means that the entity must function on Estonian territory.
- agreements on avoidance of double taxation – to benefit from the simple and transparent tax system, it is also worth paying attention to their content. According to the terms of the majority of them, tax residency is connected with the country of actual business management.
Thus, if a company is registered in Estonia, but its management is permanently residing in another country (according to the above – the activity will not be physically realized in Estonia, but, for example, will be consisting only of providing services via the Internet), it may be expected that tax office will decide that taxes should be settled by the law of the entrepreneur’s home country. If it is determined that the established company is a tax resident of another country, a controlled foreign corporation, or a foreign branch of a company, it will not be possible to settle taxes in Estonia.
Baltic markets – a chance for a better future
However, if a particular type of business activity may be performed in Estonia (e.g. if it consists in supplying goods to the Estonian market), it is certainly worth checking out the possibilities offered by E-residence. Starting and conducting business in Estonia thanks to this program is much simpler than in other countries. Taking into consideration an easy and understandable tax system, a constantly and dynamically developing Estonian market, as well as access to the Baltic region, E-residency may turn out to be an opportunity for many businesses.
By Paulina Opielka, Head of Corporate/M&A, and Jacek Kulig, Junior Associate, Konieczny Wierzbicki