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Frequently Asked Questions

How is income and dividend taxation of the company executed?

Intrinsically, the company’s profits for an accounting period is not taxed. The moment of corporate income taxation is shifted until the distribution of profits, for example, in the form of dividends.

Paid out dividends are subject to corporate income tax. The corporate income tax rate is 20/80 or 25%. The tax is payable in a month following the distribution of dividends.

Example 1

In January 2017, the company paid out dividends in the amount of EUR 10,000.
The corporate income tax rate is EUR 2,500.
The tax payment due date is February 10, 2017.

Example 2

The company finished the business year at a profit of EUR 100,000.
There is no distribution of dividends.
There are no obligations arising from taxes.

What is the amount of tax burden on wages in Estonia?

Rates of taxation as of January 1, 2018

 

1. Taxes on wages

1.1 Taxes withheld from gross remuneration for work of an employee

  • Income tax is 20%
  • Unemployment insurance is 1.6%
  • Pension insurance is 2%
  • Total tax burden withheld from wages is 23.6%

1.2 Taxes charged (“on top of”) gross remuneration for an employee’s labor

  • Unemployment insurance is 0.8%
  • Social tax is 33%
  • The minimum obligation for social tax is EUR 155.10 EUR (470 x 33%) per month (usually applied at one main working place)
  • Total amount of taxes charged on top of wages is 33.8%

1.3 Tax benefits to the extent of ​​taxation of wages

Income tax is not suffered

  • A non-taxable amount is EUR 0-500 per month and EUR 0-6000 per year (prerequisite – application to an employer, typically filed at one main working place)

Example 1

Gross remuneration for labor is EUR 1,000.
The amount of all taxes (withheld and accrued) is EUR 530.80.
Net wages is EUR 807.20.
Employer’s total costs and the wage fund are EUR 1,338.
Tax burden on wages taking into consideration the non-taxable amount of EUR 180 and pension insurance of 2% is 53.08% of the gross remuneration for labor.

Example 2

In Estonia, the minimum gross remuneration for labor is EUR 500.
The amount of all taxes (withheld and accrued) is EUR 187.
Net wages is EUR 482.
Employer’s total costs and the wage fund are EUR 669.
Tax burden on wages taking into consideration the non-taxable amount of EUR 500 and pension insurance of 2% is 37.40% of the gross remuneration for labor.

How can we be useful to you in working with the staff of your company?
  • We will be helpful in draft contracts, employment applications, applications for the use of non-taxable amoint in Estonian.
  • We will make an entry in the employment register.
  • We will run payroll calculations.
  • We will send you a payroll with the amounts of wages due and payable to employees.
  • We will complete and submit TSD return on wages and all requisite attachments to the return.
  • We will tell you the amount, term and details for payment of taxes.
  • We will keep you informed of changes in taxation.
  • We will be helpful in resolving labor disputes with employees (if any), representing you in court and in the Labor Disputes Commission.
  • We will assist with obtaining a work permit and a residence permit for your employees.
  • We will consult which form of labor relations is suitable for your company.
  • We will prepare a set of documents on labor safety on site.
What is the minimum gross wage in Estonia?

Minimum gross wage as of January 1, 2018

  • EUR 500 per month
  • EUR 2.97 per hour

Example of Payroll Preparation

DESCRIPTIONAmount €Calculation
GROSS WAGES, EUR500
SOCIAL TAX, 33%, EUR165500 * 33%
UNEMPLOYMENT INSURANCE, 0.8%, EUR4500 * 0,8%
INCOME TAX WITH A NON-TAXABLE AMONUT OF EUR 500, 20%, EUR0
PENSION INSURANCE, 2%, EUR10 500 * 2%
UNEMPLOYMENT INSURANCE, 1.6%, EUR8500 * 1,6%
NET WAGES, EUR482500 - 10 - 8
  • The amount of all taxes is EUR 187
  • Net wages is EUR 482
  • Employer’s expense is EUR 669
What are the rates and procedure for paying the value added tax in Estonia?

There are 3 rates of value added tax in Estonia: 20% (standard), 9%, and 0%.

The value added tax from the purchased goods and services is deductible from the value added tax payable. The prerequisite for the value added tax deduction is that the goods and services purchased are related to the taxable sales of a company (including 0% rate of value added tax), or required for the production of goods and services of the company.

The due date for filing a tax return and payment is the 20th day of the month following the reporting period. For example, the due date for payment of the value added tax for January is February 20th.

What is the cost of accounting services in Estonia?

The cost of accounting services is based on

  • The number of postings (i.e the number of documents, banking transactions, employees);
  • Specific nature of the company’s activities;
  • Time spent on studying documents supporting economic transactions;
  • The most accurate way to determine the cost of accounting services is by meeting and reviewing the number of documents.

Below are the approximate costs of packages of accounting services for you to get a clue.

 

Package 1: Monthly Accounting Services

  • Carrying out of up to 100 accounting postings per month;
  • Maintaining of payroll accounting records for up to 5 employees;
  • Registration of 5 employees in the employment register;
  • Monthly preparation and submission of tax returns;
  • Advice on taxes and accounting;
  • Document archiving and storage up to 2 years;

To whom does Package 1 apply?

Companies having a duty to submit monthly returns to the Tax and Customs Board.

Price:

EUR 110 / 1 company / 1 month

 

Package 2: Accounting Services Annually

  • Carrying out of up to 250 accounting postings per year;
  • Preparation and submission of annual financial statements to the e-Commercial register;
  • Advice on taxes and accounting;
  • Document archiving and storage up to 2 years;

To whom does Package 2 apply?

Companies having no duty to submit monthly returns to the Tax and Customs Board.

Price:

EUR 300 / 1 company / once a year

 

Package 3: Accounting Services Annually for Companies That Did Not Have Business Activities

  • Carrying out of up to 30 accounting postings per year;
  • Preparation and submission of annual financial statements to the e-Commercial register;
  • Advice on taxes and accounting

To whom does Package 3 apply?

Companies having no duty to submit monthly returns to the Tax and Customs Board, and did not carry business activities.

Price:

EUR 100 / 1 company / once a year

 

A full price list of accounting services can be found here

What business form should I choose?

The most common business forms in Estonia are

  • a private limited company (),
  • a joint-stock company (AS)
  • and a sole proprietor (FIE).

Set up: At the notary or online.
Founders: One or several persons, both legal entities and individuals, including residents of foreign countries.
The amount of set up state fee: EUR 190 or 145
Articles of association: Required.
Liability: Limited, shareholders incur liabilities of the company within their contributions to the share capital.
Share capital: EUR 2500 and above.
Duty to make capital contribution immediately upon set up: For individuals – none, for legal entities – available.
Accounting procedures: Accounting records should be maintained under the principle of accrual method, that recognizes income when it is earned (for example, when the terms of a contract are fulfilled) and expenses when they are incurred. There is need in organizing the accounting procedures.
Annual financial statements: Annual report for the business year.
Performance results: Intrinsically, the company’s profits for an accounting period is not taxed. The moment of corporate income taxation is shifted until the distribution of profits, for example, in the form of dividends. Dividends distributed suffer a tax of 25% (20/80).

FIE

Set up: At the notary or online.
Founder: Resident individual of Estonia.
The amount of set up state fee: EUR 13.
Articles of association:  None.
Liability: Unlimited liability within their personal property.
Share capital: No capital.
Duty to make capital contribution immediately upon set up: No capital.
Accounting procedures: There is no need for accounting procedures pending receipt of VAT (KMKR) number and prior to employment. Accounting  may be maintained by cash-basis method, that recognizes income when it is received and expenses when they are paid for.
Annual financial statements: Costs and revenues return once a year.
Performance results: The result of entrepreneurship suffers taxes of 33% and 20%.

AS

Set up: At the notary.
Founders: One or several persons, both legal entities and individuals, including residents of foreign countries.
The amount of set up state fee: EUR 145.
Articles of association: Required.
Liability: Shareholders incur liabilities of the company within their contributions to the authorized capital.
Share capital: EUR 25,000 and above, with shares registered in the Estonian Central Register of Securities.
Duty to make capital contribution immediately upon set up: Available.
Accounting procedures: Accounting records should be maintained under the principle of accrual method, that recognizes income when it is earned (for example, when the terms of a contract are fulfilled) and expenses when they are incurred. There is need in organizing the accounting procedures.
Annual financial statements: Annual statements for the business year, the audit is mandatory for joint-stock companies (AS), which have more than two shareholders.
Performance results: Intrinsically, the company’s profits for an accounting period is not taxed. The moment of corporate income taxation is shifted until the distribution of profits, for example, in the form of dividends. Dividends distributed suffer a tax of 25% (20/80).

Can you not decide which business form to choose? Come to us for a consultation!

How to register a company (private limited company, OÜ) in Estonia?

Foreign nationals having no e-resident card and Estonian citizens having no ID card shall submit an application for registration in the Commercial Register through a notary in Estonia. Set up of the company at a notary office is also possible without the personal presence of the founders under a notarized and legalized power of attorney. Registration process usually takes 5 business days.

With an ID card or e-resident card, the company can be set up online through the e-Commercial register site in 48 hours.

Punamoon OÜ staff can organize company registration both at the notary and online, as well as prepare all requisite documents for registration in Estonian.

Is it possible to register a company (OÜ) in Estonia without a contribution to share capital?

The founder individual can establish a private limited company without a contribution to share capital of EUR 2,500 and contribute later in accordance with the Articles of association or as required. The founder legal entity shall contribute to share capital at once.

Can I register a company in Estonia without an Estonian legal address and without a contact person in Estonia?

No. According to the Commercial Code of Estonia, the company must be registered with an Estonian legal address and have a contact person in Estonia.

If you have no office or permanent place of residence in Estonia, then the service of a legal address and contact person can be purchased. By purchasing a service from Punamoon OÜ, the legal address of your company will be Mooni 18, Tallinn 10613.

We can also act as the contact person of your company in Estonia. This means that the contact details of Punamoon OÜ will be entered on your B card. You will receive mail addressed to your company in a convenient way and field calls to your company’s name on office hours from 09:00 AM to 5:00 PM.

Do I need an activity permit for my company?

Some areas of activity require registration in the Register of Business Activities or an activity permit. Such activities are, for example, sale of alcohol, tobacco, fuels, international transport, waste collection, financial activities, insurance, construction activities, etc.

Punamoon OÜ staff will help you determine whether registration in the Register of Business Activities is required for your company, and also will prepare and submit the required set of documents, if necessary.

How should the non-resident board member open a bank account for their Estonian company?

Opening of a non-resident company bank account has the following stages:

  1. Set up of a company in Estonia.
  2. Receipt of company B card: Company is registered in the Commercial Register.
  3. The board member shall complete a form about the planned business activities in one or multiple banks. The form must be completed by all Estonian entrepreneurs, residents and non-residents.
  4. Each bank conducts an audit against non-resident board members. The answer of the bank largely depends on the plans of your company in Estonia. The audit of the bank takes up to 10 business days.
  5. The board member shall receive the bank decision.
  6. With said decision on hand, the board member finalizes the opening of an account in one or multiple banks.

We provide the service of escorting our Estonian non-resident customers to the bank, give advice and help at every stage.

How to get VAT (KMKR) number?

The prerequisite for registration as a person liable to value-added-tax  in Estonia (KMKR, VAT number) is the availability of active business in Estonia or the European Union.

Punamoon OÜ staff will be helpful in preparing the requisite set of documents for obtaining VAT numbers in Estonia or Finland, justify your desire to register as a person liable to value-added-tax, as well as assist in negotiations with the Tax and Customs Board.

How to sell a company share / re-execute the company (OÜ) to another owner? Can this be done with an ID card? Is a personal presence of the owner needed? Is the spouse’s consent needed?

It is impossible to sell a partnership share with an ID card. The sale of a share and re-execution of the company to another owner is carried out at the notary. The only exception is the company shares registered in the Estonian Central Register of Securities. In this case, the share sale is carried out through the bank.

Registration of a transaction at a notary office requires personal presence of all parties to said transaction. The sale of a share is also possible by a notarized power of attorney.

Should the seller of the share be married at the time of acquiring the share, and should spouses have co-property, then consent (in person or by power of attorney) of the spouse is required. The seller shall have a marriage certificate on hand during the transaction. If marriage was registered in Estonia, the notary will take the register data themselves. Should the seller of the share not be married at the time of acquiring the share, the spouse’s participation is not required.

What are the advantages of the e-resident status?
  • Company set up online in 48 hours, without the need to visit a notary.
  • Changes to B card and articles of association online in 48 hours, without the need to visit a notary.
  • Electronic signature affixed to annual statements of the company and other documents.
  • Possibility to issue a power of attorney in electronic systems of various public agencies.
  • Ability to access all electronic systems of state departments using an e-resident card (Tax and Customs Board, Commercial Register, Statistics Department, etc.).
  • Ability to log in and perform transactions via an e-bank using the e-resident card instead of a password card or a pin calculator.

Punamoon OÜ staff will be helpful in both giving advice and registering the e-resident status.

Do I need to submit annual statements of the company, if there was no business activity?

All entrepreneurs registered in Estonia are required to prepare and submit the company’s annual statements for the business year. It is mandatory to submit the company’s annual statements to the Commercial Register, even if the company did not have business activity for a year. The due date for submitting the annual statements for the business year is 6 months after the end of the business year. For example, if the business year of the company is the period from January 1 to December 31, the due date for submitting the annual statements is June 30.  The company’s business year is usually 12 months, but there may be exceptions due to the set up or winding up of the company. However, the reporting period cannot be more than 18 months.

Should my company be audited?

The audit of the annual accounting report is mandatory,

if two indicators out of three are exceeded as of reporting date:

(1) Sales revenue is EUR 4 million

(2) Assets is EUR 2 million

(3) Average number of employees is 50 employees

OR

If at least one indicator is exceeded:

(1) Sales revenue is EUR 12 million

(2) Assets is EUR 6 million

(3) Average number of employees is 180 employees

The audit of the annual accounting report is also mandatory for each joint-stock company (AS), which have more than two shareholders, public agency or local government.

That is, the audit is mandatory for joint-stock companies (AS), which have more than two shareholders, regardless of the performance.

 

The obligation to stand an audit review arises

if two indicators out of three be exceeded:

(1) Sales revenue is EUR 1,600,000

(2) Assets is EUR 800,000

(3) Average number of employees is 24 employees

OR

If at least one indicator is exceeded:

(1) Sales revenue is EUR 4,800,000

(2) Assets is EUR 2,400,000

(3) Average number of employees is 72 employees.

Punamoon OÜ cooperates with the leading auditors in Estonia. We undertake liaison with an auditor, as well as assist in preparing documentation for the auditor. Our accounting firm has its own in-house quality control system, which will definitely be to the liking of your auditor, if any

Can I ignore letters from the Statistics Department?

No, you may not ignore the requirements of the Statistics Department for providing the company’s statistical statements. The reporting of statistics is mandatory for all companies in Estonia on the basis of the State Statistics Act (Riikliku statistika seadus). In the event of failure to provide statistical statements or in case of false data, the representative of the Department will issue an order. Failure to comply with the order will entail a fine of up to EUR 2,000.

The Statistics Department shall decide what companies are required to submit a statement or statements, and shall notify entrepreneurs to that end. You can also not wait for a letter from the state representative and check whether your company has mandatory statistical statements and what types of statements the company should provide. Check http://www.stat.ee/76818 by entering the company registration code.

We can be helpful in completing and submitting all types of statistical statements, as well as in liaising with the Statistics Department, if necessary.

How to bring to Estonia a staff from outside the European Union?

In order to bring a staff (for example, a ship welder) from outside the European Union (for example, from Russia or Ukraine), you need to obtain a residence permit and a work permit for said staff. The process takes 30 to 60 calendar days.

Punamoon OÜ can offer assistance and give advice on these issues. We do organize and conduct a competitive tender for the selection of a staff, prepare a set of documents for the Migration Department, liaise and help answer questions from the Migration Department.

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