It is fair to say that the Estonian legal environment favours entrepreneurship and the entrepreneurial mindset. All foreigners are free to establish a company and conduct business in Estonia in the same way as locals. There is no differentiation between companies owned and managed by foreigners and companies owned and managed by Estonian residents.
Most of Estonian businesses are small. Over 90% of Estonian companies employ less than 10 individuals and only around 0,1% of companies employ more than 150 individuals. The main employers are wholesale and retail trade companies, manufacturing companies and companies engaged in professional, scientific and technical activities.
The majority of companies established by e-residents have 1-2 employees. Quite often these companies are "one-man companies", where an e-resident is the single shareholder and the only director/management board member.
Top three fields of activities amongst e-residents are:
- information and communication;
- professional, scientific and technical activities;
- administrative and support service activities.
The legal environment for business entities in Estonia is mainly regulated by the Commercial Code.
According to the Commercial Code, these are the different forms of business entities:
- private limited company (OÜ)
- public limited company (AS)
- general partnership (TÜ)
- limited partnership (UÜ)
- commercial association (ühistu)
- sole proprietor (FIE)
By far the most commonly used form of business and most likely the most suitable for e-residents is a private limited company (OÜ), which is easy to set-up, has a minimum share capital requirement of EUR 2,500 and limits the shareholders’ liability. This means that shareholders are not personally liable for the obligations of the company, but the company is liable for its obligations to the extent of its own assets. The share capital of a private limited company does not have to be necessarily paid in when you register a company. You can do that later, after your company has generated profit. After having been paid in, the share capital is not in any way “blocked” or deposited - you can use this money for business purposes.
You can also set up a non-profit association (MTÜ), regulated by Non-profit Associations Act. Since the aim of a non-profit organisation is not to generate profit, the taxation differs from taxation of limited companies. Please also note that at least 1/2 of board members must reside in Estonia, EEA or Switzerland.
Sole proprietors (FIE) provide services or sell goods under their own name and are not legal persons. Therefore, sole proprietors are taxed differently compared to limited companies. For example, sole proprietors generally have to pay quarterly advance payments of income and social tax. Because they are taxed differently, e-residents are not advised to register as FIE. In Estonia, for a non-resident, it would just be too expensive and not necessary considering that registering as a Private Limited Company is fairly easy and demands little initial investment in Estonia.
Foreign companies are also able to register a branch in Estonia to run their business through it.
Public limited company (AS) is meant for large-scale ventures, where the minimum share capital (EUR 25,000) is substantially higher than for a private limited company. Also, public limited companies can list their shares on a public exchange.
A general partnership (TÜ) has to include two or more persons who are personally liable for the obligations of the partnership. Limited partnership (UÜ) has to include two or more persons, where one person is personally liable for the obligations and the second one is liable to the extent of his or her paid-in capital.
There is also the possibility of a commercial association which has the purpose of supporting and promoting the economic interests of its members through joint economic activity in which the members participate as consumers or users of other benefits. A commercial association is liable for its obligations with all of its assets, whereas generally, its members are not personally liable for the obligations of the association.
Please note that most accounting service providers in the Marketplace provide services to private limited companies. In case you wish to set up another type of a legal entity, please check if any of the service providers would be able to manage your company's accounting.
As a private limited company is most suited and most used not only by e-residents but also by small entrepreneurs who are Estonian residents, then for now at least our Knowledge base will be focused on guides and articles around this form of business.
For other forms of business you can establish in Estonia, please see a comparison table on the state portal.
If you prefer to dig deeper yourself, then all Estonian laws and their translation into English are published in the State Gazette or in Riigi Teataja, as we call it: https://www.riigiteataja.ee/en/