It is fair to say that the Estonian legal environment favours entrepreneurship and the entrepreneurial mindset. Foreign investors have equal rights and obligations with local entrepreneurs. All foreign investors may establish a company and conduct business in Estonia in the same way as local investors, no restrictions apply.
Over 90% of Estonian companies employ less than 10 individuals and only around 0,1% of companies employ more than 150 individuals, which means that most of the companies established in Estonia are rather small. 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 in general 1-2 employees and quite often the owner of the company is the sole employee as well. The main employers amongst e-residents operate in administrative and support services. 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. You can access it from Riigi Teataja (State Gazette) portal.
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)
In addition, the Commercial Code regulates being a sole proprietor (in Estonian Füüsilisest Isikust Ettevõtja or in short, FIE). Sole proprietors 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.
You can also set up a non-profit association (in Estonian mittetulundusühing or MTÜ, regulated by Non-profit Associations Act). Since the aim of non-profit organization is not to generate profit, the taxation differs from taxation of limited companies.
Foreign companies are also able to register a branch in Estonia to run their business through it.
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.
Public limited company is meant for large-scale ventures, where the minimum share capital (EUR 25,000) is higher than in a private limited company. Also, public limited companies can list their shares on a public exchange.
A general partnership (täisühing) has to include two or more persons who are personally liable for the obligations of the partnership, Limited partnership (usaldusühing or 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.
As Private limited company is most suited and most used not only by e-residents but also by small entrepreneurs within Estonian resident, then for now at least our knowledge base will be focused on guides and articles around this form of business.
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/