Estonia Info
Joined: 20 Apr 2007
Posts: 16
Home Country: estonia
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 Posted: Tue May 08, 2007 10:15 am Post subject: DOING BUSINESS IN ESTONIA / ESTONIA BUSINESS GUIDE |
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DOING BUSINESS IN ESTONIA
STARTING A BUSINESS
STANDARDIZED COMPANY
Legal Form: Private Limited Company (osaühing or OÜ)
Minimum Capital Requirement: 40,000
City: Tallinn
Registration Requirements:
Procedure 1. Deposit the initial capital in a bank and obtain a bank notice certifying the payment
Time to complete: 1 day
Cost to complete: no charge
Comment: The full amount of authorised capital has to be paid up before registering the company. Bank issues respective notice that serves as evidence at the Commercial Registry. After the company becomes registered, the starting account can be turned into usual account that is available for everyday business.
Unless a company's bylaws prescribe otherwise, shares must be paid for in cash. However, the bylaws may provide for the option of making in-kind contributions
Procedure 2. Check the uniqueness of the proposed company name
Time to complete: 1 day
Cost to complete: no charge
Comment: There is no such formal requirement, but the Commercial Register refuses to register a company if the name resembles some existing company name or registered trade mark. Use www.eer.ee website to check the names in use. The law provides that the business name of a company shall be clearly distinguishable from other business names entered in the commercial register in Estonia and from other business names deleted from the commercial register less than three years ago.
Procedure 3. The notary drafts a Foundation Agreement and company bylaws
Time to complete: 14 days
Cost to complete: about EEK 2,470 + 18% VAT, depend on the amount of the share capital
Comment: The Foundation Agreement and the By-laws have to be notarised. The notary fee usually is dependent on the value of the deal being notarised and number of founders. A private limited company shall have a supervisory board if the share capital is greater than 400,000 kroons and the management board of the private limited company has less than three members, or if prescribed by the articles of association of the private limited company. The notary drafts the Application to the Commercial Register.
Alternatively, it is possible to have the foundation agreement and company bylaws drafted by a law office and have the law office also book a notary's appointment, in which case it may be possible to speed up the process considerably.
Procedure 4. Submit the registration application to the Commercial Register
Time to complete: 15 days
Cost to complete: 0.2% of share capital (state fee, min. EEK 3,000 max. EEK 20,000)
Comment: The Management Board must submit an application to the Commercial Register within 6 months of concluding the Foundation Agreement. The application shall be reviewed by the registrar within fifteen days after its receipt,. In case of extraordinary circumstances, this period can be extended to 3 months. in practice it can take longer. The chief judge of the county or city court which maintains the commercial register may, on the existence of circumstances (i.e. complicated contribution in kind, some documents of foreign origin etc) requiring special investigation, extend the term by up to thirty days. Review ends with a judgment on entry or refusal thereof. In case of a positive judgment the registrar shall make an entry not later than on the fifth working day after signing the judgment.
The company is automatically registered at the National Tax and Customs Board at the time of registration with the Commercial Register.
Amendments of the Commercial Code became effective as of 1 January 2006. It is no longer required to file notarized sample signatures of the management board members with commercial registration. In addition, it is now possible to submit electronically signed applications and power of attorney to the commercial registry which correspond to notarised applications and power of attorney.
There is no need for separate registration with the National Social Insurance Board, which gets its information from the National Tax Board. Health insurance in Estonia is through a compulsory scheme under which employers are obliged by law to pay social tax (the source of revenue for health insurance) for their employees. The rate of social tax is 33 per cent of the taxable amount, which must be paid by the tenth day of the month following the taxable period and submit the corresponding tax return to the local Tax Board Office of the residence or seat of the payers of social tax by the same date.
Procedure 5. Register for VAT at the National Tax Board
Time to complete: up to 3 days
Cost to complete: no charge
Comment: The general rate of VAT is 18%. The management board of the company must file an application for registration of the company as liable for VAT with the Tax and Customs Board within three days as of the date on which the taxable turnover of the company, excluding imports of goods, exceeds EEK 250,000 as calculated from the beginning of a calendar year. Registration shall be completed by the Tax and Customs Board within three days as of the filing of the application. Such registration may be (and in the practice often is) effected immediately after the establishment, since it allows companies to re-claim amounts of VAT that they have paid and that they cannot set-off with VAT charged to purchasers of their goods and services.
Procedure 6. Register with the Central Sick Fund of Estonia
Time to complete: 1 day
Cost to complete: no charge
Comment: Health insurance in Estonia is through a compulsory scheme under which employers are obliged by law to pay social tax (the source of revenue for health insurance) for their employees. The employer is obliged to register all new employees, board members and contractual workers with the Sick Fund within seven days from the date of their employment. The rate of social tax is 33 percent of the taxable amount, which must be paid by the 10th day of the month following the taxable period and submit the corresponding tax return to the local Tax Board Office of the residence or seat of the payers of social tax by the same date
FORMS OF BUSINESS ORGANISATION
Individual Private Entrepreneur (Sole Proprietorship)
Number of partners/shareholders:
1 person.
Minimum and/or maximum capital:
No minimum capital.
Liability:
Liability is unlimited.
Registration fee:
EKK 500.
Release of financial documents:
No
Osaühing (Private Limited Company)
Number of partners/shareholders:
Minimum 2 partners.
Minimum and/or maximum capital:
Minimum EEK 40,000.
Liability:
Partners' liability is limited to amount contributed.
Registration fee:
Maximum EKK 20,000
Release of financial documents:
No
Aktsiaselts (Public Limited Company)
Number of partners/shareholders:
No minimum.
Minimum and/or maximum capital:
Minimum EEK 40,000.
Liability:
Partners' liability is limited to the amount contributed.
Registration fee:
Maximum EKK 40,000
Release of financial documents:
Yes
Taïsühing (General Partnership)
Number of partners/shareholders:
Minimum 2 partners.
Minimum and/or maximum capital:
No minimum capital.
Liability:
The General Partner is personally liable with no limitation for debts and obligations of the company.
Registration fee:
0.2% of the registered capital with EKK 3,000 minimum fees.
Release of financial documents:
No
Usaldusühing (Limited Partnership)
Number of partners/shareholders:
Minimum 2 partners.
Minimum and/or maximum capital:
No minimum capital.
Liability:
Liability is unlimited for at least one partner.
Registration fee:
0.2% of the registered capital with EKK 3,000 minimum fees.
Release of financial documents:
No
TAXATION
Corporate tax
Main rate: Distribution tax, 23/77 of net dividend (2006)
Companies are not taxed on their profits but pay a distribution tax on distributed profits, amounting to 23/77 of the net dividend in 2006 (that is, 23% of the gross distribution). Undistributed profits are therefore not subject to taxation. The distribution tax applies to resident companies and to permanent establishments of foreign companies. Certain income of non-resident companies is taxed by withholding. A company is considered to be resident in Estonia if it is founded under Estonian law. The distribution tax is reduced from 24% of the gross distribution in 2005 to 23% in 2006 and by a further 1% each year until it reaches 20% in 2009. Dividends received from foreign companies are exempt where the Estonian company has a 20% shareholding in the paying company, subject to certain conditions.
Individual tax
Flat rate of 23% (2006)
Resident individuals are taxed on their worldwide income; non-residents are taxed on Estonian-source income only. Individuals are considered to be resident in Estonia for tax purposes if they have a place of residence there or if they stay in Estonia for 183 days in any 12-month period. Individual income tax is charged at a flat rate of 24% in 2005, which is reduced to 23% in 2006 and by a further 1% each year until it reaches 20% in 2009.
Capital gains
Taxed as income; company gains taxed when distributed
Gains of companies and individuals are generally taxed as income. Capital gains of companies are taxed as part of the distribution tax payable when a distribution is made. Individuals are exempt from tax on a capital gain on the sale of their main residence.
Indirect tax
Standard rate: 18% ; Lower rate: 5%
Value-added tax (VAT) applies to most transactions at a standard rate of 18%. Registration is compulsory for businesses with an annual turnover above EEK250,000. A lower 5% rate applies to some books, medicines and certain supplies of heating and energy. Exports and supplies relating to international transport are zero-rated. Exemptions include leasing of immovable property, services of financial and credit institutions, insurance services, and medical and educational services.
Tax administration and compliance
Tax year: Corporations: monthly periods for distribution tax; Individuals: calendar year
Monthly returns are due by companies in respect of the corporate distribution tax, to be submitted together with any tax due by the tenth day of the following month. Employment income of individuals is taxed by withholding. Individuals registered as sole proprietors and having business income make quarterly advance payments of tax. An individual tax return is due by March 31st following the tax year, and a final payment of tax is due by July 1st following the tax year.
Additional tax information
Withholding taxes: Dividends 0% (for individuals and non-resident companies owning more than 20%) or 24% (for non-resident companies owning less than 20%), Interest 0%, Royalties 15%. Rates may be reduced by tax treaties or EU directives.
Tax treaties: Estonia has concluded 33 tax treaties.
Dividends: Distribution tax on the payer at 23/77 of net dividend (in 2006); dividends not taxed on shareholder. Foreign dividends are exempt where the Estonian recipient company has a 20% shareholding in the payer.
Revenue protection: There is transfer-pricing legislation, some anti-haven (CFC) rules and general anti-avoidance provisions, but no thin-capitalisation rules.
Groups: There is no provision for group taxation.
Incentives: There are no tax incentives.
Other taxes: Business registration fees, Capital duty, Customs duties, Gambling tax, Land tax, Local sales tax, Municipal boat tax. |
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