Over the years of working with e-residents, we’ve identified some key opportunities and common pitfalls. To help you get started on the right foot, here are some essential dos and don’ts when setting up your Estonian company. Start smart, and your Estonian company will thrive!
5 Dos and Don'ts
DOs
1. Do reinvest Your Profits
Profits reinvested into your company are generally not taxable in Estonia. Here, corporate income tax at a rate of 22% is only applied to distributed profits, including shareholder dividends and business expenses. For startups and SMEs, profit reinvestment is an attractive strategy.
2. Do take advantage of Tax-Free allowances
Maximize the tax-free benefits Estonia offers, such as:
- Daily allowances (€75 per day for business travel),
- Health benefits (€400 annually),
- Business use of a personal car (€550 per month), and
- Representation costs (€50 per month).
3. Do embrace Digital Solutions
Why work harder when you can work smarter? Automate and digitalise your operations. API integrations, automated connections between your business administration and accounting software, and other digital solutions can save time, cut costs, and reduce errors. Estonia is a digital country—make the most of its perks!
4. Do save time and Use Estonia’s Seamless State Portals
Use your e-Residency card to access the Estonian Tax Board, Business Register, and other state portals. These platforms simplify your business management obligations, allowing you to spend more time exploring opportunities. Digital convenience at its finest!
Read more about the ease of doing business as an e-resident:
5. Do prepare for Reporting
Familiarise yourself with the reporting obligations that come with running an Estonian company, such as monthly VAT, income tax, and social tax declarations, as we as your company's annual report. Staying on top of deadlines ensures compliance and avoids penalties.
DON’Ts
1. Don’t Overlook Payment Documentation
Always keep detailed records of all payment-related documents, including subscription purchase invoices. Payments without proper documentation may be subject to income tax, adding unnecessary financial burden to your business.
2. Don’t Confuse e-Residency with Physical Residency
Estonian e-Residency is a digital identity, not a change in physical or tax residency. It will not offer any rights of citizenship or residency in Estonia or the European Union. Plus, becoming an e-resident won’t alter your individual tax residency or obligations.
3. Don’t Assume Zero Personal Taxes on Dividends and Payroll
If you’re a non-resident and not working in Estonia, dividends and payroll will generally not be taxed locally on you as an individual. However, always consider the tax rules of your country of residence to avoid surprises and stay compliant with the law.
Read more about paying yourself from your company on the e-Residency Knowledge Base.
4. Don’t Ignore VAT Implications
If your company is not registered as a VAT payer, you’ll incur 22% VAT on all services you purchase (goods have a €10,000 threshold). This includes subscription-based services, which many overlook. PS! The VAT rate will be 24% from the middle of 2025.
5. Don’t Overlook a potential Permanent Establishment (PE)
When operating your Estonian business as an e-resident, be mindful that a PE may be triggered in the country where you reside. This could occur if you do one or more of the following in that country:
- Run the business from a specific location,
- Hire staff,
- Register physical or intellectual property assets owned by your business,
- Do most of the work that creates value for your business,
- Rent office space, or
- Make board decisions / conduct board meetings.
Once a PE is established, the host country has the right to tax your company’s profits according to local regulations.
Be smart: start a company in Estonia
Establishing a company in Estonia is a smart move for savvy entrepreneurs. The digital efficiency and business-friendly environment are unbeatable—but knowing the Dos and Don'ts is key to unlocking its full potential.
