Estonia is a small country located in Northern Europe and known for its advanced digital infrastructure. The country has become a hub for startups and entrepreneurs looking to set up a business in Europe. With its user-friendly company formation process, low corporate tax rates, and innovative business climate, Estonia is quickly becoming a go-to destination for companies looking to expand their operations. In this article, we will explore the benefits of setting up a business in Estonia and provide a step-by-step guide to registering your company in Estonia.
Introduction to Estonia as a Business Destination
Estonia is a country with a population of just over 1.3 million people. Despite its small size, Estonia has become a popular destination for startups and entrepreneurs looking to set up a business in Europe. Estonia is known for its advanced digital infrastructure, which has made it a hub for tech companies. The country is also known for its innovative business climate, which fosters creativity and entrepreneurship.
One of the advantages of setting up a business in Estonia is the ease of doing business. Estonia has a user-friendly company formation process that can be completed online. The country also has a low corporate tax rate and a simple tax system, making it an attractive destination for businesses looking to expand their operations.
Benefits of Setting up a Business in Estonia
There are many benefits to setting up a business in Estonia. One of the main advantages is the ease of doing business. Estonia has a user-friendly company formation process that can be completed online. This makes it easy for entrepreneurs to start a business quickly and efficiently.
Another advantage of setting up a business in Estonia is its unique tax system. As of 2025, Estonia has a corporate income tax rate of 22% (increasing to 24% from January 2026) applied only to distributed profits. This means companies pay zero tax on retained and reinvested earnings, making it highly attractive for businesses focused on growth and reinvestment. Check out our latest article about significant change in Estonian Tax System.
Estonia is also known for its innovative business climate. The country has a highly skilled workforce, and the government has implemented policies to support entrepreneurship and innovation. This has led to the development of a vibrant startup ecosystem, with many successful companies emerging from Estonia in recent years.
Understanding Estonia’s Company Formation Process
Setting up a business in Estonia is a straightforward process. The first step is to choose a company name and check its availability on the Estonian Business Register website. Once you have chosen a name, you can submit your company registration application online.
To register your company, you will need to provide the following information:
- The name of your company
- The address of your company
- The names and contact details of your company directors
- The share capital of your company (minimum €0.01 per shareholder since February 2023)
As of February 2023, Estonia abolished the previous €2,500 minimum share capital requirement. Companies can now be established with as little as €0.01 per shareholder. However, founders should carefully consider their actual capital needs, as companies with share capital below €2,500 may face additional shareholder liability in bankruptcy proceedings.
Once your application has been approved, you will receive a confirmation email and your company will be registered.
Registering Your Company in Estonia – Step by Step Guide
- Choose a company name and check its availability on the Estonian Business Register website.
- Choose a legal form for your company – the most common legal forms in Estonia are Private Limited Company (OÜ) and Public Limited Company (AS).
- Submit your company registration application online. You will need to provide the information listed above.
- Pay the state fee for company registration.
- Once your application has been approved, you will receive a confirmation email and your company will be registered.
Estonia’s Tax System – What You Need to Know
Estonia has a simple and transparent tax system with progressive rates.
As of 2025, the personal income tax rate is 22% (increasing to 24% in 2026), and the corporate income tax rate is 22% on distributed profits (increasing to 24% in 2026).
Estonia’s unique advantage remains unchanged: there is zero tax on retained and reinvested profits. Companies only pay tax when distributing dividends or making other profit distributions. This encourages businesses to reinvest earnings for growth without immediate tax consequences.
The VAT rate increased to 24% in July 2025 (up from the previous 20%), reflecting Estonia’s commitment to funding defense capabilities while maintaining its position as one of the most competitive tax environments globally.
Estonia’s Corporate Tax – Rates and Exemptions
Estonia has a corporate tax rate of 22% on distributed profits as of January 2025, with a planned increase to 24% from January 2026. The tax is applied only when profits are distributed (e.g., as dividends, bonuses, or gifts), not when earned.
Key Features:
- 0% tax on retained profits: Companies can reinvest earnings without any corporate income tax liability
- Taxation on distribution: The 22% rate (22/78 of net distribution) applies only when profits leave the company
- No more preferential rates: The previous 14% reduced rate for regular dividend distributions was abolished in January 2025
VAT System: Estonia’s standard VAT rate is 24% (effective July 2025), up from the previous 20%. Reduced VAT rates apply to specific goods and services, including:
- 13% for accommodation services (from January 2025)
- 5% for certain press publications (until 2026)
- 0% for intra-EU supplies and exports
Why This System Works: Despite the rate increases, Estonia continues to rank #1 in the International Tax Competitiveness Index. The deferred taxation model encourages long-term business growth, innovation, and capital accumulation without the burden of annual profit taxes.
Business Opportunities in Estonia
Estonia offers many business opportunities for entrepreneurs and startups. The country has a highly skilled workforce and a supportive business environment. Estonia is also a hub for tech startups, with many successful companies emerging from the country in recent years.
Estonia’s proximity to other European markets also makes it an attractive destination for businesses looking to expand their operations. The country has a strong logistics infrastructure, with easy access to ports and airports.
Resources for Entrepreneurs in Estonia
There are many resources available for entrepreneurs in Estonia. The government has implemented policies to support entrepreneurship and innovation, and there are many startup incubators and accelerators in the country.
One of the most popular resources for entrepreneurs in Estonia is the e-residency program. This program allows non-residents to establish and run a business in Estonia without being physically present in the country. E-residents can access Estonia’s digital infrastructure and use online services to manage their business.
Common Mistakes to Avoid When Setting up a Business in Estonia
When setting up a business in Estonia, there are some common mistakes that entrepreneurs should avoid.
As well as 7 Common Accounting Mistakes Businessmen Do and How to Avoid Them here.
One of the most important things to keep in mind is to choose the right legal form for your company. The most common legal forms in Estonia are Private Limited Company (OÜ) and Public Limited Company (AS).
Another common mistake is failing to comply with the country’s tax laws. Estonia has a simple and transparent tax system, but it is important to ensure that you are complying with all of the relevant tax laws and regulations.
Recent Tax Changes in Estonia (2024-2025)
Estonia has implemented several tax changes to strengthen its defense capabilities while maintaining its competitive business environment:
2025 Changes:
- Corporate income tax: increased from 20% to 22% (January 2025)
- Personal income tax: increased from 20% to 22% (January 2025)
- VAT: increased from 22% to 24% (July 2025)
- Abolished the 14% reduced corporate tax rate for regular dividend distributions
- Removed the 7% withholding tax on dividends paid to individuals
- New motor vehicle tax introduced
2026 Changes (Planned):
- Corporate income tax: will increase to 24% (January 2026)
- Personal income tax: will increase to 24% (January 2026)
What Remains Unchanged:
- Zero tax on retained and reinvested profits (Estonia’s core competitive advantage)
- Simple, transparent tax system with online filing
- No double taxation agreements with 62+ countries
- E-residency benefits and digital infrastructure
Despite these increases, Estonia maintains its position as the world’s most competitive tax system according to the Tax Foundation’s 2025 International Tax Competitiveness Index.
Conclusion – Is Estonia the Right Choice for Your Business?
Estonia is a small country with a highly innovative business climate. The country’s digital infrastructure, low corporate tax rate, and supportive business environment make it an attractive destination for entrepreneurs and startups. However, it is important to carefully consider your options and ensure that Estonia is the right choice for your business.
If you are considering setting up a business in Estonia, it is important to do your research and understand the country’s legal and financial requirements. With the right preparation and guidance, Estonia can be a great destination for businesses looking to expand their operations in Europe.
Are you ready to set up a business in Estonia? Contact us today!
Our team of experts can help you navigate the country’s legal and financial requirements and ensure that your business is set up for success.
