Advantages of Estonia for IT business registration

e-Residency

Estonia is a pioneer among all countries worldwide, having introduced the e-Residency program in 2014. Today, the e-Residency card is issued for five years, and the application process takes approximately two months. To obtain it, you must apply, provide a resume, photograph, passport, and contact details, pay the official state fees, and maintain communication with the country’s Police and Border Guard Board.

One key aspect is that it is essential to clearly explain your future connection with the country and how you, as a prospective e-resident and your company, can contribute to Estonia’s development. The application is reviewed by local officers who may request additional information, such as a criminal record certificate, proof of educational qualifications, a business plan, an updated resume, your social media profiles, etc.

If approved, you can receive a local taxpayer identification number and the e-Residency card at one of Estonia’s embassies. This card functions similarly to an electronic signature (valid for five years) and enables you to manage a company remotely. For instance, you can open a local LLC, file reports, appoint responsible persons, change board members, sell company shares, etc. Importantly, you do not need to visit the country in person.

Tax System

Another appealing aspect for company owners is Estonia’s unique approach to the taxation system. Essentially, you are only required to pay corporate income tax when you distribute the company’s profit as dividends. This means that all reinvested (undistributed) funds can remain on the company’s balance sheet without incurring additional tax charges.

The standard corporate income tax rate for 2024 is calculated at 20/80 (rising to 22/78 in 2025). For example, if a company earns €25,000 and the owner wishes to distribute €10,000 as dividends, €15,000 remains on the company’s balance sheet. At the same time, €2,500 in taxes (€10,000 * 20/80) must be paid on the €10,000, leaving €7,500 to be distributed as dividends (in 2025, this will be €2,821 in taxes and €7,189 in dividends).

This might seem like a significant burden for companies; however, in most jurisdictions, you must first pay corporate income tax, followed by a dividend tax when profits are distributed. Therefore, Estonia can be an attractive option for operational companies that may be unable to reduce their effective tax rate due to operational expenses.

Other advantages

When highlighting additional advantages of Estonia, it is worth mentioning:

• The possibility of making cryptocurrency payments on par with fiat transactions. This applies to both receiving and sending cryptocurrency funds. These transactions are taxed similarly at 0% if dividends are not distributed.
• There is no immediate requirement to hire a director and pay their salary. This means that startup founders can postpone this expense if the company does not have consistent revenue.
• The jurisdiction itself is located within the EU. This can be a significant advantage over other offshore or lesser-known countries chosen for lower taxes. Thus, owners can have a European company and operate in the EEA market.
• The development of a digital environment by the country. As previously mentioned, e-Residency has been functioning for 10 years. Over this time, Estonia has increasingly focused on building a digital and transparent nation. This provides opportunities for growth, attracting investments, and creating a business with an understanding of the government’s plans and vision.
• Lower costs for maintaining business operations. Estonia’s annual maintenance costs for IT activities are significantly lower compared to other European jurisdictions. These expenses include accounting services, preparing legal opinions, office rentals, salaries for local staff, and more.

Conclusion

Estonia offers favorable conditions for registering and running an IT business, a supportive tax environment, advanced digital infrastructure, the opportunity to obtain e-Residency and work with cryptocurrency, and relatively low maintenance costs.

Many entrepreneurs worldwide have chosen Estonia as the place to start, sustain, or grow their companies. However, selecting the optimal country for conducting business requires careful consideration and planning for the coming years, considering the jurisdiction’s specifics, its development outlook, political situation, local nuances, and the complexity of obtaining permits/licenses to start operations.

At the same time, Estonia has its drawbacks, just like other jurisdictions, and may not be suitable for everyone due to a relatively small domestic market, challenges in opening a bank account, the tax base for payroll, climate specifics, and more.

Do you have further questions about the country, or are you ready to start your own company? Sign up for our intro consultation to get detailed information and assistance in choosing the right path.