Doing Business in Estonia

Estonia applies a unique approach: corporate income tax is only charged when profits are distributed.
As long as earnings are reinvested or retained within the company, no corporate tax is due.

Key points:

• 0% tax on reinvested and retained profits
• Standard rate: 22/78 of distributed profit (≈28.2%)
• No tax prepayments, no advance calculations
• Simple treatment for group structures and holding companies

This system helps companies maintain liquidity, reinvest confidently, and reduce tax complexity during the growth phase.

Estonia’s payroll taxation is simple and transparent, allowing companies to estimate labor costs with confidence.

Employer contributions:

• Social Tax – 33% (covers health insurance and pensions)
• Unemployment Insurance – 0.8%

Employee contributions:

• Income Tax – 22% (flat rate, rising to 24% in 2026)
• Unemployment Insurance – 1.6%
• Funded pension – default rate is 2%. Can be increased to 4% or 6% upon employee application.

Other figures:

• Minimum monthly wage: €886 gross (2025)
• Scial tax base min: €820
• Tax-free allowance: up to €654/month for general employees (2025)

All declarations and payments can be made online through Estonia’s e-Tax portal.

Remuneration paid to management or supervisory board members is taxable in Estonia — income tax (22% from 2025) and social tax (33%) apply, even if the recipient works abroad.
Social tax is waived if the individual holds a valid A1 certificate from another EEA country.
The company must register the board member in the employment register.

Voluntary Service of Board Members

In Estonia, board members may legally perform their duties without remuneration, especially in the early stages of company development. In such cases, no employment taxes are due. However, this arrangement must reflect the actual situation — regular work resembling employment may still trigger tax liabilities, even without formal payroll.

Estonia follows EU VAT rules and offers full digital administration through the e-Tax system.

VAT rates:

• Standard rate: 24%
• Reduced rates: 13% (accommodation), 9% (books, media, etc.)

0% VAT applies to:

• Exported goods (outside the EU) and related transport services
• Intra‑EU B2B sales to VAT‑registered businesses
• Certain international transport and intermediation services (e.g. shipping, aviation)

Other information:

• VAT registration threshold: €40,000/year
• Reporting: fully online
• No capital duty, stamp duty, or registration tax

No Local or Sector-Specific Taxes:

Estonia uses a single, unified national tax system. There are no additional taxes based on location or sector. This means:

• No municipal or city business taxes.
• No turnover taxes.
• No special industry surcharges.

Land tax in Estonia applies only to land, not to buildings or structures. Each cadastral unit is assigned a taxable value, based on its location, land use, and size. This value is assessed by public authorities. Land tax is paid once or twice a year, depending on the amount due.

Local municipalities set annual tax rates as follows:

• Residential and yard land: 0.1 – 1%
• Profit‑yielding land: 0.1 – 0.5%
• Other land types: 0.1 – 2%

Estonia offers a streamlined legal environment for setting up a business. The most common legal form is a private limited company (osaühing or OÜ), which requires a minimum share capital of €0.01 per shareholder. Company formation is fast — digital registration typically takes 1–3 business days via the Estonian e-Business Register.

Foreign individuals can establish and own 100% of a company. E-residency allows non-residents to access Estonia’s digital infrastructure and manage companies online.

Key facts:

• Minimum share capital: €0.01 per shareholder
• Registration: Fully online via e-Business Register
• E-residency: Optional for remote digital access
• Foreign ownership: 100% allowed

A private limited company (OÜ) must appoint at least one management board member (juhatuse liige), who represents the company in legal and financial matters. Board members can be residents or non-residents of Estonia. There is no requirement to appoint a local representative, unless the company has no resident contact person in the EEA — in that case, a local contact person must be registered.

Supervisory boards (nõukogu) are optional for most companies unless required by law or articles of association.

Key facts:

• Minimum: 1 board member
• Nationality/residency: No restrictions
• Legal address in Estonia is required
• Local contact person required only if all board members reside outside the EEA

Estonia offers a liberal and employer-friendly labor framework, especially compared to many Western European countries. Trade unions are not widespread, and collective bargaining plays a limited role in most sectors.

Employment relationships are governed by the Employment Contracts Act (Töölepingu seadus), which provides a clear and balanced legal framework. Contracts must be concluded in writing and include key terms such as salary, responsibilities, working hours, and notice periods.

Fixed-term contracts are allowed under specific conditions, but indefinite contracts are standard. Probation periods can last up to 4 months. Termination rules, leave entitlements, and working time regulations are well-defined and transparent.

Key facts:

• Written employment contracts are mandatory
• Standard probation period: up to 4 months
• Minimum notice period: from 15 days (depends on duration of employment)
• Full-time: typically 40 hours/week, 5 days/week
• Annual paid vacation: 28 calendar days

Companies operating in Estonia must comply with standard financial reporting obligations in line with international norms. Estonia applies the Accounting Act, which is largely harmonized with EU directives and International Financial Reporting Standards (IFRS).

All companies are required to maintain proper accounting records and submit annual reports to the e-Business Register. These reports must include a balance sheet, income statement, management report, and auditor’s report (if applicable).

Key facts:

• Reporting currency: euro (EUR)
• Fiscal year: typically the calendar year
• Annual report deadline: 6 months after end of fiscal year
• Small companies may use simplified accounting standards
• Mandatory e-submission via the Business Register portal
• Audit requirements depend on company size and revenue

Digital services and clear regulations make compliance efficient, especially for foreign-owned companies. Many firms rely on outsourced accounting providers.

Estonia’s Commercial Code regulates all forms of business entities and defines the legal framework for establishing, managing, and restructuring companies. It includes detailed rules on company formation, ownership, and internal governance — including the roles, responsibilities, and decision-making procedures of shareholders, management boards, and supervisory boards. The code applies to both domestic and foreign-owned businesses, ensuring equal legal treatment.

Key facts:

• Covers private and public limited companies, partnerships, and cooperatives
• Clearly defines management structures and internal control mechanisms
• Sets procedures for mergers, divisions, and liquidation
• Registration and changes are processed through the e‑Business Register

Estonia’s Law of Obligations Act regulates most business-related contracts, including sales, services, leases, loans, and liability. The legal framework is clear and flexible, supporting contractual freedom and legal certainty. Agreements can be concluded orally, in writing, or digitally, and are legally binding in all formats unless specific formal requirements apply.

Key facts:

• Contract law rooted in EU civil law tradition
• Broad coverage of commercial and civil agreements
• Digital signatures (ID-card, Mobile-ID, Smart-ID) are legally valid
• Contractual freedom respected within legal limits
• Efficient enforcement through Estonian courts

Construction activities in Estonia are regulated by the Building Code (Ehitusseadustik) and related legislation. Key requirements include obtaining a building permit (ehitusluba) for most new developments and ensuring compliance with detailed design and safety standards. The permitting process is handled via the Estonian Construction Register (Ehitisregister), allowing for fully digital submission and tracking of applications.

Environmental regulations are guided by both national laws and EU directives, ensuring that new projects meet environmental impact, land use, and sustainability criteria. In cases where construction may affect the environment, an Environmental Impact Assessment (EIA) may be required before permits are granted.

Key facts:

• Fully digital building permit application process via Estonian Construction Register
• Building permits may be issued based on a preliminary design stage of the building project (eelprojekt), which can significantly shorten timelines
• Environmental Impact Assessment required only for certain categories of projects
• Clear national and EU environmental compliance requirements
• Strong focus on sustainability and land-use planning

In IVIA industrial parks, all land plots are located in pre-zoned areas with approved detailed spatial plans and ready utility connections. This eliminates the need for additional zoning procedures and significantly reduces preparation time before construction can start.