Estonia remains the favorite for remote companies

After recently holding its flagship Latitude59 tech conference and then setting a world record for the fastest time to incorporate a business at London Tech Week last month at just 15 minutes 33 seconds, the tiny Baltic nation of Estonia continues its inexorable rise to digital power status.

Get rid of an unjustified bad reputation

Estonia is the victim of rather unfair misunderstandings regarding its corporate tax system. Simply put, if profits are reinvested in the business, no corporate tax is due until you eventually pay dividends.

“The government is also a 20% investor in you,” says Luukas Ilves, director of information at the Ministry of Economic Affairs and Communication, referring to the corporate tax rate.

It’s not that different from most other countries in the world, which offer countless credits, tax deductions, or capital allowances that require specialist knowledge to track. Estonia is extremely easy. There are no exceptions and deductions.

According to official statistics, of the 93,000 e-Residents, more than 36,000 are EU citizens and another 4,000 from the UK. All of these countries have extremely transparent tax systems and offer little or no tax benefits to those who have an Estonian company, so clearly they do not receive any tax benefits.

“The whole Estonian tax code is something like 36 pages, that’s all. You could almost memorize it – it’s all simple.” says Lauri Haav, Managing Director of the e-Residency program.

And indeed it is simple. All government filings can be made in English, if someone is less inclined to learn business Estonian, one of the few non-English speaking native countries that allow you to do so. Personal income tax returns are mostly pre-filled, and one-year corporation tax accounts take about twenty minutes to complete.

Immigration and business support

The various visa programs and categories on offer cater to almost any entrepreneur, whether they are just dipping their toes or doing gung ho. These range from e-Residency – which provides access to government services without providing residency rights – up to the Digital Nomad Visa and Estonian Startup Visa where full residency and access to business support is offered.

The ease of doing business

So why do so many foreigners open businesses in Estonia if there is no tax advantage? According to Lauri Haav, one of the biggest hurdles for aspiring entrepreneurs is the social capital required to start a business.

Take the example of Germany, whose e-Residents form the largest number of companies formed by citizens of another EU country, the minimum share capital is €25,000. France has an even higher requirement of €37,500.

Estonia’s current rules require €2500, but from February 1, 2023, this amount is reduced to just €0.01. For seeded founders whose businesses do not require a physical presence, it is a huge advantage to incorporate in Estonia rather than Germany or France. And even though physical substance and manpower are required, Estonia ranks among the most IT-savvy countries in the entire EU.

Unicorns breeding unicorns

It seems to be part of its intertwined cultural values ​​that favors are paid up front. After Skype earned its place in the annals of history as Estonia’s first unicorn, the founders continued to invest and grow the businesses around it.

As a country of only 1.3 million citizens, it looms large above its weight in the digital economy. Having minted its tenth unicorn in Glia this year, it now has more unicorns per capita than anywhere else in the world except the sunny shores of Silicon Valley.

And then ?

As Estonia continues its adaptations to make business administration even more efficient, and with the aforementioned decimation of social capital, all signs point to a government that really wants the seeds to be sown in this numerically fertile land.

“We are probably the only country in the world where people compete on how quickly they can submit their tax returns,” jokes Kaja Kallas, Prime Minister of Estonia. “We want Estonia to continue to be seen as an innovative and forward-looking country.”

And rightly so, the less a person can be distracted by administrative burdens, the more they can focus on growing their own business. It seems that most of the time Estonia got it right.

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