5 DO’s and DON’Ts When Establishing a Company in Estonia

Over the years of working with e-residents, we’ve identified key patterns and common pitfalls. To help you get started on the right foot, here are some essential do’s and don’ts when setting up your Estonian company. Start smart, and your Estonian company will thrive!

DO’s

  1. Reinvest Your Profits
    Profits reinvested into your company are generally tax-free in Estonia. With a corporate tax rate of 2% starting in 2026, reinvestment becomes an even more attractive strategy.
  2. Utilize Estonia’s State Portals
    Use your e-residency card to access the Estonian Tax Board, Business Register, and other state portals. These platforms simplify understanding your obligations and exploring opportunities. Digital convenience at its finest!
  3. Utilize Tax-Free Benefits
    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).
  1. Embrace Digital Solutions
    Why work harder when you can work smarter? Automate and digitalize your operations. API integrations, automated connections between bank accounts 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!
  2. Prepare for Monthly Reporting
    Familiarize yourself with the reporting obligations that come with running an Estonian company, such as monthly VAT, income tax, and social tax declarations. 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. Becoming an e-resident won’t alter your tax obligations.
  3. Don’t Assume Zero Taxes on Dividends and Payroll
    If you’re a non-resident and not working in Estonia, dividends and payroll may not be taxed locally. However, always consider the tax rules of your country of residence to avoid surprises.
  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 middle of 2025.
  5. Don’t Create a Permanent Establishment (PE)
    When operating abroad, be mindful of not triggering a PE in another country. This could occur if you:
    • Run the business from a specific location,
    • Rent office space, or
    • Sign contracts in a specific country or other.

Once a PE is established, the host country has the right to tax your company’s profits  according to local regulations.

Establishing a company in Estonia is a smart move for savvy entrepreneurs. The digital efficiency and business-friendly environment are unbeatable—but knowing the rules is key to unlocking its full potential.

Got questions? We’ve got answers. Contact us at info@saldo.ee or explore more at www.saldo.ee.