What is e-Residency?
It's a digital document issued by the Estonian government that allows entrepreneurs to establish and manage an online company from anywhere. With e-Residency, you can grow your business backed by one of the most digitally innovative countries in the world. You avoid bureaucratic burdens while maximizing digital opportunities as you benefit from the ease of conducting business remotely. You can also access the European Union market and benefit from Estonian digital services. You can start your application on the official site: https://apply.gov.ee/
What does OÜ stand for?
Osaühing (abbreviated OÜ) represents the legal figure of a Limited Liability Company (SL / LLC) in Estonia. The company (OÜ) has its share capital divided into shares of a private limited company and a board of directors (one or more members), which means a governing body representing and directing the company. The minimum share capital of an OÜ starts from € 00,01. In case more than half or none of the board members do not reside in Estonia; the company must provide an authorized agent and legal address in Estonia (Virtual Office and Contact Person services), as well as the address of the country of residence of the board member(s) as a place of administration.
What economic activities can I carry out with my company?
The e-Residency program allows access to the European Union market and facilitates many activities remotely. The main ones GROÜ provides support for are: -Professional Services: Freelancers who work as Web Designers, Programmers, Marketing and Business Consultants (Business Coaches), Travel Agencies, Traders -imports/exports-, among others; -E-commerce & Dropshipping: sell products on Amazon, eBay, or your own website. e-Residency even supports dropshipping models. -Digital Services: services such as SaaS and SaaP; -Holding structures; -And several more! Send us an email if you want to know whether or not your business can be set up with the e-Residency.
How do I choose the correct economic activity code for my company? Can I change it later?
When registering a company, you can only choose one economic activity code. When filling out the Company Registration form, we will ask you about your company's or business model's activity so we can advise you on choosing the code that best suits your business and register your company. This code will represent the company's main activity and with which it will generate most of its income. If necessary, the code can be adjusted at the time of each fiscal year closing with the annual report. The activity code is based on the EMTAK (NACE) Code system.
Can my company carry out more than one activity?
Yes! You can carry out several economic activities simultaneously with different activity codes within the same company.
What happens with taxes?
Without a doubt, some of the biggest questions and concerns of e-Residents are: how and when do I pay taxes, how much should I pay, and to whom or where? Don't worry; that's why GROÜ is with you every step of the way! We simplify the process so you can avoid having nightmares about taxes. Let's jump right into it! First, it is essential to remember that Estonia is NOT a tax haven, and your company will, at some point, pay taxes. Fortunately, Estonia has a modern, transparent, and digitized tax system specially designed to support companies from the start, ensuring their healthy financial growth through capital reinvestment and facilitating the payment of taxes online.
When do I pay taxes?
As long as you reinvest the money your company generates and justify the expenses related to the business, you will not pay taxes at the end of the fiscal year. That means a Corporate Income Tax of 0%. You pay the taxes you will owe to Estonia when you distribute dividends (profits) to the shareholders.
How much do I have to pay in taxes?
Dividends activate 20% of CIT (Corporate Income Tax) on the gross distribution, equivalent to 25% of the net distribution. The Estonian tax rate is formally expressed as 20/80.
What country do I pay taxes to?
Remember that you and your company are two separate persons. Your company is a tax resident of Estonia, while you will remain a tax resident of your country of residence. So your company pays corporate taxes in Estonia, and you pay personal taxes to your country of fiscal/tax residence.
How does the distribution of dividends work?
When distributing dividends, it is important to follow and comply with the following requirements: -The company’s fiscal year must be finished and the last annual report must be approved with a resolution digitally signed by the shareholders. -When deciding the amount of the dividend, be sure not to exceed retained earnings or undistributed earnings according to the company's Annual Report. -The net assets of the company may not fall below half of the company's share capital or minimum mandatory share capital as a result of the payment of dividends, whichever is greater. -As sole shareholder, draft and sign the dividend distribution decision. -The company must pay dividends to the shareholder's personal account. -The respective accounting entries must be done. -The payment of dividends must be declared in the TSD (tax office), and the tax due on the distribution of dividends must be remitted before the 10th day of the month following the actual payment.
Can I be self-employed by my company?
Yes! Being self-employed is an alternative way to withdraw money from your company without having to pay taxes to distribute dividends and without making the minimum or registered share capital contribution. There are two ways: assigning yourself a salary as a board member(director) and/or as an employee of your company. In many cases, the salary type for a small business board member is compensation for performing duties as a manager/board member, an employee, or a combination of both.
What is the difference between board member salary and employee salary?
It is crucial to understand and remember that, in your company, you perform two types of tasks: being a board member or director or an employee. You handle your company's administrative and bureaucratic functions as a board member or director. Additionally, you can also be the only worker or employee; who performs the operational tasks of the company, which add value to the services/products you offer. Provision of services such as consulting and customer service, production, web design or programming, trading, etc; They all can be considered as activities of an employee of your company. However, the main difference between the board member and employee salaries lies in the taxation differences.
What are the board member salary taxes?
The remuneration of the board members (administrator) is applied for the fulfillment of the company's managerial tasks, such as hiring personnel, management, business development, signing contracts, banking, etc. Board member salary is always taxed in Estonia. Account for 20% on the gross remuneration, plus the social tax (33%) on the previous gross remuneration. Social security tax is also paid in Estonia unless you prove that you already contribute to social security in another European country (residence) by providing a form A1 (E101).
What are the employee salary taxes?
The tax on the employee's salary is applied in your country of residence or the country from where the work is performed. If you live and work outside of Estonia, this salary is NOT taxed in Estonia. If the employee, that is, you, performs the work from Spain or Germany, then you will declare your income there. Part of the employee's salary will be added to your tax base when you make your tax returns (IRPF), and you will pay taxes on what corresponds to you.
Will I be taxed twice?
Estonia, as a country of the U.E., has double-taxation agreements with other member countries. You will NOT have to pay double the administrator's salary. If the activities as a board member partially qualifies with the fulfillment of the management or operation tasks of the company, then you can make a combination of both salaries. The suggested distribution ratio must be evaluated on a case-by-case basis. However, many companies exercise a ratio of 20/80 or 30/70, where the lower part corresponds to the board member's salary and the rest (higher) to the employee's. If you live outside of Estonia, your employee salary is not taxed there, only the board member's salary. The lower the director's salary in the distribution, the lower the taxes to be paid in Estonia.
What if I am a freelancer (autonomo) in Spain?
This is a great alternative for those who work under the figure of AUTONOMO. You can unregister because with your company in Estonia, you can still invoice your clients and show that you contribute to social security voluntarily, saving you the tedious monthly fee (€400 approx). It is better to unregister as Autonomo and pay social taxes by self-employment since the tax burden is much lower.
What are VAT and intracommunity VAT number?
VAT (value-added tax) is a tax applied to the consumption and/or the sale of goods and services. In the case of Estonia, it is 20%. The intra-community VAT number is a unique code that identifies a legal person (company) subject to tax. In Estonia, it always begins with the letters "EE" followed by 9 digits. For Spain, it is "ES" followed by another letter and 8 digits. Many companies face strict VAT compliance requirements when they start operating abroad. Whether they provide goods and services cross-borders, ship products to an overseas warehouse or fulfillment center, or provide digital services to other businesses and consumers, they will likely have a VAT number.
Does my company need a VAT number?
It depends on whether it meets any of the following characteristics: -You purchase goods or services from other companies in the E.U., for example: Facebook advertising, Google Ads, or other digital services. -You sell physical products to customers (B2B and/or B2C) within the E.U. -At least part of the manufacturing, transit, storage, or distribution of goods or services is managed from Estonia. -You provide services such as web development, web design, consulting, marketing, etc., to other companies (B2B) in the E.U., and you earn more than €40,000 a year, -You sell digital services (SaaS / SaaP) to European clients (B2B and/or B2C).
What is the VAT number for?
The VAT number helps you track the taxes your business pays and collects (incoming and outgoing VAT) through purchases and sales (expenses and income). 1. Helps to identify clients' tax status and tax location. 2. For B2B purchase/sale (Reverse Charge or Reversible Exchange mechanism). 3. To complete the VAT refund form (Include your VAT number on all your tax receipts and invoices).
Do I need an Estonian VAT number?
If you are looking for a global expansion and have discovered the benefits and opportunities of new markets with your company in Estonia, then yes! Important: Once your company reaches the distance selling threshold (VAT crossborder), you must obtain the VAT number in the country where this limit was exceeded.
Who issues a VAT number?
Only Tax Office (EMTA) is entitled to issue a VAT number, however, this process can be complicated and time-consuming. For the above reasons, we will support you in reviewing the commercial details and submitting the application online so that you can obtain the VAT number within 3 – 7 business days.
Do I need to add VAT? If yes, when and how much?
It depends on the type of business you will be dealing with, who your clients are, and where they are located. If your company provides services that require your direct intervention (such as: consulting, marketing, design, programming, etc) the following applies: -If your clients are companies from the U.E. with VAT number = You DO NOT add VAT (0% Reverse Charge). -If your client is B2C or a company within the U.E. with no VAT number = you DO add VAT (20% Estonian). -If your clients are outside the E.U. (Latam, Canada, USA, Australia, etc) = DO NOT add VAT to your invoices. If your company provides digital services that do not require your direct intervention because they are automated (such as Apps, Downloads, Streamings, among others): the following applies. -Your client is B2B (European) with VAT number = You DO NOT add VAT. -Your client does not have a VAT number, but is in Europe (B2C or B2B) = you DO add the VAT of their country of origin. -Finally, if your client is outside of Europe = You DO NOT add VAT.
Do I need a business bank account?
e-Residents use a wide range of payment institutions for their banking needs. Their chosen solution varies based on their geographic location, business needs, and prior payment institution services experience. As an e-Resident, you can choose a combination of banking options or change your bank account in the future. For example, some e-Residents choose a banking provider with an account they can easily open online to start their business. Later, once your business is worth the investment or meets certain criteria, they switch to a banking provider with more features.
What about a fintech bank?
Depending on your situation, there may be several banking options, possibly the best of them through fintechs. These institutions offer the option of opening accounts completely online and are often more flexible than traditional banks. Plus, you can get an account with many features as traditional banks, including a European IBAN (international bank account number) and the ability to make and receive payments in different currencies. The variety of options is vast, so we recommend you do exhaustive research to find out which best suits your needs and business profile. Based on our experience with our clients, we recommend that you consider Wise (formerly TransferWise) as a first option.
Can my company have an account in Euros?
Wise is a financial institution that allows you to open a personal and business account to send and receive payments in different currencies. At the time of account opening, you must enter information about your company (registration code, economic activity, shareholders, legal and administrative address, etc.). To activate your account, you will be charged a small one-time fee. One of the advantages that Wise offers for the administration of your company is the payment of the share capital and its registration. In case of any problems or questions, Wise has a 24/7 customer service line in English. In Spanish, there is the option of chatting or requesting a call from them; just write to them and ask them to call you.
How do I send money from my Wise account (EUR) to Latin America?
This transfer can be made directly from your Wise business account to the bank account of your choice in any Latin American country where Wise can send money. All you have to do from the Wise platform is convert your money to the destination currency you like (ex. BRL, CLP, MXN, etc.) and, finally, transfer those funds to that account.
How do I send money from Latin America to my company account (EUR)?
One of the best options currently offered by fintechs is Global66, which is a Chile-based fintech that allows you to easily send funds from an account in CLP, COP, BRL, PEN, ARS, or MXN to any account in EUR located in Europe (as a Wise account in EUR to pay the share capital). If you want more information about banking, email us, and one of our consultants will support and guide you on the subject (applicable service fees during the consultancy).
What are the advantages of e-commerce business?
-Your business operates 24 hours a day, seven days a week. -The scope of your business is extended to new users. -There is a competitive advantage. -The effectiveness of your business is increased through customer segmentation. There are no costs related to the establishment of a physical store. -You can scale your business; that is, you can sell to an unlimited number of people at the same time.
What are the benefits of having an e-commerce company in Estonia through e-Residency?
There are many advantages when choosing to open your e-commerce business in Estonia. Estonia is the first country in the world that has offered a digital identity that knows no borders and seeks to provide an opportunity to various entrepreneurs around the globe. e-Residency is the way to access the services the Estonian government offers without having to visit the country. You can start your company, access the European Union market, and have the tools to manage your company remotely. If you want a company dedicated to e-commerce or dropshipping without depending on a fixed residence, avoiding bureaucratic procedures, and having European clients and suppliers, e-Residency is the answer.
What are the administrative and tax benefits for e-commerce companies in Estonia through
e-Residency?
There are many benefits to becoming an e-Resident: -You do not need to depend on a specific residence. -You can establish and operate your company 100% remotely. -You can live in any country without making changes to your company. -You will have the advantage of starting a company in Europe. -You can use various payment providers, such as Stripe and Paypal. -You can sign and pay your taxes online. -The e-Residency is not a tax haven, but the Estonian tax system is modern, digital, and designed to support entrepreneurs from the get-go. -You will not have to pay taxes as long as the money that enters the company is reinvested in it.
What are the e-commerce business models?
It is possible to categorize e-commerce with its business models depending on how they generate their income and how the exchange of products, goods, or services between buyer and seller is carried out: -Marketplace → It is a website where various companies offer products or services. -Dropshipping → It is normal e-commerce, but the essential difference is that the seller does not send the product, but a third party does. -Online store with your products → It is the same as a physical store, but the products or services are sold online. -Services → It is not necessary to sell products or goods, you can also sell services such as mentoring and/or consulting. One of the simplest and most common ways to start e-commerce is through the "Fulfillment by Amazon" (FBA) program, a dropshipping model created by Amazon that makes various services available to its sellers, such as receiving, storing, and shipping your products to customers around the world.
What platforms and/or marketplaces can be used with e-Residency?
Integrating your e-commerce store into a platform or marketplace can be one of the most appropriate decisions when starting a business. Industry-leading marketplaces are frequently found helping e-commerce entrepreneurs boost their business in incredible ways. Marketplaces, such as eBay, Amazon, and Etsy, are very popular in the e-commerce fields and are constantly under development to create suitable tools for entrepreneurs. Regarding e-commerce platforms, we recommend the following: 1. WooCommerce: WooCommerce is a widely used platform by WordPress lovers as it helps small to large companies manage their stores online. It will allow you to offer your products under your terms since it is quite flexible when customizing your online store. 2. Shopify: Shopify has become one of the leading platforms in the field of e-commerce, helping countless entrepreneurs establish an online presence by selling products and services. 3. Wix: Wix is an e-commerce platform characterized by being very easy to use when building your website. Its design tools and user interface make it an ideal option for entrepreneurs with basic web page design knowledge.
What documents are necessary to open accounts on payment platforms like PayPal?
Having a bank account for your business is unnecessary, but opening one before setting up your PayPal account for your business is recommended. In addition, you will have to confirm an email address, provide contact information, and provide the bank account number where you would like to receive the deposited money. You will have to provide the name of your company (which will appear on your clients' invoice), and it will also ask you to describe your company's business type. -Autonomo / Freelance -Limited Liability Company -Incorporated -Nonprofit organization -Government entity Depending on your business type, PayPal could require more information, such as the product or service your company sells, the website, the monthly sales volume, and your company identification number. Lastly, it will ask you to provide contact information for your customers. If you want more information about e-commerce, payment providers, and marketplaces, send us an email, and one of our consultants will support and guide you on the subject (applicable service fees during the consultancy).