Having recently held its flagship Latitude59 tech conference then setting a world record for fastest time to incorporate a company at London Tech Week last month, a mere 15 minutes 33 seconds, the tiny Baltic nation of Estonia continues its inexorable ascent to digital powerhouse status.
Shaking Off Unjustified Bad Rep
Estonia gets some rather unfair misunderstandings for its corporate taxation system. Simply put, if profits are reinvested within the company then no corporation tax is due until you finally pay out dividends.
“The Government is essentially a 20% investor in you too” says Luukas Ilves, Chief Information Officer for the Ministry of Economic Affairs and Communication, referencing the Corporation Tax rate.
This isn’t all that different from most other nations in the world, which provide countless credits, tax deductions or capital allowances which require specialist knowledge to keep track. Estonia is extremely easy. There are no exceptions and deductions.
According to the official statistics, of the 93,000 e-Residents over 36,000 are EU citizens with a futher 4000 from the United Kingdom. All these countries have extremely transparent taxation systems and provide little or no fiscal benefits for those having an Estonian company, so it’s quite clear they aren’t in it for any tax advantages.
“The whole of the Estonian tax code is something like 36 pages, that’s it. You could almost memorize it — everything is simple.” says Lauri Haav, Managing Director of the e-Residency program.
An indeed it is simple. All government filings can be performed in English, should someone be less inclined to learn business Estonian, one of only a handful of non-English native countries that allow you to do so. Individual tax filings are mostly pre-filled and a year’s corporate tax accounts takes around twenty minutes to complete.
Immigration and Business support
The various programs and visa categories on offer cater for just about all entrepreneurs, whether just dipping their toes or full Gung Ho. This ranges from e-Residency — which gives access to government services without providing residency rights — all the way to Digital Nomad Visa and the Estonian Startup Visa where full residency and access to business support is on offer.
Ease of doing business
So why do so many foreigners open companies in Estonia if there is no tax advantage? According to Lauri Haav, one of the biggest barriers for entrepreneurs-to-be is the share capital required to get a company going.
Take Germany for instance, whose e-Residents form the highest in number of companies formed by another EU country’s citizens, the minimum share capital is €25,000. France has an even higher requirement of €37,500.
The current rules of Estonia require €2500 but from 1st February 2023 this is slashed to just €0.01. For bootstrapped founders whose businesses require no physical presence, it is a huge advantage to incorporate in Estonia instead of Germany of France instead. And even if physical substance and workforce is needed, Estonia ranks as one of the most IT literate nations in the whole EU.
Unicorns Breeding Unicorns
It seems part of its close-knit cultural values that the favors are paid forwards. After Skype earned its spot in the annals of history as Estonia’s first unicorn, the founders continued to invest and grow the companies around it.
As a country of just 1.3 million citizens, it punches well above its weight in the digital economy. Having minted its tenth unicorn in Glia this year, it now boasts more unicorns per capita than anywhere else in the world, save for the sunny shores of Silicon Valley.
As Estonia continues its adaptations to make business administration even more efficient, and with the aforementioned share capital decimation, all signs point to a government that really wants the seeds to be sown into this digitally fertile land.
“We are probably the only country in the world where people compete on how fast they can submit their tax returns” jokes Kaja Kallas, Prime Minister of Estonia. “We want Estonia to continue to be seen as an innovative, forward looking country”.
And quite rightly, the less someone can be distracted by administrative burdens, the greater one can focus on growing their own business. It appears for the most part Estonia has done it right.