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Thinking about starting a business in Estonia? This guide, brought to you by RASK Attorneys-at-Law, covers everything you need to know—from registering a company and understanding taxes to using Estonia’s e-services and hiring employees. Whether you’re an entrepreneur setting up a new company or expanding with a branch, we’ve gathered the key information to help you navigate Estonia’s business landscape.

 

1. Branch of a foreign company in Estonia

 

Establishing a foreign branch in Estonia

One option for running a business in Estonia is to set up a branch of a foreign company. However, it’s important to understand that a branch is not a separate legal entity—the foreign company remains fully liable for its obligations. Since a branch isn’t considered an independent legal entity, there’s no requirement for share capital contribution. That said, the branch must still be registered in Estonia’s e-Business Register.

Branch management and representation         

The foreign company appoints one or more directors to manage and represent its branch in Estonia. These directors must be natural persons with active legal capacity. If multiple directors are appointed, each can act independently unless the company specifies joint representation. However, even if restrictions are placed on a director’s authority, they do not apply to third parties. This means that if a director exceeds their authority when signing a contract, the agreement remains valid, though the director may be held accountable to the company for breaching their duties.

 

Accounting and taxes for a foreign branch

A foreign company shall maintain separate accounts concerning the branch pursuant to the requirements of the Estonian Accounting Act. The company’s approved annual report must be submitted to the Estonian commercial register in any official EU language within seven months after the financial year ends.

 

If the foreign company operates in a country with a bilateral tax treaty with Estonia (see the list of agreements: here), the branch’s income is taxed only when profits are distributed. In other words, the profit earned through a branch is not taxed in Estonia as long as it is in the use of the branch and immediately available to the branch or invested to ensure revenue for the branch.

 

Additionally, from 1 January 2026 until 31 December 2028, a temporary defence tax of 2% will apply. This tax is based on the foreign company’s last financial year profit that is attributed to the Estonian branch.

2. Establishing a business in Estonia

 

Types of companies in Estonia

When starting a business in Estonia, you can choose from five different types of companies:

• Private Limited Company
• Public Limited Company
• General Partnership
• Limited Partnership
• Commercial Association

Among these, Private Limited Companies (Osaühing, OÜ) and Public Limited Companies (Aktsiaselts, AS) are the most common choices due to their limited liability benefits. Shareholders of limited liability companies are not personally liable for the obligations of the company – in other words, the liability is limited to the amount invested in the company.

 

Share capital requirements

In Estonia, the minimum share capital for a private limited company (OÜ) is just €0.01, while a public limited company (AS) requires €25,000. However, it is important to mention that a very small share capital can have a negative impact on the credibility of the company. Therefore, it’s usually a good idea to set the share capital based on the company’s actual financial needs.

 

Typically, the share capital should be paid before submitting a petition of establishment to the commercial register.

 

The share capital can be paid by a non-monetary contribution — anything that can be valued in money and can be transferred to the private limited company, or a proprietary right which may be the object of a claim.

 

Company registration process

You can set up a company online if you have an Estonian, Belgian, Finnish, or Latvian ID card, Mobile-ID, or Smart-ID. If not, you'll need to establish the company through a notary.

 

NB! The list of countries whose digital IDs (other than Estonian) can be used for logging in or signing documents is subject to change and can depend on a multitude of factors, including the development of eIDAS legislation.

 

To register a limited liability company, the management board needs to submit a petition to the commercial register along with any other required documents. All documents must be in Estonian, and if they’re in another language, they’ll need to be translated by a sworn translator.

3. How to run a limited liability company (LLC) in Estonia

Public limited companies are better suited for businesses requiring a more complex management structure. The role of a shareholder in a private limited company may be more active than the role of a shareholder in a public limited company.

 

Both types of limited liability companies must have a management board that represents and manages the company. The management board may have one or several members. The company may be represented by each member of the management board, unless the articles of association of the company prescribe otherwise. However, any restrictions on the right to represent the company only affect third parties if they are noted in the commercial register.

 

Public limited companies are required to have a supervisory board, while private limited companies can choose to have one. The supervisory board's role is to plan the company’s activities, organise the management of the company and supervise the activities of the management board.

4. What is e-residency and how does it work?

E-Residency is a transnational digital identity that allows individuals to access Estonian online services. An e-resident is a natural person who holds an e-Residency card (e-ID), which serves as a key to various Estonian e-services that require authentication. With an e-ID, you can digitally sign documents, log into portals, and access any information system that accepts the Estonian ID-card. This means e-residents can, among other things, establish a company in Estonia online, manage it remotely, use e-banking, open an Estonian bank account, and declare Estonian taxes online. Essentially, e-residency lets you act like an Estonian resident without physically being in the country.

How to apply for e-residency in Estonia

To apply for Estonian e-Residency, you’ll need to submit an online application. Here’s a list of the documents and information you’ll need to provide:

• A copy of your identity document issued by the country of citizenship
• A digital photo
• A motivation statement
• Your CV
• Information about any previous business activities
• A credit card to pay the application fee

Your application will be reviewed, and if all your documents are in order and there’s no reason to refuse, you’ll be granted e-Residency. However, the application can be declined under the following circumstances:

• If the applicant poses a threat to public order or national security
• If the applicant is subject to a prohibition on economic activities related to the purpose of e-Residency
• If the applicant is not clearly identified or there’s doubt about the applicant’s true identity
• If the applicant would be denied a visa, temporary residence permit, or is subject to a prohibition on entry
• If granting e-Residency would violate its intended purpose

Taxation for e-residents

As an e-resident, you're considered a non-resident under Estonian tax laws. This means only income derived in Estonia is taxed in Estonia. While e-Residency doesn’t automatically exempt you from taxes in other countries, Estonia is a party to numerous treaties with many countries to avoid double taxation.

It’s important to note that this applies to personal taxes. If you set up and run a business in Estonia, the company itself will be taxed separately according to Estonian tax laws.

5. Employment contracts

In Estonia, employment contracts must follow specific rules laid out in the Employment Contracts Act and other acts related to that. These mandatory provisions are in place to protect employees, who are considered the weaker party in the contract. The main terms of the employment contract arise from the acts above, as the significance of collective agreements and trade unions in Estonia is quite low.

An employment contract must be in writing, but not having it in writing doesn’t automatically make the contract invalid. If the employee starts working with the intention of being paid, the contract is considered in effect.

Generally, employment contracts are assumed to be for an indefinite period. However, they can be for a fixed term (up to five years) if there are valid reasons for the temporary, fixed-term nature of the work.

Employers are required to register all employees in the employment register, and this must be done by the time the employee starts work. If the employer is a non-resident, they should also register as a non-resident employer with the Estonian Tax and Customs Board.

Minimum wage and sick leave

In Estonia, the minimum wage is set by law and is reviewed every year. For full-time work in 2025, the minimum wage is 886 euros. To give you some context, the average wage in the 3rd quarter of 2024 was 1959 euros.

If an employee is temporarily unable to work due to sickness or needing to care for a family member, they are entitled to 70% of their average wage. There are some restrictions on how long this benefit applies, but it's a basic right for employees.

Working hours and overtime

Full-time work is presumed to be 40 hours of work within a seven-day period. However, the parties can agree upon a shorter working time (part-time work).

The parties may agree on overtime work, but the employer must either give them time off equal to the overtime worked or pay 1.5 times their regular wage for those hours.

It's important to note that the total working hours may not exceed 48 hours in a seven-day period, and employees must have at least 48 hours of consecutive rest every week.

Annual leave and holiday pay

Employees are entitled to 28 days of annual leave, unless a longer annual leave is agreed upon. An employee is entitled to the annual holiday after completing six months of employment.

Holiday pay shall be equal to the employee’s average wage over the past six months, ensuring fair compensation during time off.

Termination of employment

An employment contract can be terminated by mutual agreement, with no specific legal form required.

Employees have the right to terminate their contract at their discretion (ordinarily). However, employers cannot terminate a contract without a valid legal reason.

Extraordinary termination of employment contracts

An employment contract can be cancelled extraordinarily only with good reason as prescribed by the Employment Contracts Act. Employers can terminate a contract due to employee-related issues (such as a decrease in capacity for work or commitment of theft etc.) or economic reasons (such as layoffs). In the case of a layoff, the employer must provide compensation equal to one month’s average wage.

Employees can also terminate their contract extraordinarily for a valid reason, such as a material breach of the employer’s obligations (e.g., significant delay with payment of wages) or personal circumstances (e.g., health issues).

Procedure of termination

To cancel an employment contract, it is necessary to make a declaration of cancellation in a format which can be reproduced in writing (e.g. an e-mail).

 

The employer’s notice period depends on the length of the employment relationship, ranging from 15 to 90 calendar days. For employees, the standard notice period is 30 days, unless, considering all circumstances and mutual interests, such length of advance notice cannot be reasonably demanded.

 

During the probation period, the cancellation of the contract is more flexible for both parties. Generally, the probation period is four months unless it is shortened or considered non-applicable in the employment contract. The advance notice of cancellation during the probation period is 15 calendar days.

6. Corporate taxes in Estonia

Income tax and temporary defense tax

A company is a tax resident of Estonia and is liable for taxes under Estonian law if it is established pursuant to Estonian law. A non-resident legal person is subject to Estonian taxation, if it has a permanent establishment in Estonia and the income is derived in Estonia. A company has a permanent establishment in Estonia, if the permanent economic activities of a non-resident are carried out in Estonia.

 

In Estonia, companies only pay income tax when profits are distributed—whether as dividends, fringe benefits, gifts, donations, costs of entertaining guests, or non-business-related expenses. Simply earning a profit does not create a tax obligation. In other words, the mere fact of earning profit does not incur an income tax liability for the company.

 

Corporate income tax is paid by the company at the time of profit distribution. The tax rate is calculated based on the net amount and currently stands at 22%. Unlike in some other countries, dividend recipients do not pay additional income tax— the subject of taxation is the company. However, non-resident individuals who receive dividends from an Estonian company have to pay income tax in their country of residence, without the ability to avoid double taxation. The tax obligation arises in the month when dividends are distributed.

 

From 1 January 2026 to 31 December 2028, a temporary defense tax will be introduced. This tax, similar in nature to income tax, will be applied at a rate of 2% to both individuals and companies that fall under Estonian taxation.

VAT rates in Estonia

In Estonia, the standard VAT rate is currently 22%. However, from 1 July 2025 to 31 December 2028, the VAT rate will temporarily rise to 24% as part of the new defence tax measures.

In some cases, different VAT rates apply. For example:

• 13% VAT applies to accommodation services, whether or not breakfast is included.
• 9% VAT applies to books, medicines, and press publications.
• 0% VAT rate or a VAT exemption applies to certain goods and services, which are outlined in the Value-Added Tax Act.

VAT registration requirement

A company is required to register for VAT when its taxable supply exceed 40,000 euros from the beginning of the year. Once this threshold is reached, the company must apply for VAT registration with the Estonian Tax and Customs Board within three working days. If the company’s taxable sales are below 40,000 euros, VAT registration is optional.

Adding VAT to goods and services

Once you’re registered as VAT payer, you need to add VAT to the price of your goods or services. You’re also responsible for calculating and paying the VAT to the state.

 

The amont of VAT to be paid is calculated on taxable transactions during the period, minus the input VAT you've paid on purchases from other VAT-registered businesses. If the input VAT exceeds the VAT of the same period, you can claim a refund for the difference.

 

The taxable period is one calendar month and the deadline for submitting both – a VAT return and a report on intra-Community supply – is the 20th day of the month following the taxable period. The submission of the documents can be done in e-MTA (the e-services of the Estonian Tax and Customs Board), using the Estonian validation methods (ID-card, Mobile-ID, Smart-ID or e-Residency ID) or the European Union member state's eID.

Social security payments: social tax & unemployment insurance

In Estonia, social security payments include social tax and the unemployment insurance premium.

Social tax is used to fund pensions and state health insurance. This is paid by the employer, and the rate is usually 33% of the gross wage. In 2025, the minimum monthly social tax obligation is 270.60 euros, which must be paid to the state even if no wages are paid.

The unemployment insurance premium payment is shared between the employee and the employer. The employee contributes 1.6% of their gross wage, while the employer pays 0.8%. This premium is deducted from the wage before calculating income tax.

TSD declaration: submitting income and tax declarations

Declaration of income and social tax (including social tax, unemployment insurance premiums, and contributions to the mandatory funded pension) (Form TSD) must be submitted to the Estonian Tax and Customs Board by the 10th day of the month following the month that the payment was made. This includes the main form, a summary, and any necessary annexes.

The declaration can be submitted digitally via e-MTA, using Estonian validation methods like ID-card, Mobile-ID, Smart-ID, or the e-ID of an e-resident, or the eID of a European Union member state's citizen.

7. Accounting requirements in Estonia

The legal basis for accounting in Estonian is established by the Accounting Act, which sets out how businesses must manage their financial records. The key requirement is that accounting must be organised in a way that ensure the provision of up-to-date, relevant, objective and comparable information concerning the financial position, financial performance and cash flows of the accounting entity.

Document retention obligation

Companies are required to keep all accounting source documents for seven years from the end of the financial year in which the transaction was recorded.

Submitting the annual report

At the end of each 12-month financial year, companies must prepare an annual report, which includes the annual accounts and a management report. This report must be submitted to the commercial register within six months after the financial year ends.

The management board is responsible for preparing the report, and shareholders must approve it before submission. If the report is not submitted on time, the company will receive a warning of deletion. If it is still not filed within six additional months, the company may be deleted from the commercial register, leading to compulsory dissolution.

8. Special requirements for certain business activities

Some business activities in Estonia require a special licence or a formal notice of economic activity before you can start operating. Depending on the field, the licence must be obtained or the notice submitted to the relevant authority before commencing business.

To check whether your business activity has any special requirements, you can use the following link: EMTAK Classification Search.

Submitting a license application or notice of economic activity

You can usually apply for a licence or submit a notice of economic activity electronically through a state portal. This requires authentication using an ID card, Mobile ID, Smart ID, or an e-resident’s e-ID. Alternatively, you can submit the documents through a notary, and in some cases, via email or post, depending on the field of activity.

If you submit a notice of economic activity electronically, the information is immediately recorded in the relevant register. If submitted in any other permitted way, it will be entered the next working day.

Applying for a licence or submitting a notice requires payment of a state fee, which varies based on the specific field of activity. Licence applications go through a review process by the relevant authority, which can take up to 30 days. Once issued, the licence details are recorded in the appropriate register.

Get in touch

Timo Kullerkupp - partner & co-head of technology & defense tech practice

Timo is a highly valued adviser to companies operating in the technology sector and has substantial experience as a legal consultant & mentor for over 100 startups. Timo consults corporate clients on legal issues related to co-founder relationships and daily economic activities, as well as complex sector-specific matters of contract law and the conduct of major international transactions

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Ramon Rask - partner & co-head of defense tech, energy & infrastructure, corporate and M&A

Ramon is a founding partner of RASK Attorneys-at-Law and a highly regarded advisor in corporate law, mergers and acquisitions, and business strategy. He advices clients on every aspect of their business needs, from structuring investments and transactions to navigating and resolving complex disputes. 

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Annika Vait - partner & co-head of corporate and M&A

With nearly two decades of experience in corporate advisory, Annika has repeatedly garnered high recognitions in international legal market reviews. Notably, one of the world's largest legal directory publications, Legal500, awarded Annika the highly esteemed "Leading Individual" title in the field of Corporate and M&A for 2024. Annika advises clients on matters ranging from corporate law, M&A, labor law, to ongoing business advisory issues, including contract drafting, negotiations, and, when necessary, dispute resolution.

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