Osaühing OÜ (Private Limited Company)
Estonia has gained international recognition for its pioneering use of digital technologies within government and public administration. Through the e-Estonia initiative, the country has digitized a broad array of services—including governance, education, healthcare, taxation, and legal processes—within a unified platform. This transformation has made Estonia one of the most technologically integrated states in the world, particularly in the public sector.
A hallmark of Estonia’s innovation in governance is its e-Residency program, launched in 2014. This initiative enables non-residents to obtain a secure, government-issued digital identity. Through this digital ID, individuals worldwide can establish and manage an Estonian company entirely online, access EU business environments, and conduct operations remotely without the need to physically reside in Estonia.
These developments have contributed to Estonia becoming a hub for technology-oriented entrepreneurs. A growing number of start-ups have emerged from the country in recent years, aided by streamlined business registration, efficient regulatory processes, and a transparent legal environment.
The most common business entity in Estonia is the Private Limited Company (known locally as osaühing or OÜ). This structure is well-suited for small to medium enterprises, including foreign-owned entities and digitally managed businesses.
Key features of an Estonian Private Limited Company include:
- Minimum Share Capital: EUR 2,500. Payment of this capital can be deferred; however, dividends cannot be distributed until the share capital is fully paid.
- Shareholders: A company may be established by a single shareholder or multiple shareholders, who may be either individuals or legal persons. There are no residency restrictions.
- Directors: At least one director is required, who must be a natural person. Directors may be residents or non-residents.
- Digital Administration: All company formation and governance actions (e.g., filing annual reports, declaring taxes) can be performed online, typically using the e-Residency card for nonresidents.
Estonia employs a distinctive corporate taxation model that differs significantly from traditional systems used elsewhere in Europe. The fundamental principle is that corporate profits are not taxed until they are distributed.
- Undistributed Profits: Retained earnings are not subject to corporate income tax, regardless of their amount or the length of time they are held.
- Distributed Profits: Dividends or other profit distributions are taxed at a rate of 22%, which is paid by the company at the point of distribution.
This deferred tax model can benefit companies seeking to reinvest earnings or operate long-term growth strategies without the immediate tax burden associated with annual profits.
Payments made by Estonian companies to non-resident individuals or legal entities may be subject to withholding tax (WHT), although Estonia’s extensive network of Double Taxation Treaties (DTTs) may provide for reduced rates or full exemptions, depending on the specific circumstances and jurisdictions involved.
- Service Fees to Non-Residents: Generally subject to a 10% WHT rate, unless reduced or exempted under an applicable DTT.
- Payments to Entities in Tax Havens: Subject to a higher 20% WHT rate.
- Royalties: Subject to a standard 10% WHT, though treaty benefits may apply.
- Salaries, Directors’ Fees, and Personal Service Payments: Subject to 20% WHT under domestic law, unless exempt under a DTT.
It is important to assess the tax residency status of the recipients and the nature of services rendered to determine WHT obligations accurately.
Estonian companies are required to submit an annual report to the commercial register by June 30 each year, covering the previous financial period. This report typically includes a balance sheet, income statement, and a management report.
Audit requirements depend on the size of the company. Companies exceeding certain thresholds must prepare audited or reviewed financial statements:
Audit mandatory if at least two of the following are met:
- Revenue exceeds EUR 4,000,000
- Total assets exceed EUR 2,000,000
- Average number of employees exceeds 50
Or if one of the following is met:
- Revenue exceeds EUR 12,000,000
- Total assets exceed EUR 6,000,000
- Average number of employees exceeds 180
Audit review required if two of the following are met:
- Revenue exceeds EUR 1,600,000
- Assets exceed EUR 800,000
- Employees exceed 24
Companies that fall below these thresholds may file unaudited accounts, reducing compliance costs and administrative burdens.
Companies that distribute profits or make taxable payments must file a combined income tax and payroll tax return (form TSD) with the Estonian Tax and Customs Board by the 10th of the month following the taxable event. Returns can be filed electronically via the government’s online portal, which is accessible to e-Residents and resident entrepreneurs alike.
For companies without distributed profits, no corporate tax filing is required for retained earnings, further simplifying compliance for reinvesting businesses.
Estonia offers a conducive environment for e-commerce and technology-driven businesses, particularly due to its integration within the European Economic Area (EEA). This status allows Estonian-registered companies to leverage EEA-wide payment processing solutions, facilitating international commerce.
The low administrative cost, in conjunction with full digital access to state services, appeals to entrepreneurs aiming to operate remotely or from multiple jurisdictions.
Estonia provides a compelling jurisdiction for company formation, particularly for technology-focused ventures and remote entrepreneurs. Its transparent legal framework, innovative digital infrastructure, and investment-friendly tax model contribute to its reputation as a modern, efficient business environment.
Key advantages include:
- Deferred taxation on undistributed profits
- Fully digital incorporation and governance
- E-residency facilitating non-resident company ownership
- Transparent and predictable corporate regulation
- Broad access to EU markets and financial services
Legal *
Country code – EE
Legal Basis – Civil law (German)
Legal framework – Commercial Code
Company form – Private Limited Company (Osaühing, OÜ)
Liability - The liability of the shareholders for the company is limited to the unpaid amount of their respective shareholdings.
Share capital – The share capital of a company must be a minimum of EUR 2,500. If the share capital is less than EUR 25,000, capital does not need to be paid up at the time of incorporation. However, a company is not allowed to distribute profits if the share capital is not paid up.
Capital contributions can be made in cash or in kind, but at least half of the contribution must be paid in cash.
Shareholders – An Estonian company may be incorporated by one or more natural persons or legal entities, residents or non-residents. Details of the shareholders are disclosed publicly.
Directors – A company must have at least one director, who must be an individual, resident or non-resident. If more than half of the Board of directors are not Estonian residents, the company must appoint a local representative with the local address.
A supervisory board is compulsory if at least two of the following three criteria are met: 1) sales revenue or income 2,000,000 euros; 2) total assets as of the balance sheet date 1,000,000 euros; 3) average number of employees 30 or at least one of the indicators of the financial year exceeds the following conditions: 1) sales revenue or income 6,000,000 euros; 2) total assets as of the balance sheet date 3,000,000 euros; 3) average number of employees 90.
Secretary – Estonian companies may appoint a secretary but is not mandatory.
Registered Address – A company must have a registered office in Estonia.
General Meeting – Each year, every company shall hold a general meeting, or pass a written shareholder resolution in lieu.
Electronic Signature – Permitted.
Re-domiciliation – Inward/outward re-domiciliation is not allowed.
Compliance – Companies must submit an annual report including financial statements every June for the previous financial year. Fully audited accounts do not need to be prepared, unless the company exceeds two of the following -
- sales revenue or income 4 000 000 euros;
- total assets as at the balance sheet date 2 000 000 euros;
- average number of employees 50.
- sales revenue or income 12 000 000 euros;
- total assets as at the balance sheet date 6 000 000 euros;
- average number of employees 180.
- sales revenue or income 1 600 000 euros;
- total assets as at the balance sheet date 800 000 euros;
- average number of employees 24.
- sales revenue or income 4 800 000 euros;
- total assets as at the balance sheet date 2 400 000 euros;
- average number of employees 72.
The combined Corporate Income Tax and payroll tax return (form "TSD" with appendices) must be submitted to the Estonian Tax and Customs Board. by the tenth day of the month following a taxable distribution or payment.
- Shareholders not disclosed *
- Directors not disclosed *
- Corporate shareholders permitted * *
- Corporate directors permitted * *
- Local director required * *
- Secretary required * *
- Local secretary required * *
- Annual general meetings required * *
- Redomiciliation permitted * *
- Electronic signature * *
- Annual return * *
- Audited accounts * *
- Audited accounts exemption * *
- Exchange controls * *
- Civil law (German) Legal basis *
- 1 Minimum shareholders *
- 1 Minimum directors *
- EUR 2,500 Minimum issued capital *
- - Minimum paid up capital *
- EUR Capital currency *
- Anywhere Location of annual general meeting *
- 2017 AEOI *
Taxes *
Basis – Corporate income tax is levied on worldwide income.
Tax rate – Undistributed profits are tax exempt. Profits distributions are usually subject to a 22% tax (22/78 of the net distributed amount).
Capital gains – Capital gains are considered ordinary income and taxed when they are distributed. A participation exemption on the disposal of shares may be availed of if the underlying company is tax resident in the EEA or Switzerland, and the Estonian company holds at least 10% of the shares or votes of the company prior to such disposal. This exemption also applies if the subsidiary is a non-EEA/Switzerland resident and profits have been previously taxed in the foreign jurisdiction. This exemption may also apply if the entity is a non-EEA/Switzerland resident and profits have been previously taxed in the foreign jurisdiction.
Dividends – Dividends are considered ordinary income and taxed when they are redistributed. However, corporate income tax will not apply to redistribution of dividends if the underlying dividends are received from a subsidiary that is tax resident in EEA or Switzerland, and the Estonian company holds at least 10% of the shares or votes of the distributor. This exemption may also apply if the subsidiary is a non-EEA/Switzerland resident and profits have been previously taxed in the foreign jurisdiction.
Interests – Interests are treated as ordinary income and taxed when company profits are distributed.
Royalties – Royalties are treated as ordinary income and taxed when company profits are distributed.
Withholding Taxes – There is no withholding tax on dividends. However, if dividends are subject to the reduced corporate income tax (14%) and are distributed to individuals (residents or non-residents), they may be subject to a 7% withholding tax, unless it is reduced due to a tax treaty.
There is no withholding tax on interests unless interests are derived by a non-resident investor from an Estonian contractual fund or other pool of assets (10%).
Royalties paid to non-residents are subject to a 10% withholding tax unless the tax rate is reduced under a tax treaty or exempted via the EU interests and royalties directive.
Foreign-source income – Foreign-source income is generally subject to corporate tax.
Losses – As taxes are levied on distributed profits, there are no adjustments to accounting profits for tax purposes.
Inventory - As taxes are levied on distributed profits, there are no adjustments to accounting profits for tax purposes.
Anti-avoidance rules – Transfer pricing rules are applicable to all types of transactions between related persons, which must be conducted at arm’s length.
Undistributed profits of a CFC may be attributed to the Estonian company. A CFC is defined as any non-resident enterprise in which the resident company alone or together with its related parties holds more than 50% of the voting rights or capital, or is entitled to receive more than 50% of the profits. A foreign PE of an Estonian company is also considered to be a CFC.
In order for the tax obligation to be triggered, the following conditions will have to be met:
- The underlying transaction or chain of transactions generating the profit of the CFC was fictitious.
- The principal aim of the underlying transaction or chain of transactions was gaining a tax advantage.
- The CFC is effectively managed by key employees of the shareholder of the controlling company that created the opportunity to make a profit.
An exception allows the company to exclude from the scope of the provision a CFC that simultaneously meets the following two conditions:
- The accounting profit of the previous financial year did not exceed EUR 750,000.
- Other revenues of the foreign company, such as profits from subsidiaries, affiliates, and financial investments, interest income, and other financial income (i.e. non-trading income) did not exceed EUR 75,000 during the same period.
Labor taxes – Employers must pay social tax on certain payments to individuals at the rate of 33%. Additionally, employers and employees must pay unemployment social contributions at 1% and 2%, respectively.
Tax credits and incentives – There are no additional tax credits or incentives.
Personal income tax – An individual is considered a tax resident in Estonia if he or she has a permanent residence and/or stay more than 182 days in Estonia in a 12-month period.
Tax residents are subject to income tax on their worldwide income at a flat rate of 20%. Non-residents pay taxes on their income accrued in Estonia.
Capital gains are considered ordinary income and taxed at standard income tax rate. Investment income is usually taxed at normal rates. However, a tax deferring may be available under an investment account scheme where individuals can reinvest investment income and capital gains tax-free.
Domestic dividends are exempt from taxation, dividends obtained abroad are exempt provided that were taxed on source. Interests from financial institutions of the EEA are tax exempt.
Rental income and royalties are considered ordinary income and therefore taxed at the applicative tax rate.
Other taxes – V.A.T. standard rate is 20%. Reduced rates of 9% and 0% apply to certain goods and services.
Lands are subject to a property tax that ranges from 0.1% to 2.5%, except for residential lands. There are no transfer, inheritance and net worth taxes in Estonia.
- Offshore Income Tax Exemption * *
- Offshore capital gains tax exemption * *
- Offshore dividends tax exemption * *
- CFC Rules * *
- Thin Capitalisation Rules * *
- Patent Box * *
- Tax Incentives & Credits * *
- Property Tax * *
- Wealth tax * *
- Estate inheritance tax * *
- Transfer tax * *
- Capital duties * *
- 22% Offshore Income Tax Rate *
- 22% Corporate Tax Rate *
- 20% Capital Gains Tax Rate *
- 20% Dividends Received *
- 0% Dividends Withholding Tax Rate *
- 0% Interests Withholding Tax Rate *
- 10% Royalties Withholding Tax Rate *
- 0 Losses carryback (years) *
- 0 Losses carryforward (years) *
- 50 Tax time (hours) *
- 8 Tax payments per year *
- 2% Social Security Employee *
- 34% Social Security Employer *
- 20% Personal Income Tax Rate *
- 20% VAT Rate *
- 58 Tax Treaties *
Country details *
The Republic of Estonia, is a Baltic Republic located in the north of Europe. Being independent of the Soviet Union in 1991, since 2004 it has been part of the European Union (EU) and NATO. It is bordered to the south by Latvia, to the east by Russia, to the north by the Gulf of Finland and to the west by the Baltic Sea.
The country is inhabited by approximately 1,287,000 people. Its capital and most populated city is Tallin. Its official language is the Estonian, although about a third of its population is Russian-speaking. In 2011, the Euro (EUR) replaced the Estonian kroon (EEK) as its official legal tender currency. The country also stands out for its responsible public finances, being the least indebted state (9.6% of GDP) of the OECD.
Estonia is a world leader in digital governance and is one of the most digital advanced countries. All Estonians receive a digital ID card that gives them access to around 4,000 services online, from managing their finances, registering companies, signing digital contracts, paying taxes or asking for prescriptions, even voting.
They are also pioneers in the conception and implementation of the E-Residency, a transnational digital identity card for non-residents issued and backed by the Estonian Government.
Its developed telecommunication and digital infrastructures offer a superior environment for business operation. Being one of the world’s top countries in tech areas such as fintech, cyber security centers, security software development, systems integration and defense software, mobile security and wireless security. Estonia has an innovative talent pool, with a strong international reputation for know-how and innovation, and a vibrant and growing ecosystem for tech startups.
Estonia is also one of the most business liberal countries. Non residents can register a company online in less than 1 hour and manage it remotely. It has also a competitive tax system, where reinvested profits are tax free.