Estonia for Digital Nomads

Estonia is a great option for any tech startups, freelancers and digital nomads who would like to start a business in Europe easily and with little incorporation expenses.

It is a forward thinking European nation, which has been on the radar of many entrepreneurs and business enthusiasts for its unique approach to company registration. 

It is also well known for its e-residency program.

Key Takeways

• Ideal for tech startups, freelancers, and digital nomads.
• Business incorporation is easy with low expenses.
• e-Residency allows managing an EU-based company online from Estonia.
• Common business type is Private Limited Company.
• Income tax is 20% on distributed dividends, 0% if profits are reinvested.
• VAT rate is 20% with mandatory registration over €40,000 in sales.
• Highly efficient tax system, especially for reinvested profits.
• EU membership with VAT exemptions for sales to other EU companies.
• Payment processor compatibility (e.g., Stripe with conditions).
• Suited for marketing professionals, bloggers, software developers.
• First country to establish digital residency, attracting global entrepreneurs.
• Digital residency doesn’t lead to citizenship or legal residency.

Why Estonia?

The country is one of best choice for any professional who offers marketing services (for example, SEO, Paid Advertising, Social Media Management, Affiliate Marketing, etc.), bloggers eager to monetise their websites and channels or for small and medium e-commerce startups.

For the sixth consecutive year, the Tax Foundation, the US independent, and non-partisan research institute have positioned the Estonian system at the top of the ranking of the most efficient tax systems in OECD countries.

Each year, in fact, the institute prepares an index, the International Tax Competitiveness Index, which measures the effectiveness of the tax system of the most important countries in the world through the adherence of each system to the criteria of competitiveness and neutrality.

The country has been recognized for its advancements in online administration and business.

E-Residency

Notably, in 2014, Estonia launched its groundbreaking e-residency program, allowing individuals from other countries to set up a business in Estonia remotely.

This initiative showcased Estonia’s advanced online bureaucracy, including a user-friendly system for tax returns. Furthermore, Estonia has become a fertile ground for startups, giving birth to global successes like Skype and TransferWise.

Estonia was the first country in the world to have established the “digital residence” to attract brains from around the globe and encourage the opening of new businesses.

E-Residency is a estonian government issued digital entity that lets you start and manage an EU-based company online from Estonia.

The e-residency allows “digital nomads” (or remote workers) from all over the world to acquire, under certain aspects, the same rights as an Estonian resident: open a business in Estonia, submit applications and requests for certificates to the public administration, pay taxes, etc.

But the E-residency isn’t a way to obtain Estonian citizenship, nor to obtain legal residency, which means that it’s not a way to live abroad and pay Estonian taxes (notoriously low).

Furthermore, the E-resident digital card cannot be used for travel, as an identity card or as a passport. It’s simply a document within the Estonian system.

When you open a company in Estonia through the e-Residency program, check which payment processor supports your business model and your personal residence (or the director’s country of residence).

For example, Stripe supports companies registered in Estonia through e-Residency, but only if the individual associated with the account is located in one of the supported countries.

Digital Nomad Visa

Estonia has taken also a pioneering step in the world of digital nomadism by introducing the “Digital Nomad Visa.”

This visa aims to attract remote-working professionals from around the globe, further establishing Estonia’s reputation as a bureaucratic innovator.

The visa targets non-European digital nomads, specifically remote-working employees or freelancers who have the flexibility to work from any location.

To qualify for this visa, applicants must demonstrate a monthly income of at least €3,504 and provide evidence of their professional role, such as client lists.

Benefits of the Digital Nomad Visa:

• The visa permits a stay in Estonia for up to 12 months.
• It includes the privilege of traveling across the Schengen zone for up to 90 days.
• The visa addresses a legal gap, allowing digital nomads to work legally in the countries they visit.

Estonia envisions the Digital Nomad Visa as a tool to promote the country globally.

The initiative is not just about attracting remote workers but also about tapping into the economic benefits they bring.

Digital nomads utilize services that are taxed in Estonia, contributing to the nation’s economy.

Moreover, they add diversity and enrich the local community.

Estonia’s unique approach to this visa covers both employees and freelancers, setting it apart from similar initiatives in other countries.

Taxes on Dividends

One of the standout features of Estonia’s business environment is its tax system.

Unlike many countries that tax profits, Estonia has adopted a different approach as the country does not tax profits, instead, it taxes distributions.

This means that businesses are taxed only when they distribute their profits, not when they earn them.

For businesses operating in Estonia, the tax rate on distributions stands at 20%.

The tax rate is not among the lowest, in fact, jurisdictions such as Malta, Gibraltar and Cyprus are cheaper when it comes to tax, but they have higher incorporation expenses.

Furthermore, these countries are more suited to medium sized and large enterprises.

To simplify the concept as much as possible, if you withdraw money in the form of a salary, for example, without distributing dividends at the end of the year, you pay ZERO TAXES!

VAT Rate in Estonia

The VAT rate in Estonia is 20%, and a VAT number becomes mandatory only over €40,000 in sales in a year.

So it’s possible to open a company in Estonia without registering it for VAT purposes.

As part of the European Union, all goods and services sold to other EU companies, located outside the country, are not taxable for VAT purposes.

FAQs (Frequently Asked Questions)

What is Estonia E-Residency?

E-Residency is a estonian government issued digital entity that lets you start and manage an EU-based company online from Estonia.

What is the most common form of business in Estonia?

The most common form of business in the country is a private limited company in which the owners’ liability is limited to their share.

Is there corporate taxes in Estonia?

There is a 20% flat income tax paid on distributed dividends, hence there’s no corporate tax.

How much is the VAT rate in Estonia?

The VAT rate in Estonia is 20%, and a VAT number becomes mandatory only over €40,000 in sales in a year.

Do Stripe support estonian companies?

Stripe supports companies registered in Estonia through e-Residency, but only if the individual associated with the account is located in one of the supported countries.

Conclusion

As the world continues to evolve in the wake of the pandemic, Estonia stands out as a beacon for digital nomads, offering them a legal and welcoming environment to work and thrive.

Do you want to know more about taxes in Portugal? We have a blog post about taxes for digital nomads.

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