I'm currently considering opening an Estonian e-business for a small SaaS project. As somebody from Germany, establishing a company is a bit tedious and bureaucratic. Now I've come across the Estonian e-residency program and the option to run a business there. I don't care so much about the tax implications, but more about the bureaucracy aspect. It all sounds quite good. But marketing is marketing and real life often is something else. So, long story short: I would be happy if somebody could share their real-life experiences. Was it/is it worth it? Are there any pitfalls?
Thanks!
Yes, it is fantastic and delivers on all of the promises. The only potential headache is that you must collect your e-residency card from an embassy which, depending on your location, might require travel to a nearby country.
I used Xolo but there are lots of agents in the directory. I like and recommend Xolo. No idea what the supposed issue with banking is, all of the agents have banking relationships and you can also use Revolut and Wise. My bank account was opened same day as the company.
Your details are published on the public register. The moment your registration is published you'll get lots of emails offering services, like banking (some people pretend to be Revolut but are actually just sending you affiliate links). Don't publish an email address you care about.
[1] The problem with forming a U.S. company is that all of the formation agents are layers on top of a convoluted nightmare. The formation agent can do their best to abstract away the complexity but the moment you have to peak behind the curtain you'll find yourself face to face with something very scary. The Estonian e-residency program is integrated all the way through.
What exactly are you referring to? This doesn't match my experience at all.
It is only when he decides to withdraw the money the problem occurs.
What you're saying applies to most EU countries. Here where I live you have to reside for majority of the year in given residency to pay taxes over there.
Here's the tricky part.
Estonia is part of Schengen Area. Which means you can travel there and back without passport. There's no paper trail of your arrangements. You can easily create a reality in which you reside there for majority of time.
But again, that's not the selling part of Estonian LTD. Which is - it's extremely easygoing and as long as money stays in the company you're not paying taxes.
Cautios when dealing with German tax officers: They are checking the 183-day-limit very very strictly, includin invoices/bank statements if required, hotel bookings etc. They even apply intelligence colleagues if in doubt for big fishes.
https://www.vlh.de/wissen-service/steuer-abc/183-tage-regelu...
Let say I am a junior SWE in EU. I incorporate in Estonia and issue my employer with an invoice from said company. That company pays for my house, my car, my dental service and whatnot, and what's left I take as a employee salary.
I pay local tax for that salary, but that's only a fraction of what I've billed my employer.
There's also the CFC rule, which means that within the EU, if you control a foreign corporation, your country of tax residence can tax undistributed profits.
Often tax offices don't bother and you might not get caught, but 'not getting caught' is not the same as it being legit.
Until you get audited by your local tax authority who rules that all of that is disguised salary, or the Estonian tax authority says that that's technically (taxable) profit being paid to the director.
If you're currently doing this, I suggest throwing yourself at the mercy of your local tax authority with the help of a lawyer and an accountant, as it's possible they'll show some leniency if you go to them first and not add penalty fines in addition to needing to back-pay the tax and late payment fines.
You've got to get up pretty early in the morning to fool The Revenue.
If you travel regularly and have an office in Estonia and you make the effective management decisions there, you are obliged to Estonian tax system only.
Can someone explain the actual benefit of sitting in a developed country and charging via Estonia?
If you manage your company in, let's say, Germany, it is de-facto German company in the eyes of German tax authorities. When German tax authorities will find this out they will make you open UG/GmbH and pay back the corpo-tax, plus possibly a fine.
Now you will be stuck with 2 companies - Estonian and German, which is way bigger hassle. Not to mention Estonian company becomes useless/liability.
I also want to mention that practically every country has offshore-company laws like this, even places like Thailand and other SEA countries. It's not only EU.
The e-residence website repeats this many times, with many examples focusing on Germany.
https://learn.e-resident.gov.ee/hc/en-gb/articles/3600025428...
The whole e-residence thing only makes sense if you are from a non-EU country which doesn’t model its tax code on the OECD model.
People do get away with it until they get audited.
It's a very narrow list of countries then. Only reason where it would really work if the owner is digital nomad with no tax residency anywhere.
Banking and being scrupulous on your personal taxes at your place of personal residence are issues, but nothing insurmountable, far from it.-
Basically it would be best if you have no customers from Spain or country of your residence.
As others have said, it mostly makes sense for people outside of the EU. If you have personal residency in Spain then it is questionable whether the easier paperwork in Estonia will offset the need to do some paperwork in Spain as well.
Focus on your business, open the smallest and simplest entity you can to validate your product before spending time and money optimizing or scaling things. That being said, I’m familiar with GmbHs in Germany and I would advise against going this route unless funding is available. Try a sole proprietorship instead if possible.
edit: just stumbled upon this really good blog post about the topic, in case anyone is interested: https://eidel.io/posts/estonias-e-residency-is-awesome-and-s...
If an LLC does activity in California, it's subject to income apportionment in CA.
Forgive my ignorance, I have never really thought about this before and I may be missing something very obvious here.
Isn't that kind of true, though? For instance, if I am a citizen of Japan, live there, and run my remote business from there, but the business that I run exclusively makes money from people in Portugal and Brazil, it would be true that my revenue is being generated in those other countries, but in my own life, I am enjoying the benefits and protections of being a Japanese citizen. Right?
It isn't so much that I would want to be taxed in: Portugal, Brazil, and Japan, but rather that, the nature of how I am choosing to operate my business kind of makes the issue my own burden to bare. If I continue to live in Japan for whatever reasons that may tie me there (family, friends, children in school, business isn't stable enough, other commitments, etc.) it seems like there is a kind of debt to pay back some of my earnings to the Japanese government because they have provided me an environment to build and maintain that business within their country even though the profit made is exclusively outside of Japan. That is to say, the government may not have seen the money directly, but they provided me a safe and stable environment in which I was able to run and operate that business; isn't that kind of the fundamental role of government? I.e., to protect the nation and its citizens, so they may do as they will.
Put another way, suppose the top 1,000 richest people in the world all opted to all move to a tiny nation with very low taxes, and continued to run their businesses remotely from that place without being required to contribute anything back to that nation through taxes. That seems wrong to me. It seems good that they would be asked to pay back into the place that they live and reside, regardless of where their revenue is gotten. They have a home, and that home is ultimately defended and it's property rights upheld by the government that recognizes it.
I'd be interested to hear how others see it. Like I said, I haven't really thought about this too much before, and may be missing something more fundamental and obvious.
The big country that is an exception is the US. Their citizens have to pay tax regardless of them being elsewhere, and the difference is dealt with via various taxation treaties. I imagine the justification is something like "we help our citizens everywhere, so they owe us tax".
> I'd be interested to hear how others see it. Like I said, I haven't really thought about this too much before, and may be missing something more fundamental and obvious.
The big thing that's missing is corporations. They are imaginary entities, with a bunch of rules about what they are allowed to do, how they pay tax, etc. Once you create a corporation (or several), you can move profits around according to various accounting rules, which are often disconnected from how ordinary people interact with an entity. Are you buying coffee from Starbucks on Oxford Street, or Starbucks UK, or Starbucks Luxembourg? Most people don't think about that when they buy a coffee, but the accountants do.
You can also change what kind of tax you are paying. If you have a company, you can pay yourself a salary or a dividend. It's still money either way, but depending on jurisdiction taxed differently.
That really depends on the nature of your business. If you're hosting a web application in Japan then I'd argue you're still doing business in Japan. Same if you're a contractor for companies or individuals abroad. A grey area is if you host an application abroad. You technically do business abroad, but it's unlikely anybody will come after you for tax.
You clearly owe tax abroad if you operate legal entities that are incorporated abroad. Then we enter the vast and diverse field of how to (ab)use taxation and corporate law of different countries to structure your business to avoid as much tax and bureaucracy as possible. How much of that is morally appropriate according to the points you raised is a whole different question.
Disclaimer: I'm neither a lawyer nor a tax advisor.
I'm fairly sure the German tax authority will claim that you have a local German branch office since you live and work there.
That might be OK tax wise?
But I'd recommend starting with the tax situation in Germany.
Having limited liability through some kind of corporation can be nice.
But on the other hand, it becomes harder in Germany to pay out a varying salary as profits fluctuates throughout the year since the German tax authorities will see that as an illegal dividend payment from your company.
From this perspective it can be easier to set up some kind of sole proprietorship. Easier accounting etc and can pay out profits easier. But you get the personal liability.
This is not hard advice, just some things to point out that it gets complicated fast. So I'd recommend spending a few hundred euros on getting advice from a tax professional to begin with.
If you work from home, your office at home usually does not qualify as a company office unless you make it one. In particular, that alone would not force you to pay Gewerbesteuer to the city, which is the tax specifically addressing local presence.
However, you're touching upon a very important point: If you live in Germany and your Estonian company pays you a salary (as opposed to dividends), you will be a proper employee and your company will also have to pay social security for you, and this might complicate matters significantly. In fact, this will likely (in the German tax authorities' eyes) establish that your Estonian company partially operates in Germany (which is a much broader thing than having an actual physical branch office). This then brings you back to square 1 – your company having to file taxes in Germany, too. Someone below linked https://eidel.io/posts/estonias-e-residency-is-awesome-and-s... which seems to confirm this.
> German tax authorities will see that as an illegal dividend payment from your company.
Could you elaborate? How is this illegal if you declare taxes?
Dividends are treated differently from the salary by tax laws.
Germany cares about where the management of your company actually happens, not just where the entity is incorporated. So you're not going to avoid German bureaucracy, it's going to be worse not better.
I'm using Xolo which do the accounting and local representative. 99% of my bureaucracy is uploading pdf invoices to the Xolo system. Once a year I have to spend like one hour on the anual report. That's pretty much it.
Every 5 years you have to renew your digital id. It costs a little money and if you are in the EU there will be a pickup location not far away (I had to travel internationally).
I also have to deal with my personal taxes but that's another matter.
https://denationalize.me/emigrate/goodbye-estonia-how-a-popu...
In 2023 tried to register a business in Estonia.
I had to first get the e-residency.
This worked, (took 6 weeks I believe), but then I had to travel to another country (which had an Estonian embassy) to collect it.
Then I would have had to travel to Estonia itself to register the actual business and bank account (something like that -- it was a while ago).
(There are "done for you" business services, but from what I recall they were quite expensive, and I think would have still required the travel.)
It was theoretically doable, but due to life circumstances I wasn't able to travel at the time, so it didn't work out.
Meanwhile a few days ago, finally worked up the courage, and registered a business in the UK via a formation agent.
It took 25 minutes and $150. (Business was registered within 2 business days.) From the comfort of sitting on mine own ass, on the other side of the sea. So... yeah xD I like this way a bit better so far.
Registering a company in the U.K. is very easy but the tax treatment is less favourable compared to Estonia. The U.K. leaving the European Union is also disadvantageous (although the full consequence of that is yet to be seen). All company filings in the U.K. are public, much more information about your company is public compared to Estonia.
and if you like access the online service you've got to wait 2 to 3 weeks for them to send a code in a physical post letter (no other way). And part of those services are mysteriously unaccessible from an IP outside the UK.
And it costs double to dissolve the entity than it did to create it. VAT is 20%, put someone on Payee: employee pays 20% to 45% (over 50k per year starts to fall into the high tax rate) + 9% insurance and as a company you also pay roughly 30% on top for taxes and insurance. Of course there is corporate tax on any profit. If with all of those taxes you somehow manage to be profitable.
https://www.gov.uk/limited-company-formation/register-your-c...
I can't imagine how a formation agent would make the process any simpler or easier for you.
Also the 0% retained profits system will come to an end in the next few years due to a worldwide push to have minimum corporate income tax.
Admittedly, US makes LLC's much easier to form as compared to EU. But I sort-of like the EU's privacy perspective for the most part and feel like if I do ever end up making a business, having an EU/Estonian company might make more sense but it also charges a lot in the start compared to the US counterpart.
What are people's thoughts and is there any real tangible value from say a non EU citizen perspective in creation of an EU company as compared to US company when there is a sizable difference in the amount of money needed to form a company?
I hope EU really simplifies the business creation and some stock market related things as well as it does feel to be a little bit fractured. I had heard that there were some proposals regarding that, Let's hope that those start to take place.
(Also although EU feels good for privacy, it's a little concerning to me on how Chatcontrol was denied but then it was asked again in a rare occurence which makes me wonder about the privacy aspects of EU, I do think that EU cares about privacy somewhat more than the current US govt but it should also work on anti-measures to prevent such laws from being passed by giving privacy as a right for example, so to me, the EU's chatcontrol feels a bit concerning and I think that EU citizens might agree with that as well.)
The actual minimal cost of getting e-residency is a one time €150 state fee (I guess you have to renew the physical card every 5 years, which is €150 again?). If you also want to incorporate an Estonian company (which you probably do in this context here), then the registration for this is a €265 one time state fee.
There are no other mandatory fees, except you have to find a "contact person" who's responsible for receiving official government communication on behalf of your company (don't worry, I have never gotten any physical communication from any gov agencies during my 10 years of having a company here so this "contact person" won't actually be doing anything and is just a formality). After a 3 minute google search, this service can be had for €7 / month.
If you don't want to file taxes yourself then you'd also need to hire a local accounting firm. That'll start from somewhere around €50/month for a micro-SaaS. If you really want to, you can file taxes yourself for free but.. your call if your time spent learning the Estonian tax code is worth the saved money..
> Given its key importance for the EU's competitiveness, the Commission is calling on the European Parliament and the Council to reach an agreement on the EU Inc. proposal by the end of 2026.
I'm not holding my breath.
For some perspective, look at how something with a much smaller scope is being "revolutionised". I'm speaking of intra-EU dividend taxation, as regulated in EU directive 2025/50 ("FASTER"). A slightly less complicated dividend double taxation regime between EU member states. Applies to dividends on shares in public companies only. If the shares in question have not been traded within 5 days from the ex-dividend date. If the gross dividend is below 100k€. If the member state is not very small. From 2030. Using EU standardised forms. In some cases, resulting in direct reduction of the double taxation at source. In other cases, refund of excess double dividend tax within 60 days.
The clean solution would be to tax dividends in the tax residency member state of the receiving individual only. That would require a rather large leap of trust from very financialised EU member states like .ie, .lu or .nl. Perhaps possible with a long transition period and compensations. Only there's also bad faith state actors like .hu randomly torpedoing EU legislation to extract concessions. This discourages other member states from even trying to implement the clean solution.
It doesn’t make sense to me why Europeans don’t use registered agents or foreign corporation state registrations to do business as US entities in order to get up and running quickly.
Europeans complain about the difficulty starting a business can just start a business as a US entity, you’re just using the US system as the financial layer.
At the point where you’re making enough money for edge cases or moving to a more favorable jurisdiction then you can afford to because you’re in business now