Reasons Why I’m Incorporating in Estonia 🇪🇪
💻 Online First Business: If you are tired of going to the notary for every minor change, then you and I are not so different. Joking aside, I want to test how it feels to run a company fully remote. Dusty bureaucracy be gone.
💶 Straight-forward Taxation: Estonia taxes 2 things: [a] Dividends* (= profits, which leave the company as payouts) and [b] Board Member Salaries* (= compensation for managerial tasks). Both of those have a flat tax of 20%.
Profits of the current FY can be paid out as dividends only in the following FY
** If you run a one-person operation certain tasks will need to be classified as board member activities and the rest as employee activities. That’s why you’ll eventually end up having a salary split between board member compensation (20% tax rate + 33% social security tax IF you are not paying into another social security system) and employee compensation (tax-free).
Two Reasons Why NOT to Incorporate in Estonia ❌
As of now I can think of 2 types of businesses, which are not suitable for the ‘Estonian route’:
🚀 Venture-funded Startup: If you are interested in hyper-growth you will eventually look at institutional funding sources (VCs; etc.) for cash injection. VCs give you money for a part of your company’s equity/shares. The Estonian e-Residency scheme currently does not allow company shareholders who are not e-Residents. If you are shooting for the moon use Stripe Atlas and incorporate as a Delaware C-Corp.
🏦 Local Business: If you exclusively [a] operate in and [b] serve customers from one region (e.g. based in Berlin and only serving German customers) then your local tax authorities will classify your business as a local tax resident.
Disclaimer: I keep on learning more and more about this topic and am far from being a pro. None of the above is financial advice. It’s my best understanding of the matter.
If you want to riff on this topic, please reach out. Happy to chat.