# Estonian taxation for businesses Source: [[How Taxes and VAT Works for Estonian Companies]] Estonian companies are not taxed on profits that are not distributed; that is, profits that are used to pay for expenses. This helps entrepreneurs grow businesses. <iframe width="560" height="315" src="https://www.youtube.com/embed/k0whs1m5OYQ" title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe> ## Benefits of using an Estonian company ### Taxes You're not going to be paying no taxes but you may be paying lower taxes than what you're used to, depending on where you live. The Estonian tax system is also simple-- well, simpler than most tax systems. Everything is in English. I personally don't speak Estonian, but I haven't had any difficulty finding out rulings, everything is online and accessible in English via the Estonian government's site. ### Control The second reason I started my company there was control. As a freelancer, you may not have as much control over your financial affairs as you would like. The government probably dictates to some extent what you can declare as expenses or how much you get to take as income. There are still rules around that for Estonian companies, but in general I've found the rules to be way more reasonable and lenient than I would otherwise have to contend with. For example, if you're a small business and you choose to reinvest the profit that you've made into your business, so for example, buying equipment that you need or paying for other sort of operating expenses, then you don't have to pay taxes on that income. ### Remote-friendly My third reason is that Estonian companies are set up to be remote friendly. That is a very big deal to me, because when I set up a company here in the Netherlands, I had to be here, I had to have a permanent address where I could send correspondence by snail mail and they would piecemeal like my password and little bits of information and other unique IDs that I would later need to lodge my tax returns and other paperwork. There was so much back and forth. Estonia isn't like that. Everything is completely online. You do have to still have a physical address for your company, but there's a way around that which I will get to soon. ### The Cool Factor The fourth reason, of course, is, honestly, the cool factor. I am very much a proponent of new technologies and being able to take advantage of things that are cool about other countries is something that I'm a fan of. So when Estonia set up this e-residency program I was pretty sure that I was going to be applying for e-residency, even if I didn't go ahead with my company. I think this is the way of the future. And I can't wait to see how many more countries are going to do it, following in Estonia's footsteps. ## Taxable events Taxation occurs in these situations: - Dividends are distributed to shareholders. - Annual dividends: 25% (20% of gross, which is 20/80 = 25%) according to [[How Taxes and VAT Works for Estonian Companies|this article]]. - However, [[Here's Why Tax Evaders Are Disappointed in Estonian E-Residency]]|this article says that dividends are taxed at 20% for sporadic or 14% on regularly distributed profits. Need to confirm this. - "`our tax rate on distribution is 20% on sporadic or 14% on regularly distributed profits (7% withholding tax adds to the latter if distributed to natural persons). `" - Board member salary: 25%, plus 33% of salary and income tax - 33% is for social tax and can be waived if you can prove you're already paying this for another European country The employee salary is not taxed by Estonia if the employee is not a tax resident of Estonia. ## [[Estonian tax treaty with the US]] ## Other resources - [[Withdrawing money from an Estonian company]] - [[Reimbursing out-of-pocket expenses not in euros]] - [[Estonian E-residency]] ## Related - [[European Taxation]] - [[Taxation in Estonia]]