The Estonian market is an attractive environment for IT entrepreneurs, with a leading IT sector that is considered one of the most successful among the 28 countries surveyed in the FUTURE OF IT study by Emerging Europe. The favorable business environment, legal regulations, and widespread use of online services contribute to business prosperity. Against this background, highlighting the high percentage of highly qualified specialists is also worth highlighting.
Estonia has an innovative digital infrastructure, including public internet access and digital public services, contributing to favorable conditions for startup entrepreneurs. The country has a vibrant startup community supported by various events, centers, and incubators that foster entrepreneurship, strengthen ties and encourage collaboration.
Other advantages of doing business in Estonia include:
- A simplified legal structure specifically aimed at supporting small and medium-sized companies.
- An effective electronic interaction system between the authorities and entrepreneurs allows you to manage an Estonian company from afar.
- The ability to use a favorable and stable tax system that has been in place for many years eliminates the risk of difficult situations, as it has proven its reliability over time.
- A simplified reporting system for companies exempt from tax liabilities.
- A stable exchange rate and the world’s best Internet banking services are available for businesses in Estonia.
- Estonia is a leader in the global development of IT technologies, along with Singapore, demonstrating a cutting-edge approach.
Estonian e-Residency program
In 2014, Estonia launched an e-residency program. It opens the way for foreign nationals to receive electronic services in the country to establish a company.
Finevolution, your development partner, facilitates the acquisition of e-residency status in just a month and a half, allowing you to start your business remotely. We guarantee the preparation and submission of all necessary documents, as well as expert advice in finance and law, ensuring a quick and high-quality introduction of your company to the market – official on e-Residency Marketplace
Additionally, to reduce the time for registering a company in Estonia, it is possible to do it through a representative by power of attorney. This way, the process can be accelerated to 10-12 business days. This avoids the lengthy procedure of obtaining an e-resident ID card. All you need is a notarized power of attorney and copies of your passports.
Important: A legal entity is considered to be an Estonian resident if it is established in accordance with Estonian law.
Taxation on IT in Estonia
One of the key features of Estonia’s tax system is the complete absence of corporate income tax on profits until they are distributed. This means that the tax rate is 0% if the profit is not distributed (except for the taxation of undistributed profit when reinvested, which serves as an incentive for long-term business growth).
Distributed profit is subject to taxation at a rate of 22%. The calculation is made as 22/78 of the net amount of the distributed profit.
For example, if a company has 100 euros (EUR) in distributed profit, it is obligated to pay 22 euros of income tax upon distributing dividends.
- Residents of Estonia are obliged to pay income tax regardless of the country of origin of the income
- Non-residents are taxed on income earned in Estonia
New provisions for companies from January 1, 2026:
From January 1, 2026, a 2% tax on company profits will be introduced for Estonian companies. This means that if the company profit is 1000 euros, the income tax will be 20 euros.
This tax does not apply if the company does not make a profit!
The first income tax payment will be made on September 10, 2026. The tax base is the accounting profit from the previous fiscal year, calculated before income tax is paid. The tax is paid in advance quarterly, and the final amount is determined after submitting the fiscal year’s report, which allows companies to spread the tax burden and pay it in installments.
VAT in Estonia
- From July 1, 2025, the VAT rate will rise to 24%
- The reduced VAT rate for accommodation services (e.g., hotel services) has increased from 9% to 13%
- The VAT rate on printed and electronic publications has increased from 5% to 9%
From July 1, 2025, the VAT rate will rise to 24%.
Registration as a VAT payer:
Estonian resident and non-resident companies that make taxable supplies in Estonia must register as VAT payers if their supplies exceed EUR 40,000 annually. Voluntary registration is also possible.
Reporting period and VAT declaration:
- The reporting period for VAT generally coincides with the calendar month.
- The VAT return must be filed and paid no later than the 20th day of the month following the reporting period.
These aspects form the basis of the taxation system in Estonia, where the emphasis is on transparency and efficiency of tax processes 🙂
Additional nuances of business taxation in Estonia
- Employers are required to withhold personal income tax (PIT) at a flat rate of 20% from wages.
- The social contribution rate is 33%, where 20% is allocated to state pension insurance, and 13% is used for state health insurance.
- In addition to social security contributions, employers are also required to pay and withhold unemployment insurance contributions. The rate for employers is 0.8%, and for employees is 1.6% (employer contributions are deducted from wages). These contributions apply primarily to wages and salaries of individuals.
Our team is ready to provide consultation on these issues. Our business hours: Monday to Friday, 9:00 AM — 7:00 PM. Contact us via WhatsApp, Telegram, or Viber, or submit an inquiry through our online form.
