An OÜ (osaühing) is an Estonian private limited company that can be founded and run remotely through the state's electronic services. Corporate income tax in Estonia is paid when profit is distributed, and reinvested profit is not taxed. Estonia is an EU country with a full tax system, and it is classed as an offshore jurisdiction only by mistake; remote management and the owner's taxes need to be thought through before registration.
How an OÜ's profit is taxed
According to the Estonian Tax and Customs Board (EMTA):
- if the company does not distribute profit and invests it in the business, no tax liability arises;
- dividends are taxed at 22/78: for every EUR 78 paid out, the company pays EUR 22 of tax (that is 22% of the gross amount);
- the reduced 14/86 rate for regularly paid dividends was abolished from January 1, 2025;
- the standard VAT rate is 24%.
The owner's own taxes on dividends are determined by the owner's country of residence.
What e-Residency gives you and what it does not
e-Residency is a digital identity for government services: with it you can open a company in Estonia remotely, sign documents and file reports. EMTA states explicitly that the digital ID:
- does not grant citizenship, the right to live in Estonia or the right to enter Estonia and the EU;
- does not confer tax residency and does not exempt you from taxes in other countries;
- for Estonian tax law purposes, an e-resident is treated as a non-resident.
This leads to the main risk. If the owner and sole management board member lives and works in another country, that country's tax authorities may consider the company to be managed from there. How residency is determined is explained in the guide on company tax residency.
Contact person when the management board is abroad
EMTA states that an Estonian company whose management board is located abroad appoints a contact person in Estonia to receive procedural documents and legally relevant declarations. Only a notary, an attorney, a law firm, a sworn auditor, an audit firm, a tax representative of a non-resident or a trust and company service provider can act as such. If a management board member, shareholder or procurator lives in Estonia, that person can be the contact person. The contact person and registered address service is a mandatory line in the annual budget of a company managed from abroad.
Annual report
An OÜ's annual report is filed electronically with the commercial register within 6 months after the end of the financial year. With a calendar financial year, that is June 30 of the following year. For failure to file the report, the register applies fines and supervisory measures, up to deletion of the company from the register.
Bank and payment services
e-Residency and OÜ registration do not guarantee a bank account. Banks and EMIs assess the management board members' country of residence, the type of business, sanctions risks and whether the transactions are genuine. For services, contracts, a website and proof of work are useful; for trading, supplier documents and the route of the goods.
A two-year budget
Include in the estimate:
- the state fee for registration and digital signature tools;
- a registered address and a contact person if the management board is abroad;
- bookkeeping and the annual report;
- VAT registration, if it becomes necessary;
- banking or EMI services.
Example
An agency sells design services to EU clients, and the team works from several countries. An OÜ simplifies paperwork and contract signing, but you need to determine where decisions are actually made, who employs the team and where VAT obligations arise.
Estonia or other options
- Cyprus is considered for holding companies and when you are ready to keep management on the island: see Estonia vs Cyprus and company in Cyprus.
- A UK Ltd is convenient for English-language B2B: see company registration in England.
Outside the EU, tax on distributed profit also applies in Georgia. How an OÜ looks in a consultant's calculation is shown in the guide to a company for a freelancer.
Offshora will compare an OÜ with the alternatives on the owner's taxes and bankability. Send us the owners' country of residence, the type of business, the clients' geography and the expected payments. We handle registration and ongoing support under our company formation and maintenance program.
Tell us about your task, and we will propose a jurisdiction, the scope of services and the order of work.
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