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December 21, 2023

Is Estonia Really a Startup Paradise?

You have a new idea. Your goal is to bring this idea to the Turkish and foreign markets. It is very crucial to establish a company in a country that will have low costs but has advantages in terms of its strategic location. At this point, you realize that according to the researches and articles through the internet, especially Estonia is the best fit and is heaven for any kind of startup.

 

However, are these suggestions and comments being reliable? Is Estonia really startup paradise? Or are all these sayings being a bit jazzy?

 

At this point forward, we would like to review whether Estonia is advantageous or not by putting this issue on the table, which I think will be useful for you.

 

A startup company has certain expectations from the country. Such as; less paperwork, not depending on bureaucratic work, tax advantages and easy procedures in terms of establishing the company, and lastly technical support and technology to improve their idea. Estonia is a country that is willing to give even more than these aspects and is in a tempting strategic location.

 

✔                WHY IS ESTONIA INTEREST IN STARTUPS?

 

Estonia government’s working population is nearly %10 in the IT sector. Thus, Estonia is ranked 18th in the “The World Bank Doing Business 2020”. Throughout the years, with the help of the government’s steady policy, lack of bureaucratic figures, pressure, and tax system’s transparency, the country is expected to more increase in the economic system.

 

On the other hand, Estonia’s government published that they have various goals in order to build up a successful country until 2023. One of these goals is to increase the international well-known brand count up to 20 by 2023. Also, during 2019-2023 due to withdrawn investments, there will be 5.000 new job opportunities which have a value of 1.5 billion Euro. To sum up, the Estonia Government has the mission to support all the companies in order to achieve their goals.

 

✔                SOME OF THE REASONS THAT MIGHT ENCOURAGE YOU TO ESTABLISH A STARTUP IN ESTONIA:

 

       i.          Simplicity of establishment and  management of a company in Estonia ;

 

It is very obvious that Estonia Government’s main purpose is to make Estonia a favorite of investors. As a matter of fact, they created the concept of “E-Residency” in order to ensure that a foreigner is a part of the economy and national information system. The most famous e-residency owners are Barack Obama and Bill Gates.

 

So, all you need to create and manage your own company in Estonia is the E-residency card, which also acts as an identity card for residents. E-residency card makes the company registration process completely independent of a physical location/building/institution and allows the company to be comfortably managed even from outside the country. In short, with a good consultant, you can establish a company and complete everything from financial service licenses and VAT registration to accounting and tax compliance in a very practical way.

 

     ii.          Estonia Starting Up Visa (Schengen)

Also if you are not a U.S citizen, even if you build up a start-up in Estonia, you are not able to get residency or tax of residency and are not able to get into European Union. However, the Estonian government found a solution to approve non-European citizens to get a visa in order to give them the opportunity to develop their ideas in Estonia. The Estonian Starting Visa allows you to travel freely within the Schengen area as well as legal work with local companies when you want to develop your new company.

 

    iii.          Top Level IT/Technology Sector

 

Estonia, also known as E-Estonia, is among the best in the world with the information sector that plays a big role in its infrastructure, economy, and daily life. Estonia is a place that lives almost in the cloud, and business can be run without any pen and paper. This makes it easier to manage the company.

 

    iv.          Tax Advantage of Establishing a Company in Estonia

Estonia has one of the most liberal tax systems in the world. Its most notable features include zero corporate tax on profits and the ability to fully declare taxes online.

 

An Estonian company registered via e-residency is directly considered a taxpayer in Estonia.

Since income tax is assessed monthly, not on the profit earned each year, there is no obligation to submit a tax return every year, regardless of profit or loss.

 

The corporate tax rate is 20%, it is valid for dividends and is paid by the resident legal entity making the distribution. There is no separate dividend withholding tax for dividend payments to legal entities. There are no withholding taxes on dividends or interest, other than the interest earned by a non-resident investor from an Estonian contract fund or other pool of assets.

 

An entrepreneur cannot automatically be considered as a taxable person for VAT purposes.

Only a person whose taxable supplies (excluding imports) exceed EUR 40,000 in one calendar year must register for VAT.

 

Secondly, it is charged for the supply of goods and services during commercial activities and the self-supply of goods and services.

 

     v.          Incubation Centers, Venture Funds, Angel Investors

 

There are also many advantages in terms of the growth of new entrepreneurs in the country; such as the growth and acceleration of the initiatives, the country has platforms where it has gathered many incubators and mentors. There are many accelerators such as Buildit, Startup Wise Guys, Tehnopol, Garage, Tallinn Business Incubators, and entrepreneurs can get very good advice on reaching investors through these platforms. All accelerators have connections with funds and angel investors where entrepreneurs can get a potential investment. Apart from incubators, there are many independent investment funds and companies in Estonia such as EstBAN, TRIND VC, Karma Ventures, Change Ventures, United Angels VC. You can read our Crowdfunding article for Startups.

 

AS A RESULT; It is not difficult to conclude that Estonia is startup heaven. Easiness of establishment of companies, remote management of the company, lack of heavy bureaucratic structure, the Estonian Government’s incentives to attract new entrepreneurs and investors, having a strong technological sector, having high tax advantages, the presence of incubator and accelerator programs are a few reasons to reach this result.

Best regards,

Kılınç Law & Consulting

Authors

Duygu Doğan Şahiner

Duygu Doğan Şahiner

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