Estonia Subsidiary Entity Set Up

Estonia Entity Set Up

Establishing a subsidiary overseas involves risks and uncertainties. Setting up a business in a foreign country can be costly and there is no guarantee that the time, effort, and financial outlay will bring any success.

Foreign companies have the option of opening a legal entity in Estonia, with the most popular choice being a private limited company, known as an osaühing, or OÜ, and operating under the Companies Act, regulated by the Commercial Code. It is the favoured choice both for Estonian and foreign companies.

Estonia has a forward-looking, innovative, and modern market-led economy, with an open-minded attitude towards foreign investment. The Republic of Estonia may be on the Baltic coastline on the northeast fringe of Europe, but it has become increasingly involved with the major European institutions.

How to set up an Estonian Subsidiary

Setting up a subsidiary in Estonia? International companies making the move of opening a legal entity in order to hire staff and run payroll, usually choose a subsidiary private limited company, known as an osaühing, or OÜ, which operates under the Commercial Code. Necessary procedures to set up the subsidiary include:

• Selecting a unique name for the company after checking availability on the e-Business Register
• Providing a legally registered Estonian address, or else locating one through the e-Residency Marketplace
• Registering the company through the Company Registration Portal
• Filing the parent company’s Articles of Association and Certificate of Registration
• Drafting subsidiary’s Articles of Association
• Paying the fee of €265 (US$288) through the registration portal along with depositing any share capital, although this can be delayed to later
• Confirming from the registration portal that the application has been accepted
• Registering employees on the Employment Register via the Tax and Customs Board’s website
• Obtaining necessary licenses depending on the area of business activities, by checking with the Register of Economic Activities
• Registering for Value Added Tax (VAT) with the Tax and Customs Board, if required by business operations and revenue

Note: Estonians holding an ID card, or an e-Residency card can establish a private limited company online. This also applies to an increasing number of ID cards from fellow European Union member states.

Benefits of setting up a Subsidiary in Estonia

Foreign companies opening a private limited company subsidiary in Estonia enjoy a number of benefits from its operation under the Commercial Code and the Income Tax Act. The subsidiary has a separate legal identity from the parent company and is treated the same as a local company. In general, the parent company’s liability is restricted to the share capital invested in the subsidiary; neither is it responsible for any debts of the subsidiary.

The subsidiary provides the parent company with the potential for further expansion throughout the ‘free market’ European Union and into the Baltic and other eastern European nations.

Estonia is an increasingly attractive target for Foreign Direct Investment per capita among eastern and central European nations, particularly from European Union (EU) nations and the US and averaged €244 million (US$264) per year over the 20 years up to 2021.

Other benefits for a subsidiary: 

• Easier to obtain potential benefits and incentives and enter into contracts with other Estonian or EU companies 
• More impact with clients and suppliers, as subsidiaries imply more permanency than branches 
• Employees feel there is more stability and job security than from being with a branch 

In the wider commercial sense, opening a subsidiary makes a statement of a company’s commitment to expanding into foreign markets, in this case, the opportunities offered by European economies.