Board Member Fees vs Employment income?

 💡 E-residents and taxes — what’s the smarter way to get paid?

If you run your business through Estonia’s e-Residency program, you’ve probably wondered about the difference between board member fees and employment income. In our latest episode, we break down both options, explore their tax implications, and share insights to help you choose the most efficient setup for your situation.

🎧 Listen now: Podcast Tax Talk

#eresidency #estonianbusiness #taxes #entrepreneurship #remotebusiness #taxplanning #founders #startup #finance #podcast

Why Become an Estonian e-Resident and Establish an Online OÜ?

 

Are you looking for an easy, fast, and cost-effective way to start or expand your international business? Estonia’s e-Residency program and the ability to register a private limited company (OÜ) online offer an excellent opportunity for entrepreneurs, freelancers, and investors worldwide.

In this article, we’ll explore why e-Residency is beneficial, how to register an Estonian OÜ online, and what key advantages and opportunities it provides.

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What Is Estonian e-Residency and Who Is It For?

Estonian e-Residency is a unique digital identity available to non-residents, enabling them to access Estonia’s digital services and remotely manage an Estonian company. It does not grant citizenship or residency, but it does allow you to:

✅ Establish and manage an Estonian-registered company entirely online.
✅ Use Estonia’s legally binding digital signature.
✅ Conduct business operations remotely, including signing contracts and submitting tax reports.
✅ Open a business account with international financial service providers.

This program is ideal for global entrepreneurs, freelancers, digital nomads, and startup founders who want to operate in the EU without being physically present in Estonia.

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Why Establish an Estonian OÜ Online?

1️⃣ Simple and Fast Registration Process

Establishing a private limited company (OÜ) in Estonia is fully digital. If you already have an e-Residency card, the company registration process usually takes only 1–5 business days.

2️⃣ Low Tax Burden and Flexible Tax System

Estonia has a unique tax system where corporate income tax is not paid until profits are distributed. This means:

✔ If you reinvest your profits, you pay 0% corporate income tax.
✔ When dividends are distributed, a 22% corporate income tax applies.
✔ There is no mandatory salary expense if you are not an employee residing in Estonia.

3️⃣ Access to the EU Market and a Trusted Legal Framework

An Estonian OÜ is recognized as an EU-based company, making it easier to operate across Europe. Estonia also provides a transparent and business-friendly regulatory environment, consistently ranking among the world's best for ease of doing business.

4️⃣ Fully Digital Business Operations

Everything related to running your business—from banking to tax reporting—can be managed online. E-residents can access financial services through platforms like Wise, Payoneer, and Revolut for international transactions.

5️⃣ No Physical Presence or Office Required

There is no legal requirement for the company owner or board members to reside in Estonia. However, businesses must have a registered Estonian address and a contact person, which service providers can offer.

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How to Become an Estonian e-Resident and Register an OÜ?

1. Apply for e-Residency

Visit the official e-Residency website and submit an application. You’ll need to provide an identification document, motivation statement, and pay a processing fee (€150). Processing typically takes 4–8 weeks.

2. Pick Up Your e-Residency Card

Once your application is approved, you’ll need to collect your e-Residency card in person from the designated pick-up location (e.g., an Estonian embassy). This card grants you access to Estonia’s digital services and allows you to sign documents electronically.

3. Register Your OÜ Online

With your e-Residency card, you can visit Estonia’s e-Business Register (e-äriregister), log in, and create your company. The state fee for registration is €265, and the process usually takes 1–5 days.

4. Open a Business Bank Account and Start Operating

You can open a business account with Estonian banks ( special requirements ), international fintech companies ( most preferred Wise and Revolut and Payoneer ), or financial institutions in your home country. Once your account is set up, you’re ready to operate!

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Is Estonian e-Residency and OÜ Right for You?

Estonian e-Residency and an online OÜ are ideal if you:

✔ Want to manage your business digitally and remotely.
✔ Are looking for a business-friendly tax system and lower corporate tax burdens.
✔ Need an EU-registered company with access to European markets.
✔ Don’t want to relocate to Estonia but still want to benefit from its digital ecosystem.

If this sounds like a great fit for your business, it’s worth considering applying for Estonian e-Residency and setting up your OÜ.

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👉 Learn more and start your e-Residency journey here: e-resident.gov.ee

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Estonia’s New Dividend Tax Rules in 2025

What Businesses and Investors Need to Know 

As of January 1, 2025, Estonia has introduced significant changes to dividend taxation. If you’re a business owner or investor, here’s what you need to know about the new rules.  

1. A Unified Tax Rate of 22%

Going forward, all dividends are subject to a flat income tax rate of 22%. This tax is calculated as 22/78 of the net dividend paid out. For example, if a company distributes €10,000 in dividends, the corporate tax will be:  

€10,000 × 22/78 = €2,820.51  

This means that to distribute €10,000 net, the company must first earn approximately €12,820 in profits before taxes.  

2. No More Lower Tax Rates

Previously, companies could benefit from a reduced 14% tax rate on regularly paid dividends. However, this preferential tax rate has been abolished. From 2025 onwards, all dividends—whether regular or occasional—are taxed at the same 22% rate.  

3. No Additional Tax for Individual Shareholders 

Here’s some good news for individual investors!  

Until now, Estonian companies that paid out dividends at the 14% rate had to withhold an additional 7% tax for individual shareholders. This extra tax no longer applies. Now, all dividend taxes are settled at the corporate level, so individuals receive their dividends tax-free in Estonia.  

What This Means for You 

✅ Businesses no longer have to deal with different tax rates for regular and irregular dividends.  

✅ Investors benefit from a simpler system with no extra personal tax on dividends.  

✅ Corporate tax obligations remain competitive compared to other European countries.  

EMTA.EE

Upcoming Changes for Small Businesses in the EU: VAT Reform and Practical Examples

 

Upcoming Changes for Small Businesses in the EU: VAT Reform and Practical Examples

Starting from 2025, significant changes to the Value Added Tax Act (VAT) and Taxation Act will take effect in Estonia and across the European Union, aimed at simplifying cross-border operations for small businesses. These amendments are designed to reduce administrative burden and provide small businesses with easier access to foreign markets without incurring excessive tax obligations. Below is a brief overview of the updates and two practical examples to clarify how the small business scheme might work. Please note, however, that this legislation is still under review and has not yet been finalized.

Key Changes

1. Reduced Administrative Burden: Small businesses operating in other member states will not need to register for VAT until their turnover in that specific country exceeds local VAT thresholds, provided their total EU-wide turnover is under €100,000. This change significantly reduces the need for separate registrations and reporting requirements in every country where they do business.

2. New Rules on Real Estate and Fixed Assets: For example, new real estate sold within one year of first use must be subject to VAT. For fixed assets, the input VAT calculation will need to align with actual usage rather than initial projections.

Example 1: Small Business Turnover Below €100,000

Consider Mari, who owns a small business in Estonia selling handmade goods. Her company’s annual turnover in Estonia is €30,000, and she also sells products in Finland and Latvia, with annual turnovers of €8,000 and €5,000, respectively. Her total turnover within the EU is therefore €43,000, which is below the small business threshold of €100,000.

With the new rules, Mari can apply the small business scheme as follows:

• Simplified Registration and Reporting: Mari does not need to register for VAT or submit separate VAT reports in Finland and Latvia, as her turnover in these countries is below their local VAT thresholds.
• Declaration Submission in Estonia: Mari can declare her total turnover, including sales to Finland and Latvia, in a single VAT declaration submitted to the Estonian Tax and Customs Board. This reduces her administrative burden and allows her to focus on her core business.

Example 2: Small Business Turnover Above €100,000

Now, consider Jüri, who owns a small Estonian business selling electronics. His annual turnover in Estonia is €50,000, and he also sells products in Finland and Sweden, with turnovers of €30,000 and €25,000, respectively. His total EU turnover is therefore €105,000, exceeding the small business scheme threshold of €100,000.

Since Jüri’s total turnover surpasses the threshold, he cannot use the small business scheme and will need to follow these requirements:

• VAT Registration in Each Member State: Jüri will need to register as a VAT payer in any member state where his turnover exceeds the local VAT thresholds, such as in Finland and Sweden.
• Meeting Tax Obligations by Country: Jüri will need to declare and pay VAT according to the tax laws in Finland and Sweden, as his turnover in each country has exceeded local thresholds. In addition, he must continue declaring his Estonian turnover to the Estonian Tax and Customs Board.

Summary

These updates in VAT legislation are aimed at helping small businesses operate more easily and cost-effectively across EU borders. For businesses whose turnover remains below €100,000, the small business scheme provides a way to reduce the administrative load and associated tax costs. However, for businesses with turnover above this threshold, additional tax obligations arise for each country in which they operate.

These reforms provide significant benefits, particularly for small businesses that previously had to register and report VAT across multiple countries even at lower turnover levels. It is important to remember that the proposed changes are still under review and subject to final approval before they are set to take effect.

What is the New Motor Vehicle TAX or Car TAX in Estonia?

 

Understanding the New Motor Vehicle Tax Act:         

What You Need to Know

As of January 1, 2025, the Motor Vehicle Tax Act will come into effect, bringing significant changes for all motor vehicle owners. This new legislation introduces the motor vehicle tax, a national tax that applies to every registered vehicle in the traffic register, and it outlines the vehicle registration fee as well. Here’s a comprehensive overview of what this means for you.

What Is Motor Vehicle Tax?

The motor vehicle tax, often referred to as car tax, is an annual payment required from all vehicle owners or responsible users. The Tax and Customs Board will manage this tax, ensuring compliance and collection.

Key Details:

• Payment Schedule: The tax is paid annually for the calendar year.
• Responsibility: Either the owner or the responsible user of the vehicle is liable for payment.
• Tax Calculation: Each vehicle has an individual tax amount determined by several factors, including:
• Base part
• CO₂ emissions
• Gross weight of the vehicle

Vehicle Registration Fee

In addition to the motor vehicle tax, a registration fee is applicable when a vehicle is registered for the first time. This fee is also managed by the Transport Board and varies by vehicle category.

Important Dates and Deadlines

To help you stay on track, here are the key dates for tax notices and payments in 2025:

Vehicle Registration Period	Tax Notice Issued	Payment Due
Registered as of January 1	By February 15	June15 and December 15
Registered between  February 1 - September 30	Within 15 working days                   after registration	December 15
Registered between  October 1 - December 31	Within 15 working days  after registration	June 15, 2026

Stay Informed emta.ee

Calculate your car tax here 👉 tax calculator

Navigating Equity Issues for Small Companies in Estonia: Strategies for Success 🚀

Equity isn't just a financial term; it's the heartbeat of your business! 🩷 For small companies, especially those structured as OÜ (limited liability companies) in Estonia, understanding equity is crucial, especially with the exciting changes to the minimum share capital requirement. Let's dive into common equity issues and discover solutions to help your business thrive!🌱

What is Equity? 

At its core, equity represents the ownership value in your company. It’s calculated as:

• Share Capital: The money you and your investors put in. 💰
• Retained Earnings: Profits that you reinvest to fuel growth. 📈
• Additional Paid-in Capital: Any extra contributions from shareholders.

With the minimum share capital now just €0.01, starting a business has never been easier! But with great opportunity comes great responsibility. 

Common Equity Issues Faced by Small Companies

1. Negative Equity: This happens when your liabilities outstrip your assets. Not a good look for potential investors. 🚫
2. Underfunding: While €0.01 sounds appealing, insufficient capital can limit your growth. Aim higher! ⬆️
3. Compliance Risks: Stay on top of your legal obligations to avoid nasty penalties. ⚖️

Legal Requirements for Equity 📜

Remember that maintaining a healthy equity position is key even with the minimum share capital at €0.01. Estonian law emphasizes the need for companies to be solvent and able to meet their obligations.

Solutions for Addressing Equity Issues

1. Increase Share Capital :
• Explore new investments or loans. Think of it as fueling your rocket ship—more fuel means a higher flight! 🚀
2. Retain Earnings :
• Reinvest those profits! Picture your business as a garden—water it with your earnings, and watch it bloom! 🌷
3. Cost Management :
• Trim the fat! Implement smart strategies to cut costs and boost profitability. A lean business is a healthy business! 💪
4. Debt Restructuring :
• Facing negative equity? Renegotiate debts to free up cash flow. Think of it as hitting the refresh button on your financials! 🏦
5. Regular Financial Reviews :
• Keep your finger on the pulse! Regular assessments can catch potential issues early, letting you steer your ship smoothly. ⛵
6. Professional Consultation :
• Don’t go it alone! Engage with financial and legal experts to guide your journey. A good captain knows when to ask for directions!