Setting Up a Branch Office in Estonia in 2023
As international firm resumes growing, businesses are increasingly looking to expand their operations into new markets. One country that has gained attention as a popular destination for foreign investment is Estonia.
Best known for its business-friendly environment, advanced digital infrastructure, and highly skilled workforce, Estonia is quickly becoming a hub for startups, technology companies, and international corporations.
One of the ways that companies can establish a presence in Estonia is by opening a branch office. A branch office is a type of legal entity that operates under the umbrella of its parent company. By setting up a branch office in Estonia, companies can take advantage of the country’s favorable business climate while retaining control over their operations.
However, opening a branch office in Estonia could be a tricky procedure, needing precise planning and attention to local regulations. Companies must navigate legal and tax requirements, find a suitable office space, and hire local staff, among other considerations.
This article aims to provide an overview of the key steps, documents, costs, taxes, and various considerations involved in registering a branch office in Estonia.
Why register a branch office in Estonia?
Companies looking to expand into Estonia or the wider European market can benefit from setting up a branch office there.
The following are some motives why firms may select to open a branch office in Estonia:
Opening a branch office in Estonia can offer a possibility for firms intending to enhance their market existence in the country. This can increase sales and revenue, as well as establish brand recognition.
Establishing a branch office in Estonia can be a flexible option, as it allows the parent company to maintain control over the operations of the branch office. This means that the parent company can make strategic decisions regarding the functions of the branch office.
Compared to registering a subsidiary company, setting up a branch office in Estonia can be a cost-effective option, as there are no minimum share capital requirements.
Branch offices in Estonia are subject to the same tax laws as other businesses, meaning they can benefit from Estonia’s low corporate tax rate of 20% and other tax benefits such as the absence of withholding tax on dividends and interest payments.
Easy to Set Up
Setting up a branch office in Estonia is a straightforward process, and it can be completed quickly.
How to set up a branch office in Estonia?
Here is a step-by-step process to set up a branch office in Estonia:
Step 1:- Choose a representative who will act as the legal representative of the branch office. This person should be permitted to operate on behalf of the parent company and must have a valid Estonian ID card.
Step 2:- Articles of Association, power of attorney, and a notarized copy of the representative’s passport or ID card must be collected.
Step 3:- Choose a legal address for the branch office in Estonia. The legal address must be a physical address and cannot be a PO box.
Step 4:- Complete the application form for registering a branch office in Estonia. The form will be available on the website of the Estonian Business Register.
Step 5:- Pay the state fee for registering a branch office in Estonia. The current price is €190.
Step 6:- Register the branch office for taxes with the Estonian Tax and Customs Board. Registration can be done online through the e-Tax Board portal.
Step 7:- Open a bank account for the branch office in Estonia. This will allow the branch office to perform economic trades and accept payments.
Documentation required to establish a branch office in Estonia
To register a branch office in Estonia, the additional documents and data are generally needed:
- A notarized copy of the branch firm’s Articles of Association.
- A notarized copy of the parent company’s registration certificate.
- A power of attorney is given to the representative who will act on behalf of the parent company in the registration process.
- A notarized copy of the representative’s passport or ID card.
- A completed application form for registering a branch office in Estonia.
In addition to these documents, it may also be necessary to provide the following documentation:
- Proof of payment of the state fee for registering a branch office (currently €190).
- A document confirming the legal address of the branch office in Estonia.
- If the parent company is located outside the European Union or European Economic Area, a document proving that the company is registered and has paid taxes in its home country.
Eligibility to register a Branch Office in Estonia
To be suitable to register a branch office in Estonia, the following necessary criteria should be fulfilled:
- The parent firm should be enlisted and operates in a foreign country.
- The parent firm must have a legal form that allows establishing a branch office in Estonia. For example, a partnership or sole proprietorship may not be eligible.
- The parent firm should have a valid and active registration in its home country.
- The parent company must have sufficient funds to finance the activities of the branch office in Estonia.
- The branch office must have a representative who is authorized to act on behalf of the parent company and is registered in Estonia as a legal representative.
- The branch office must have a registered legal address in Estonia.
- The branch office must comply with the regulations and requirements of the Estonian Commercial Code.
Various Taxation of the Branch Office in Estonia
Taxes are assessed on branches in Estonia just like the operations of any company in the country.
A branch office in Estonia may be subject to the following taxes:
- Corporate Income Tax: The branch office is subject to Estonian corporate income tax on the profits earned in Estonia. The current corporate income tax rate in Estonia is 20%.
- Withholding Tax: The branch office may be subject to withholding tax on certain types of payments made to the parent company, such as dividends or interest. The withholding tax rate differs relying on the form of payment and the applicable tax treaty.
- Value Added Tax (VAT): The branch office is needed to enlist for VAT if its turnover in Estonia exceeds €40,000 in 12 months. The current VAT rate in Estonia is 20%.
- Social Security Contributions: The branch office is needed to make subsidies on behalf of its workers. The employer’s social security contribution rate is 33% of the employee’s gross salary, while the employee’s contribution rate is 20%.
- Personal Income Tax: The employees of the branch office are subject to Estonian personal income tax on their salary earned in Estonia. Estonia’s personal income tax rate is a flat rate of 20%.
Cost to Setup a Branch Office in Estonia
It can cost several thousand euros to tens of thousands of euros to set up a branch office in Estonia, depending on the office’s size, and its location.
- State fee: The state fee for registering a branch office in Estonia is €190.
- Legal representative: The representative may set a cost for their assistance, which can vary relying on their level of expertise and the scope of their responsibilities.
- Legal address: The branch office must have a enlist lawful address in Estonia. The company may need to rent a physical office space or use a virtual office service, which can vary in cost depending on the location and type of space.
- Accounting and bookkeeping: The branch office will need to maintain proper accounting and bookkeeping records by Estonian regulations.
- Taxes and social security contributions: The branch office will be subject to various taxes and social security contributions.
Advantages of registering a Branch Office in Estonia
There are numerous advantages of registering a branch office in Estonia, including:
- Estonia is the first country in the world to offer e-Residency, which allows non-residents to access Estonian e-services and sign documents electronically.
- Estonia is comprehended for its corporate-friendly conditions, with low bureaucracy and a simple tax system. It is consistently ranked as one of the easiest countries to do business in by the World Bank.
- Estonia has invested heavily in its digital infrastructure, with a fast and reliable internet connection and advanced e-government and e-commerce systems.
- The costs of setting up and running a business in Estonia are generally lower than in many other European countries while offering a high quality of life and business environment.
- Estonia has a thriving startup ecosystem, with numerous incubators, accelerators, and co-working areas to assist new businesses.
- Estonia is a member of the European Union, which provides companies with access to a large and growing market of over 500 million consumers.
Opening a branch office in Estonia can be an excellent way for companies to establish a presence in Europe and take advantage of the country’s business-friendly environment. However, it is important to approach the process with careful planning and attention to local
By working with local attorneys, accountants, and business service providers, companies can ensure that they comply with Estonian regulations and set themselves up for success in the country.
Obtaining assistance from skilled professionals from Odint Consultancy is recommended to learn how to open a branch office in Estonia.
There is no lowest capital necessity for opening a branch office in Estonia. However, the parent company must have sufficient funds to support the branch office’s operations.
Yes, a branch office in Estonia can conduct business activities outside of Estonia, provided that it complies with the relevant laws and regulations of the countries in which it operates.
Yes, according to Estonian law, a branch office in Estonia must have a local director or representative who is responsible for managing the branch office’s operations.
A branch office in Estonia is subject to corporate income tax on its profits earned in Estonia. The current corporate income tax rate in Estonia is 20%. Additionally, the branch office must register for VAT if its annual turnover exceeds €40,000.
The registration process for a branch office in Estonia typically takes around 2-4 weeks, although this can vary depending on the complexity of the case and any additional requirements.
Yes, it is possible to manage a branch office in Estonia remotely using the country’s advanced e-services and digital infrastructure. However, having a local director or representative can be beneficial for managing day-to-day operations and ensuring compliance with local regulations.