The first year of an e-Residency company: what you actually have to do

Month one

• The accounting obligation starts on the date of registration. There is no grace period and no minimum size below which it does not apply.
• Set up a way to collect your documents, such as invoices and receipts, before the first invoice, not after the fiftieth.
• If no board member lives in Estonia, confirm the contact person and legal address requirement.
• Open a business bank or payment account. Expect to explain what the business does, where the customers are and where you are personally located.

When VAT becomes a question

You must register for VAT once taxable turnover exceeds €40,000 in a calendar year, within three working days of crossing that point. Some earlier triggers also catch new companies. Buying services from suppliers in other countries, or buying goods from other member states, can create an obligation whatever your turnover.

If you pay yourself

Once the company pays you a board member fee or a salary, monthly payroll obligations begin. You file the TSD (the monthly payroll tax return) by the 10th of the following month. You pay social tax at 33%, and for a salary also unemployment insurance. If you live outside Estonia, the treatment depends on your country of residence and the applicable double tax treaty. The payment also has to go on the correct TSD annex.

The cross-border questions to settle early

• Where are you personally tax resident, and does that country tax your worldwide income?
• Where is the company effectively managed from? If that is your kitchen table in another country, that country may claim the company is tax resident there.
• Does your activity abroad create a permanent establishment, meaning a taxable presence in that country? Concluding contracts, having a fixed place of business, or employing people locally are the usual signs.
• Does your country have controlled foreign company (CFC) rules? These can tax undistributed Estonian profit in your hands anyway.

These are common questions, and they are much cheaper to answer in month two than in year four, when another tax authority asks them first.

The annual report

The first financial year may be longer or shorter than twelve months, depending on the registration date and the year end you chose. The report is due within six months of the financial year end, which is 30 June for a calendar year. It is mandatory even if the company did nothing at all.

A realistic first-year calendar

• Monthly, by the 10th: TSD, if you paid anyone.
• Monthly, by the 20th: the VAT return (KMD) and its annex for larger invoices (KMD INF), if you are VAT registered.
• Quarterly: the OSS return (the EU One Stop Shop VAT return), if you sell to consumers across the EU above the threshold.
• Annually, by 30 June: annual report for the previous financial year.
• Annually, from 16 February: your personal Estonian income tax return, if you are an Estonian resident.

The three most common first-year mistakes

• Assuming no activity means no obligations. The annual report is filed either way.
• Running personal costs through the company. In Estonia these are not just non-deductible. They can be taxed as distributions at 22/78.
• Waiting until year end to set up bookkeeping. Rebuilding twelve months of records from bank exports costs several times more than doing it monthly.

Frequently asked questions

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