Estonian OÜ or UK Ltd: how the two compare

How do the two compare?

The Estonian figures below are the current general rules. In the UK column we state only what is certain about residence. For everything else, please check with your UK accountant.

How does the Estonian profit tax work?

Estonia does not tax profit that stays in the company or is reinvested. Tax arises when the company makes a distribution. The rate is 22%, charged as 22/78 of the net distribution. If the company pays out 78 EUR net, it pays 22 EUR in tax, so 100 EUR leaves the company in total.

This changes when the tax is paid. It does not remove it. Retained profit grows untaxed in Estonia, but each distribution carries the charge.

Why does an OÜ usually not save tax if you live in the UK?

• Residence follows control. A company incorporated outside the UK is also UK tax resident if its central management and control is exercised in the UK. If you run the OÜ from the UK, the 0% rate may not be the rate that applies to you.
• Two states may claim it. If a company is resident in both, a treaty tie-breaker decides. The result may not be the one you hoped for.
• Controlled foreign company rules. Part 9A of TIOPA 2010 (the Taxation (International and Other Provisions) Act 2010) can attribute a foreign subsidiary's profits to a UK company. Your UK adviser can tell you whether that matters in your case.
• Money you take out. Salary, board fees or distributions paid to a UK-resident owner raise their own UK questions. An Estonian distribution also carries the 22/78 charge.
• More compliance. An OÜ adds a second set of books, a second filing calendar and a second tax authority.

When does an OÜ still make sense?

An OÜ makes sense when Estonia is a real place of operation. That means staff, premises, customers or suppliers there, decisions taken there, and an Estonian VAT registration with real sales behind it. The company is then Estonian because the business is Estonian, and the tax rate is a side effect rather than the reason.

For an owner based in the UK who serves UK customers from a UK desk, a UK Ltd is usually the normal choice, and we will say so.

What does a rate comparison leave out?

A rate comparison leaves out the cost of running a second company. You pay for Estonian bookkeeping, a bank account, payroll if you employ anyone, and the time it takes to keep track of two sets of deadlines. If the OÜ saves no tax, these costs are simply extra. Our prices are set out in the cost of bookkeeping in Estonia.

Which deadlines come with an OÜ?

• The VAT return (KMD) is due by the 20th of the following month if the company is VAT-registered. The registration threshold is 40,000 EUR. See our Estonian VAT guide.
• The annual report is due by 30 June for a company whose financial year is the calendar year.
• Payroll filings are monthly if you employ anyone. Social tax is 33%.
• The books are kept continuously under Estonian law, with documents to support every entry.

The regular work is covered by monthly bookkeeping and VAT registration and returns. For running costs, see the cost of running an Estonian company.

Questions for your UK adviser before you decide

1. What would a UK Ltd pay on profit and on distribution in my circumstances?
2. Would an Estonian OÜ that I run from the UK be UK tax resident?
3. How would salary, board fees or distributions from an OÜ be taxed in my hands?
4. Could the controlled foreign company rules apply?
5. What is the UK VAT position for my sales, and which thresholds apply?

Once you have those answers, the comparison is mostly arithmetic. We can provide the Estonian figures for it.