An interesting blend of east and west
Estonia is an interesting country! It is a former Soviet block country on the coast of the Baltic sea which connects it to neighboring Finland.
It is quite different from other countries that shared the unfortunate communist past. Estonia, back at the time had Western media. The Soviet government was unable to block radio and TV signals coming from Finland, therefore people had access to unbiased news. This gave a massive edge to this country!
If you visit Estonia you will notice that seems way more progressive than lots of Eastern European countries.
It’s very organized, it’s clean, things work perfectly well, it’s well cared for, etc.
The biggest disadvantage (at least in my opinion) of this beautiful country is the weather! It was an average of 16 degrees at the beginning of August.
If you are an entrepreneur Estonia might be interesting for a couple of reasons: residency, company formation, tax benefits
The taxation system is quite interesting. Corporate tax is not that low (20%) but they only tax distributions. If you keep the money in the company you can simply reinvest and grow your company without paying any taxes! Your company can act as a giant 401 k or RSP.
Latvia and Georgia have adopted the same system.
The challenge with this taxation system could be that your country of origin might not agree with these taxation rules, and might still tax you based on their own system.
Estonia’s e-residency is becoming more and more popular. It allows you to form a company with low ongoing costs and low maintenance. The only downside is that you will have to do monthly VAT filings (which you wouldn’t need to do if you were to form a company in the US or Hong Kong).
Estonia is whitelisted, it’s not a tax haven, and it is a stable country.
There are three major banks here: Swedbank, SEB, and LHV.
SEB and Swedbank are both Swedish banks, and they have tight regulations. They will require you to have a connection with Estonia if you want to bank here. As we were already saying, more and more places are requiring you to have a substance, otherwise, they will turn you down.
LHV is a little more flexible, but they’ve lost their US correspondent bank. Therefore you will not be able to open a USD account here.
The big problem with banks here is the limits they have on sending amount. In order to be able to send more money than the limit they’ve set, you’ll need to go through the process of application that can be challenging and time-consuming.
Also, lots of foreign bank accounts were shut down lately due to a lack of connections to the country. This is a rising trend all over Europe, so you will have to be aware of.
But should you consider forming a company and running your business from Estonia? Is it a great solution?
Maybe not so great.
Socials are high, personal taxes are high.
There is a relatively small labor force – Estonia has around 1.3 million people of which 426 000 live in Tallinn. Therefore, hunting for talent might be challenging.
Wages are not low, but not too high either. An average wage would be 1300 EUR per month, if we are talking about IT specialists it would be 2000+ EUR.
Skype started in Estonia and this put the country on the map when it comes to the IT industry.
Costs are medium- WAY cheaper than in Scandinavian countries! However, it’s not as cheap as Bulgaria or Georgia.
If you are considering living in Estonia, it will not be hard to obtain a residency if you form a company. Life quality is good.
You will be able to get a 5-year residency permit, and eventually citizenship after you’ve lived here for 8 years total. However, you’ll need to renounce your current one because they don’t allow dual citizenship.
Rent prices are fairly low. 1200 EUR per month can get you a 120 sq/m apartment. If you want to buy property you’ll be paying 2000-3000 EUR per sq/m in the city center, 1500-2000 EUR per sq/m outside of city center. There are some beautiful areas with houses in Tallinn. Traffic is good and it’s easy to get around. It’s spacious and green.
The real estate market in Estonia has been crazy. From the early 2000s to 2007. the market went crazy. Then it had the second-largest crash in the world (after Latvia) during the financial crisis. It dropped over 50%! From 2008. to 2011. it started to recover and it has gone crazy since then. The average is 9,2% per year form 2011. to 2017. Now it’s more stable. However, there is a lot of building going on that might be worrying. It’s probably not the best place to be buying real estate right now, interest rates are going up. They had a massive mortgage boom, one year there was 62% growth. As you can see, the market has been going up and down multiple times. Currently, we think there are better opportunities in the world if you are looking to invest in real estate (Montenegro for example).
Estonia might be worth considering if you want to access the EU market, also you might be able to take advantage of their tax system. Company formation in this country is another popular option for lots of foreign entrepreneurs.