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I incorporated in Estonia few years ago because of what their promo materials say. It’s a total shitshow unfortunately and while it’s true that you can do every
by edwin01 9y ago
I incorporated in Estonia few years ago because of what their promo materials say. It’s a total shitshow unfortunately and while it’s true that you can do everything online, it’s not what you think. All user interfaces are straight from the 90s, only the most basic forms are in english and they want to know everything about your business while setting ridiculous limits. For example, you need to have half of your capital available always. If you end the year even with 49% of your capital, you have to submit a report how you are planning to fix the situation. This is highly limiting requirement for any startup. When you need to do anything else than submit the most basic forms, you have to fill in forms that are available only in estonian. If you need help, good luck finding a person who can serve you in english. Don’t get me wrong, estonian people are very nice and will try to help you but the language barrier is very awkward to deal with.
If you plan to incorporate in Estonia, make sure you hire a local accountant because you really can’t decipher their accounting requirements yourself, put the lowest amount of capital required in (2500€) and mentally prepare for overall frustrating experience.
I applaud Estonia for all the efforts they have put into rising from the ashes of russian control but if I knew back then what I know now and had to make a choice now where to incorporate, I would skip Estonia.
- thinkloop 9y agoThanks for touching on some of the things I was expecting to read in the article. > you need to have half of your capital available always What does this mean, in a bank account?
- edwin01 9y agoYes. If your balance at the end of the year isn't half of your starting capital, you need to tell estonian government officials how you are planning to recover from this horrible failure. I didn't know this on my first year and we just made a small investment at the end of the year that made the balance to drop at horrific 40% level which triggered alarms in the government. If you fail to satisfy them with your plan, (if I understood right estonian-only materials), they can declare your company bankrupt. I know it sounds ridiculous but welcome to Estonia I guess. Though I do doubt that the officials would close your business unless you actually go bankrupt but it's still a hassle and feels very controlling to explain your business to a government at this level.
- pavlov 9y agoI realize it’s annoying, but the requirement to register “lost” share capital is a common one in Europe. Think of it as a warning flag to potential lenders. The default assumption in society is that limited liability corporations have enough assets that it’s safe to sell them something on credit, i.e. invoicing rather than cash. Forcing companies to register the fact that their equity is negative provides an easy way for vendors to look up this warning flag. I’m not directly familiar with Estonian law, but I’ve run a couple of Finnish companies. If the law is similar, it’s not that the government registry would be actively filing for bankruptcy if you have negative equity, but it does create potential liability for board members if the company goes bankrupt and the board failed to register negative equity when the information was available to them.
- edwin01 9y agoThis is a good point. However for me the annoyance is not about reporting the decrease, it's the fact that if capital drops below 50%, government is now in control whether they exercise that control or not. I would understand something like 10% but 50% is just ridiculous to me.
- ProblemFactory 9y agoI think the confusion here might be "starting capital" vs "registered share capital". You should set the registered share capital to the minimum allowed 2500 eur. Even companies making hundreds of millions of euros in revenue set usually set it to 25000 eur. You can then invest any amount over that as your actual starting funds without increasing the registered share value. That way the company is only required to own at least 2500 eur in assets, which should not be a problem for any serious business.
- edwin01 9y agoSolid advice. I was stupid enough to follow the process estonian gov had laid out and it really didn't make this distinction at any point so I registered our full capital as share capital.
- martkaru 9y agoNo. Basic bookkeeping. Equity = Assets - Liabilities. Assets can be "cash in a bank account", tangible stuff you buy to your company, intangible things (product you are building, ip, patents, etc). The "below 2500" rule kicks in as a safeguard when your equity (assets-liabilities) have dropped below 2500, to avoid approaching 0 "soon".
- Boulth 9y agoOne more thing to remember is even though you cna have a company incorporated in Estonia if you mostly operate it from another country you may still need to pay your taxes locally (depends on country, consult your tax advisor).
- rojcyk 9y agoI just got an email from the embassy that the eResidency documents are ready to pick up. I wanted to set up a company right after, but this sounds like a really bad news. But I'm wondering, do you use any of the government certificated services who should help you to do all of this? Like LeapIn and similar? Or do you manage everything by yourself? Also, anyone else has a similar experience?
- twfarland 9y agoI had a similar experience. The ID card in particular was the biggest hurdle. I gave up on it.
- csdreamer7 9y agoGreat comment. That capital requirement sounds like a way to give the local banks capital from rich foreigners to make loans and get tax revenue. I know India restricts how much Indians can spend abroad and Mexico has complained about capital flight.
- Strom 9y agoNot sure if there are additional requirements for e-residents, but for the standard end of the year accounting requirements you don't need to have cash. There's a general net worth requirement, which can pretty easily be filled with company owned equipment like a laptop and smartphone.
- edwin01 9y ago"If the net assets are less than half of the share capital or less than the minimum capital requirement of EUR2,500 regarding private limited liability companies and EUR250,000 regarding public limited liability companies, the shareholders must decide on: (1) The implementation of measures as a result of which the net assets would form at least half of the share capital and minimum capital requirement Or (2) Dissolution, merger, division, transformation of the company Or (3) Submission of a bankruptcy petition" http://www.ey.com/Publication/vwLUAssets/Doing_business_in_Estonia/$FILE/Doing%20Business%20in%20Estonia.pdf http://www.ey.com/Publication/vwLUAssets/Doing_business_in_E... Put in 100000€ and you will need to have 50000€, not 2500€. You will need quite many laptops and phones for 50k€ ;)
- nordify 8y agoSo don't put in the money as share capital.
- juskrey 9y agoJust having a legal address for your legal entity now costs EUR 300-500 a year for e-Resident, depending on whom you ask. They have added ridiculous "official local contact person" requirement this year, and consulting firms have immediately jumped on the bandwagon with additional 100-300 EUR row in the price list. My bank account I have opened by traveling to Estonia, in Swedbank, was closed "due to inactivity" after two years, despite I was paying 5 or 10 EUR a month for the account. Yes, my account was inactive, waiting for a chance to receive money when suitable, so what???
- edwin01 9y agoI can also chime in that avoid Swedbank like plague. I tried them first but after submitting them with 6 months of personal bank statements and getting back an offer for CC with 300€ credit limit I went straigth to LHV which has been fantastic. Let's just say that CC limit wasn't 300€... I'm considering using LHV for other projects as well because they have APIs, everything works and they even work with cryptocurrency companies for what it's worth.
- 0xcde4c3db 8y ago> They have added ridiculous "official local contact person" requirement Is this similar to US "registered agent" requirements [1], or is it somehow more involved/restricted? [1] https://en.wikipedia.org/wiki/Registered_agent https://en.wikipedia.org/wiki/Registered_agent
- juskrey 8y agoNo, it's not even an agent. It's simply a contact god knows what for (for receiving documents they claim), like it can help in the case first person in question doesn't want to be contacted. Basically it duplicates legal address functionality, and even given that I was successfully contacted by email when Estonian tax or statistics board wanted me to correct reporting mistakes.
- GordonS 8y agoCan I ask what you saw as the benefits of incorporating in Estonia?
- collyw 8y ago2500€ doesn't seem like a huge amount of capital for a businesses. Probably less than a months wage for most developers.