If you are a tax resident in a country with CFC rules (like most European countries, US, Canada, UK, Australia, etc), there might be situations in which the local authorities may claim that your company needs to pay taxes there instead of in Estonia.

How can that happen? According to the low, for entities that:

  • Have been constituted in accordance with the local laws.
  • Have their registered office in local territory.
  • Or that they have their effective management headquarters in local territory.

The first situation will never happen if you founded your company in Estonia.

The second one means you cannot have your permanent headquarters, like an office, outside of Estonia. You cannot rent or buy an office for your company in Germany, the US, or Australia, for example.

The third one varies from country to country, but generally means that the majority of the board cannot reside (i.e: be tax resident) of a country with CFC rules. If you are the only board member, for example, and live in Germany, The German authorities will conclude that your effective management headquarters are in the country and, as such, ask your company to adhere to the German fiscal laws and pay taxes in Germany.

In that scenario, you will lose the benefits of taxation on profit distribution only, and we would not be able to continue offering you our services.

in Requisites and conditions

4 Comments

  1. Gerard
    November 6, 2019 at 9:43 am – Reply

    Hello,
    With regards to the third rule “Or that they have their effective management headquarters in local territory.”, if you’re not a nomad, it’s finally impossible to create a company in Estonia?
    Could the fact that the accounting is made in Estonia (by you), the mail management is also done by you in Estonia, be highlighted to show that a part of the management of the Company is in Estonia?

    • Ignacio
      November 14, 2019 at 11:33 am – Reply

      Dear Gerard,
      It is possible, but you must be a tax resident of a country with no CFC rules.
      Best regards

  2. Rubén
    February 27, 2020 at 11:45 am – Reply

    Having a look at this, then it seems that it’s effectively not possible to set-up a company in Estonia if most of the business is done from another European country. Is that correct?

    In our case, we’re three freelancers that are considering setting-up a company together, and doing it in Estonia with you seems like a good option. We work internationally, but the majority of our projects happen in Spain. And our country of residence is also Spanish.

    Does this mean than therefore this isn’t an option?

    • Ignacio
      March 10, 2020 at 9:13 am – Reply

      Dear Ruben, if the three of you reside in Spain, this is probably not the best solution for your business.

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