[vc_row][vc_column][vc_column_text]In recent years, providing employee options has become increasingly popular. This means that if an employee is hired by the employer after a certain period of time, the employee has the opportunity to acquire a share in the employer’s company. Options are a very good way to motivate employees and tie them to the company – the employee does not look at the labor market so easily, and he develops a sense of «ownership», which hopefully reflects on the best results of the employee in the Estonian company.
What is an option?
The option is essentially a derivative instrument entitling an employer to acquire a share in the future, subject to certain conditions stipulated in the optional contract. For the employer, the option of participation is the opportunity to pay wages not with money, but with promise. Thus, the positive impact of the option on the company’s cash flow is obvious. The content of this promise is to give the employee a stake in the employer’s company in the future.
Positive side of the option for the employer
Unlike wages, options are not taxable. The option is not subject to special tax. Therefore, if an additional labor tax is required for the payment of wages, there are no tax costs for the option.
The most important and best condition for an employer is the so-called transition period – an employee receives a share only if he works for his employer for a certain minimum period of time. This gives the employer the opportunity to connect with good specialists for a longer term, and there is no need to use other options that often accompany hiring top managers.
Estonian tax law requires the employer and the employee to agree on a payment period of at least 3 years. Specifically, the Income Tax Act provides that the exercise of an option, that is, the conversion of a promise given to an employee, into a share, may not be regarded as a special benefit if at least three years have elapsed between the granting of an option. If the option is fulfilled before the end of the 3-year period, it will usually be subject to preferential taxes, which means that tax efficiency will also be lost in such performance.
In some exceptional cases, it is also possible to avoid paying preferential taxes when converting an option into shares of the company within a 3-year period. This is the case, for example, in the case of the sale of the entire share of the employer. In such a case, the exercise of such a number of options shall not be taxed, which is proportional to the time elapsed after three years.
Example
The employee and the employer agree on the participation option, the eligibility period is 3 years, and the employee is given an option to receive a nominal 100 euro share. After a year and a half, the employer’s shareholder sells its entire stake to a foreign investor, which results in a new shareholder for the employer. In this case, the employee can realize half of the options and receive a part of the nominal value of 50 euros without special tax. Typically, a shareholder of a new employer requires that it also be able to buy shares from employees when buying a share, in which case the employee can simultaneously sell his share to a new investor.
Advantages of the option for employees
For an employee the option option is a good solution if he plans to be associated with his employer for a long period of time (at least three years of cooperation). For an employee, the option gives the opportunity to join his employer’s shareholders with full shareholder rights, i.e. to vote at the shareholders’ meeting, receive dividends, influence the company’s strategic decisions and finally sell the company’s shares. When receiving dividends, the employee’s remuneration no longer depends only on his own contribution to the success of the company, but also on the contribution of all his colleagues and the growth of his employer’s business as a whole. This option is especially valuable when we look at how Estonian unicorns have grown and what opportunities they offer their employees at the moment.
The positive aspect of receiving dividends is that the state has to pay them a much smaller tax than the wages. Dividends paid by the Estonian employer are taxed on income either only at the level of the employer at the rate of 20%, or income tax at the rate of 14% at the level of the employer and income tax at the rate of 7% at the level of the employee. For foreign employers, these rates may differ.
The transfer of a company’s share creates a tax credit similar to the payment of dividends, because it is a passive income as opposed to wages. When the share is transferred, the employee must pay income tax at the rate of 20 percent of the profit received, the social tax obligation does not arise when the share is transferred. It is clear that this benefits the employer, who is the payer of social tax in the case of wages.
How to provide an option?
To provide an option, an optional contract is concluded with the employee, which must be either digitally signed or notarized. The form requirement also needs to be considered when options are provided through other documents, for example by joining an optional program.
In the case of options, it is usually agreed that in their performance, the employer issues an additional share to the employee, and the authorized capital is increased by the nominal value of the corresponding share. From a corporate law point of view, this is the simplest way to issue options, so it would be prudent to provide the charter capital in the constitution of a company not as a specific amount, but as a range.
Items that must be included in an optional contract
Option contract duration
Option procedure
Buying Options
Termination and options
Company sales and options
Option contract duration and option transfer
Since one of the purposes of providing options to an employee is to bind the employee to the company for a longer period of time, the employer must consider and determine the period of working out options in the contract. To be allowed to participate fully in the company, an employee must work for the same employer for the entire period of the option. After the expiry of this term, the employee has the right to purchase a part of the company or shares of the company.
The most favorable situation from the tax point of view arises when the period of granting the right of option lasts at least three years, after which the employee has the right to purchase the given options in full.
Alternatively, it may be stated in the contract that the employee receives options on a continuous basis for a period of proportional time worked. This means that although the entire period of the option is three years, for example, rights should not wait until three years have passed and the employee is entitled to options earlier, taking into account the time already worked.
For example, in the case of a three-year endowment period, an employee is already entitled to one third of the options after one year from the beginning of the endowment period. After the second year there is a right to two-thirds etc. In this case, a clause in the defense of the employer is usually included in the contract, that if the employee resigns before, for example, six months or a year after the signing of the optional contract, the employee loses all rights to options. Since the employer’s interest in providing options is to ensure the employee’s long-term commitment, it is unreasonable to include in the contract an option to acquire a share after only a few months of work.
Option repayment
The option contract should specify when and how the options will be redeemed. One option sets a time limit within which an employee must declare an interest in actually acquiring a share. This may be, for example, one year after the period of option awarding. At this stage, it is advisable for the employer to consider how in general the program of options for employees should be organized, so that it does not create an excessive administrative burden, and accordingly write down the time and order of purchase of options in the contract.
In order for an employee to convert their earned options into shares, the employer must submit an application stating that the employee wishes to buy the options. It is recommended that the application form be added to the end of the optional contract in order to avoid misunderstandings related to the creation or purchase of shares.
What happens if the employee leaves before the deadline?
While both parties may have only the best intentions at the time of signing the optional agreement, sometimes life does make adjustments and the employment relationship does not continue until the end of the option period. For such situations, the option agreement specifies exactly which exit the employee retains the right to an option and which does not.
Each employer should carefully weigh when it is not possible to continue the optional contract and reflect this appropriately in the option contract. If an employee resigns during the period of employment through no fault of his own (illness, death or serious breach of the law by the employer), the employee is generally considered to be entitled to options in proportion to the time already worked.
Sale of the company during the option period
If it is a company whose owner plans to sell all or most of its company, these future plans should be reflected in an option contract. You should consider what happens to the employee’s right to receive options in the event of a sale of the employer’s company. Sometimes it is stipulated that in case of sale of the company the employee has the right
Immediately redeem their options and should not wait until the end of the entitlement period. However, if the employee is of key importance in the company and the employer’s buyer may have an interest in a company with key employees, it may be stipulated that in the case of a sale of the company, the employee may obtain some of its capabilities. In any event, plans for the future should be considered and, if necessary, reflected in an option agreement.
In addition to the topics mentioned in this article, of course, the basic terms of participation should also be written. You can read about them in the document «Conditions of participation» prepared by EMTA. It is also important to note that an optional agreement can be notarized or digitally signed.
If you are interested in drawing up an optional contract, please contactLKS Consult OĂś OĂś and receive information today.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][us_btn label=”contact us” link=”url:https%3A%2F%2Fwww.estonia-company.ee%2Fcontacts%2F” align=”center”][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]The total turnover of Estonian startups for the three quarters of this year increased by 64% year-on-year to 1.5 billion euros.
Estonian startups also attracted record investments – a total of 1.2 billion euros, including 40 transactions worth more than one million euros.
In 2021, the total turnover of the startup sector in Estonia amounted to 1.4 billion euros, i.e. in the nine months of this year, startups have already exceeded the last year’s result. Since at the end of the third quarter 2022, the total turnover of startups amounted to 927 million euros, there has been 64% growth year-on-year.
The managing director of Startup Estonia, Eva Peterson, said that although global markets are now suffering, Estonian startups continue to grow rapidly. “Estonia has a very good international image, and the foundation that we laid in difficult times over the years is working in our favor. Of course, the key role is also played by the experience of our startup entrepreneurs, who have repeatedly proved to investors, customers and employees that they are able to quickly adapt to changes in the conditions and turn the situation in the market in their favour, “Peterson said.
The highest turnover at the end of the third quarter of this year was posted by Bolt (775.3 million euros), Veriff (50.5 million euros), Swappie 47.6 (million euros), Comodule (27.8 million euros) and Starship Technologies (24.6 million euros). Data on turnover of startup enterprises are based on quarterly data on turnover tax provided by the Tax and Customs Board, which are based on VAT declarations. Turnover data may differ from the data provided in the annual report of the startup company, but they give the best possible overview of the current situation regarding the growth of the startup sector.
According to Startup Estonia, 1446 startup companies have been registered in Estonia at the moment, of which 418 or 29% have been operating for five years or more.
According to the data of the Estonian Tax and Customs Board, for the three quarters of this year, startup companies paid a total of 134 million euros (an increase of 48%) in labour taxes to the state. In the same period last year, startups paid 90.5 million euros in labour taxes to the state.
Estonian startups raised 1.2 billion euros in investments in the three quarters of this year, in a total of 61 deals. The average size of the investment was 19.3 million euros, while 40 investments were worth more than one million euros. A year ago, the volume of funding raised amounted to 870 million euros in 66 transactions, and the average size of the funding transaction was 13.2 million euros, 34 transactions amounted to more than 34 million euros.
Peterson added that Estonian and international investors believe in Estonian startups. “This is evidenced by the constant increase in the total value of transactions, as well as statistics shows that in addition to the most famous and large startups, many other Estonian startup companies are also investing in startups, ” she said.
The largest funding raised in the third quarter of 2022 was attracted by Ready Player Me (55.1 million euros), Monese (35 million euros), Lightyear (25 million euros), Klaus (12 million euros) and Jobbatical (11.6 million euros).
Startup Estonia is funded by the European Regional Development Fund.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][us_btn label=”contact us” link=”url:https%3A%2F%2Fwww.estonia-company.ee%2Fcontacts%2F” align=”center”][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]Before the entry into force of the Estonian regulation governing crowdfunding (collective financing), the authorities were concerned that there could be an avalanche of permit applications which would take a whole year to review. However, now there is concern that many companies providing crowdfunding services could miss out on the deadline to obtain a crowdfunding permit and would have to either stop or suspend their services.
On 7 October 2020, the European Parliament adopted the long-overdue Regulation 2020/1507 (EU) on the regulation of crowdfunding (“Regulation”).
In line with the rationale for the Regulation, crowdfunding is increasingly an alternative means of financing for startups and small and medium-sized enterprises. Crowdfunding is considered a good opportunity to improve the availability of financing, and it has also become one of the opportunities for financing the entrepreneurial activities of individuals and legal entities. Such financing is provided via online platforms, and funded projects usually attract a large number of private and corporate investors. This includes startups that often raise the necessary funding through crowdfunding.
In December 2021, the provisions of the Securities Market Act that apply to crowdfunding service providers within the meaning of the Regulation entered into force. These provisions foresee that crowdfunding service providers will be under the supervision of the Estonian Financial Supervisory Authority (FSA).
On 5 November 2021, FSA held an information day for crowdfunding service providers and explained in detail the issues that are related to applying for permit to provide crowdfunding services and supervision matters. These materials are available as a video recording on the FSA website.
In order to ensure consistent application of the Regulation, including the provision of adequate investor and consumer protection, the Regulation gives the European Securities and Financial Markets Authority (ESMA) and the European Banking Supervision Authority (EBA) the mandate (authorization) to develop regulatory technical standards and submit them to the European Commission.
The problem is that the Regulation contains quite a number of the regulatory technical standards that ESMA and EBA are required to draft and which are important in the context of an application for an operating permit. However, what happened was that ESMA and EBA were unable to develop all the required regulatory technical standards. This situation is now causing problems for both permit applicants and regulators: on the one hand, the situation is specific and clear – crowdfunding service providers must be regulated and supervised and if they fail to do so within the time frame specified in the Regulation, they may be prohibited from providing the service. On the other hand, a number of very important components are still missing that enable the regulators to deal with applications for a permit to operate with complete confidence and, if the required data and information are sufficient, to grant a license to operate.
For obvious reasons, this situation creates uncertainty and may become a direct obstacle to the provision of crowdfunding services both in Estonia and in the European Union as a whole. In the light of the foregoing, FSA has developed an approach that allows companies to apply for a permit under the current legal situation.
According to the Regulation, the transition period is until 10 November 2022. Until then, crowdfunding providers may continue to provide the crowdfunding service without a permit.
The procedure for processing a crowdfunding permit application is similar to that for other areas of the financial sector. An entrepreneur applying for a crowdfunding permit must collect the required information and submit it with the application to FSA. One important difference is the timing of the so-called preliminary assessment of the application.
In other words, FSA must, within 25 working days of receiving a formal application, assess the completeness of the application, including whether sufficient information has been provided. Within the specified period, FSA must assess the compliance of the form and content of the application with the requirements established by law. If the application or the documents attached to it do not comply with the current requirements, contain significant shortcomings in form or content, FSA shall assign an additional period for the applicant to remedy the shortcomings.
Thus, at the initial stage of the consideration of the application, it is possible that 25 working days have elapsed since the receipt of the application, FSA has identified shortcomings, and sets a deadline for their elimination. An additional period of 10–20 working days may be required to remedy the deficiencies, depending on the content of the deficiencies being remedied. It is also possible that such an additional term may be imposed more than once.
In addition, FSA should have time to review the responses. In general, it is possible that 25–50 (and even more) working days may pass before the beginning of the process of consideration of the application, which in fact is almost two calendar months.
If FSA does not return the application and begins the review process, the Regulation sets the time limit for the proceedings at three months, within which FSA must decide whether the potential crowdfunding service provider meets all requirements. The decision should take into account, among other things, the nature, scope and complexity of the potential crowdfunding service, as well as the suitability and law-abidingness of managers and owners.
Thus, during the process of consideration of an application, it is possible that the total duration of the procedure may be on average five to six calendar months or even longer. It may happen that the application for permission will not receive a positive decision for the first time. Given that it is no longer possible to work without permission after 10 November, crowdfunding service providers must begin to act and file a correct and eligible application.
Prior to the entry into force of the crowdfunding regulation, FSA reviewed the potential market for crowdfunding services and identified some 20 potential business entities as candidates for authorization. Considering that today applicants of the permission can be counted on fingers of one hand, it is possible that many of them didn’t have so much time to submit the application. It is also worth noting that activities without permits are governed by penitentiary law and are punishable, so the obligation to apply for a permit must be taken seriously. It would be naĂŻve to hope that the Commission would extend the deadline set out in the Regulation – this is unlikely, especially since a certain time delay does not apply in all cases.
Currently, more than 400 Estonian companies are providing crowdfunding services. The experts of LKS Consult OĂś will assist you in setting up your company in Estonia and can support you in preparing documents for filing an application and obtaining permission for crowdfunding activities in Estonia.[/vc_column_text][/vc_column][/vc_row]
There are now more Estonian e-residents than the population of the city of Tartu, according to the communication department of the E-residence program. Estonia has by now granted e-residence to 94,892 people, which is more than there are residents in Tartu, Estonia’s second-largest city.
“The community of Estonian e-residents is truly global and unites nationals of 176 countries, each of whom is an ambassador of Estonia. Today, the number of e-residents is already slightly larger than the population of Tartu, meaning that e-residents form Estonia’s second-largest community. This special club represents a fascinating and unique diaspora, and shares similar values with Estonia’s international university town Tartu,” said Lauri Haav, director of the E-residence program. “Just as those who were born in Tartu or studied at Tartu University always remain connected to Tartu, also e-residents always carry a part of Estonia with them.”
In its eight years of activities, the e-residency program has brought Estonia more than 100 million euros in tax revenue and has become one of the foundations for Estonia’s international reputation as an innovative country. According to Haav, Estonia’s liberal economic environment, low level of bureaucracy and e-services are taken for granted by Estonians, but they continue to be unique in the world.
In line with the growth strategy approved this spring, the goal of e-residency program is that an increasing number of e-residents start their own business.
“Our main goal is not only to increase the number of e-residents, but to create functioning, tax-paying enterprises that create jobs,” added Haav. “Now we are focused on the promotion of opportunities of e-residency in Germany, Spain, and UK. Also, more and more Ukrainians find us as well. Together with the regulator, we also pay close attention to the background and motives of people applying for e-residency— only honest people engaged in transparent business are welcome.”
Currently, almost a third of e-residents register business in Estonia. In total, e-residents have established more than 22,000 companies with a total turnover of more than 10 billion euros. Every year, a fifth of all new companies and 28% of startups are set up with the participation of e-residents. E-resident companies have created more than 3,600 jobs in Estonia.
The total direct economic impact of the e-residency program on the Estonian state (tax revenues and state duties) now stands at more than 114 million euros. As a result of the successful implementation of the growth strategy of the e-residency program, the program’s total direct contribution to the Estonian treasury will increase by another quarter of a billion euros by the end of 2025. In addition, the program brings indirect income to the state also through the improvement of Estonia’s international reputation, as well as the growth in the number of Estonian companies serving e-residents and investments. In 2021, the direct economic income from the e-residency program for the state was estimated at 35.2 million euros.
E-residency contributes to strengthening Estonia’s reputation as an innovative digital country. During the entire history of the program, its coverage of Estonia in the international media has been valued at 385 million euros.
Regardless of whether you are already an Estonian e-resident or just decided to apply for an e-resident card, LKS Consult OĂś will help you to establish your company in Estonia. We also provide private tax consultation for non-residents when declaring income in Estonia. You can contact our specialist and get a quote as soon as possible.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]From 1 October 2022, data of the e-Business Register, Estonian commercial register, will be available for free.
Previously, in order to view the data held in the e-Business Register, it was necessary to pay a fee when one requested data about companies, non-profit organizations, foundations, state and municipal institutions.
According to the Minister of Justice, free provision of data will help to make the business sector more transparent and innovative. “For the development of the information society, free access to high-quality data is necessary, first of all, to those that are at the disposal of the state. The availability of information helps to ensure the transparency of the economy and creates the prerequisites for the development of intellectual services based on data”, Minister of Justice Lea Danilson-Järg explained. “A transparent business environment means that the consumer knows whose services and products they are consuming, and entrepreneurs can explore the history of the cooperation partner when establishing business ties. The transparency of the economy is in the interest of society as a whole.”
Each Estonian company will also be able to verify the accuracy of its data entered in the e-Business Register and, if necessary, correct it. In particular, users are advised to check that their personal contact details — telephone number, email address or home address — that they don’t wish to disclose publicly are not entered as company contacts.
The e-Business Register will charge a fee for requesting data about non-profit organizations, as they may contain special types of personal information that are subject to reuse restrictions.
The staff of the LKS Consult OĂś will be happy to enter corrections in the data of your company in the e- Business Register, as well as help with the establishment of your company in Estonia as soon as possible.[/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]When a private company is created with limited liability, minimum capital requirements disappear.
The Minister of Justice, Maris Lowry, submitted to the Riigikogu a draft Business Register Act, prepared as part of a project to modernize business-related legislation which, inter alia, removes the minimum capital requirement in force since 1995.
In the course of an audit of corporate law, which began in 2014, the legislation on the activities of associations under the leadership of the Ministry of Justice underwent a thorough, substantive and systematic review with a view to harmonizing and updating it, the Ministry reported.
The legislation in force in Estonia today is undoubtedly competitive and contributes to success. However, this does not mean that we can rest. Changes in the world require us to be constantly ready to respond and update the rules and possibilities», commented Lowry.
Based on the audit feedback, the draft Law on Business Register, the largest of the drafts prepared so far, harmonizes the registration procedure for all legal entities. It would also make the regulation of private limited companies more flexible in several respects, for example by removing the minimum capital requirement for the establishment of a private limited company.
If the statutory minimum capital, which is not subject to payment and therefore provides little evidence of the reliability and sustainability of a limited liability partnership, is now automatically selected for the establishment of a limited liability partnership, Lowry explained the reasons for the change.
Flexibility will also be given to other companies, for example, by allowing the e-business register to reserve a brand name for six months, to better prepare for the establishment of the company and to have a suitable trade name when applying to the Commercial Register.
According to the Minister, the improvement of legal certainty benefits everything, which is the main objective of a number of changes.
According to the Minister, it is hoped that more structured government requirements will also lead to better reporting by companies. The electronic business registry can provide more information on problematic entities than before, and in case of non-compliance with reporting obligations, the entity can be removed from the registry even more quickly.
In this article the term «transfer of an enterprise» will be used in the meaning of the Law of Obligations (Võlaõigusseadus, hereinafter – VĂ•S), according to which:
The transferor may, by contract with the purchaser, undertake to transfer the business to the purchaser. The enterprise may pass to the purchaser also on the basis of the law. (p. 1 § 180 VÕS)
The enterprise includes things, rights and duties related to the conduct of the business of the enterprise and its servicing, including the contract related to the enterprise. (p. 2 § 180 VÕS)
Therefore, from the quoted provisions of the law it should be quite clear that the term «enterprise» refers to certain business activities for which things and other assets are used (which are essentially rights in one way or another, whatever terms are used to refer to them in legal acts governing accounting and the payment of taxes), contracts are concluded, resulting in persons Business owners (let us call them entrepreneurs) have rights and obligations.
Taxation aspects
According to article 35 of the Tax Act, if the law provides for the succession of rights and obligations from one person to another, then all monetary and non-monetary claims and obligations (obligations) are transferred to the successor established in the Tax Act, in the specific tax laws and in the laws specified in Article 3, Part 4 of the Tax Act (including the Savings Pension Act and the Unemployment Insurance Act)which are not intrinsically linked to the person. There is no obligation to pay fines (more precisely, not fines, but sunniraha, that is, the sums of money imposed for the purpose of compulsion to fulfill an obligation).
As can be seen from article 182VĂ•S, part 2, not only all assets (things and rights) of the transferred enterprise are transferred to the purchaser of the enterprise, but also all duties related to the transferred enterprise, that is, the purchaser of the enterprise is the successor of that entrepreneur, from which the enterprise is received – of course, it is the transferee of the transferable enterprise only. If this is the case, he is the legal beneficiary of the tax rights and obligations of the enterprise.
Simply put, if the entrepreneur who transferred the enterprise has not paid, for example, some tax related to the transferred enterprise, the new owner of the company will have to pay the tax.
It is this tax succession that explains why the Turnover Tax Act does not apply to the transfer of a turnover business (cf. paragraph 1.2. 4 of the Act). No, as the transferee of the business, is given all rights and duties related to the turnover tax of the transferred business. The extent to which the taxpayer is literate and conscientious is the entrepreneur from whom the enterprise is derived.
Accounting aspects
The accounting aspects of the transfer of an enterprise are essentially clear from the purchaser’s point of view, since the transfer of an enterprise is a consolidation of business within the meaning of the Accounting Service Instruction RTJ 11 «Business associations, as well as reflection of subsidiaries and associated companies». Indeed, according to RTJ 11, clause 5, business association (of course RTJ 11) does not occur only when one person acquires control of another person by purchasing or sharing shares, but also when control over a business is created by the acquisition of assets and liabilities related to that business.
As follows from RTJ 11, if the purchaser, after entering into the contract referred to in article 180 VĂ•S, receives the enterprise from a person not associated with it (with the purchaser), then the business association should be reflected by the acquisition method (or sometimes referred to as the purchase method) described in paragraphs 19-49 of RTJ 11.
If, however, both persons who have concluded the contract referred to in Article 180 VĂ•SÂ (i.e., the transferor of the enterprise and the purchaser of the enterprise) are under common control, then the consolidation of the business should be reflected using the adjusted acquisition method, described in paragraphs 50-55 of RTJ 11.
Nor is it conceptually difficult to record a transaction in the accounting of a person who transfers an enterprise under a contract established in article 180 VĂ•S. When an enterprise is sold, it is necessary to record in the accounting the financial result obtained from the sale of the enterprise (profit or loss), which is calculated as the difference between the income from the sale of the enterprise and the value of the transferred net assets (i.e., transferred assets less transferred liabilities).
In the profit statement, the financial result obtained from the sale of the enterprise is reflected in other operating income (muud äritulud) if a profit is made, or other operating expenses (muud ärikulud) if a loss is incurred, since, first, the sale of an enterprise is in no way a permanent activity, therefore, the income from the sale of the enterprise is not to be reflected in the income from sales (mügitulu) and, second, the sale of the enterprise for the person who sells the enterprise, hence, a business is not a financial gain. And if so, in the profit statement there is only one place – the article «Other operating income» (Muud äritulud), or to reflect the loss – the article «Other operating expenses» (Muud ärikulud).
The most common nuances involved in the sale of a company are those to be taken into account in the course of both accounting and tax returns.
[vc_row][vc_column][vc_column_text]A recent analysis of the Startup Estonia (SUE) program and the Estonian E-Residency program shows that E-Residents have created almost a third of the startups in Estonia – of the 1,200 Estonian startups listed in the SUE database, 348 were created by E-Residents of Estonia. Most of them are companies engaged in business software development and financial technology solutions.
According to Startup Estonia’s chief executive Eva Peeterson, Estonia’s innovative digital society and international reputation attract talent from all over the world, offering beginners an excellent platform for growth. ” The diverse start-up sector is an important engine of innovation and economic growth in Estonia. Thanks to the E-Residency Program, the Estonian Startup Community can rapidly develop,” said Peeterson. She added that the e-residents brought unique skills, international experience and cultural richness to the local startup landscape, strengthening Estonia’s position as one of the most attractive innovation centers in Europe.
According to Natalya Storozhuk, a resident and founder of the Estonian startup company PRNEWS.IO, local startups gave the Estonian business landscape an international image. ” I admire the aspiration of Estonian startup entrepreneurs to help newcomers. There is a friendly atmosphere of support and excellent interaction between proven startups and Freshmeikers,” said Storozhuk. Vicky Brock, a resident and recognized startup entrepreneur, added that Estonian startups have invaluable experience in how to use the strengths of a digital society to scale the company up effectively. ” Estonian startups serve as a huge knowledge bank, and even the most experienced startups have something to learn from their Estonian colleagues,” noted Brock.
The e-residency programme was established at the end of 2014 to provide foreign citizens with secure access to Estonian public electronic services. Since the launch of the e-residency programme, more than 83,000 e-residents have established more than 17,800 new enterprises in Estonia. In addition to the indirect economic income, which is linked, inter alia, to the growth and investment of Estonian e-resident enterprises, the direct economic impact of the programme on the State budget of Estonia amounted to more than €68 million.
Startup Estonia is a national ecosystem development programme for Estonian startups, aimed at making Estonia the birthplace of many success stories in the future. The aim of the organization is to make Estonia a better place in the world for startups. To this end, contacts and partnerships are being developed with the best start-ups, incubators, business accelerators, and the private and public sectors. Startup Estonia implements KredEx.
LKS Consult OĂś Â team assists startups, company formation and helps in legalising activities in Estonia. Contact us and get a consultation today![/vc_column_text][/vc_column][/vc_row]
[vc_row][vc_column][vc_column_text]The Estonian Electronic Commerce Union has signed a cooperation agreement with eBay. This will help support thousands of small businesses and allow local entrepreneurs to sell their goods worldwide, writes Postimees.
With the E-Commerce Alliance and eBay programme, local enterprises will appoint a personal eBay development manager, provide support and a personal training programme that offers the necessary tools and best practices, as well as higher sales limits to ensure rapid growth. For the first three months this service is free of charge.
“A free training program and marketing support will help thousands of our small businesses and online shops to start selling their products abroad and to increase turnover several times – said TĂŞne Väert, Executive Director of the Estonian Electronic Commerce Union. – eBay – is an important platform through which Estonia can present its high-quality and handmade products to the world”.
The Estonian E-Commerce Union is an umbrella organization of about 450 companies, established in 2008.
[vc_row][vc_column][vc_column_text]According to the summary report of the Development Monitoring Center “Property taxes in Estonia and European countries”, Estonia is the country with the lowest property taxes in the European Union. If property taxes were to reach the EU average, it would bring in more than 500 million per year.
“Estonia’s tax system is based mainly on taxes on labor and on taxes on consumption. At the same time, property taxes are less used to finance public expenditure, said Magnus Pieritz, an expert from the Development Monitoring Centre. — In EU countries, property taxes account for about 5 per cent of total tax revenue. If property taxes in Estonia were to reach the EU average, in 2019 this would mean that revenues to the state budget would be more than 530 million euros more”.
Property taxes include taxes on real estate, net assets, inheritance and gifts, as well as taxes on financial transactions and capital transactions, such as transactions in securities and shares of enterprises. According to Pieritz, in many EU states (including Estonia), most property taxes consist of property taxes.
In Estonia, the main property tax is the land tax, which is paid to local governments. “ For example, real estate taxes accounted for 0.6% of all tax revenues in Estonia in 2019. The average in the European Union was 3 per cent. Since 2012, the land tax in Estonia has remained in the range of 60 million euros per year”, noted Pieritz.
According to Magnus Pieritz, changes in Estonia’s tax structure are inevitable in the future. “ In view of the shrinking of the working-age population, the development of digital technologies and changes in forms of work, labor taxes can no longer effectively cover public expenditures. If the costs remained the same or increased, it would be necessary to find a way to cover those costs”, he added.
According to Pieritz, when speaking of global trends, it is important to bear in mind that in recent decades the world has become more unequal in terms of wealth. “ As much as 45 percent of the estate goes to the top 1 percent. The printing of money by central banks also exacerbates inequality, as it increases property prices”.
In addition, the fight against concealment of property is being strengthened through new info-technology solutions and more effective cooperation between countries. “ This is becoming a fertile ground for wider application of property taxes. On the other hand, new asset classes are emerging, such as cryptocurrency, whose value is very difficult to value,” added Pieritz.
One of the research areas of the Development Monitoring Center in 2021 is “Tax structure that will stand the test of time”. In the study, the authors consider how to cover the costs of an ageing society and how to change the tax system over the next 15 years.
The Development Monitoring Center is a research center established in the Riigikogu Office, which analyses the long-term prospects of society and the economy. The Center conducts research projects to analyse long-term trends in Estonian society and to identify new trends and development directions.
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In recent years, providing employee options has become increasingly popular. This means that if an employee is hired by the employer after a certain period of time, the employee has the opportunity to acquire a share in the employer’s company. Options are a very good way to motivate employees and tie them to the company – the employee does not look at the labor market so easily, and he develops a sense of «ownership», which hopefully reflects on the best results of the employee in the Estonian company.
The total turnover of Estonian startups for the three quarters of this year increased by 64% year-on-year to 1.5 billion euros.
Before the entry into force of the Estonian regulation governing crowdfunding (collective financing), the authorities were concerned that there could be an avalanche of permit applications which would take a whole year to review. However, now there is concern that many companies providing crowdfunding services could miss out on the deadline to obtain a crowdfunding permit and would have to either stop or suspend their services.
From 1 October 2022, data of the 
When a private company is created with limited liability, minimum capital requirements disappear.
A recent analysis of the Startup Estonia (SUE) program and the Estonian E-Residency program shows that E-Residents have created almost a third of the startups in Estonia – of the 1,200 Estonian startups listed in the SUE database, 348 were created by E-Residents of Estonia. Most of them are companies engaged in business software development and financial technology solutions.
According to the summary report of the Development Monitoring Center “Property taxes in Estonia and European countries”, Estonia is the country with the lowest property taxes in the European Union. If property taxes were to reach the EU average, it would bring in more than 500 million per year.