Estonia is a tax-friendly country, which enables companies to optimize their tax costs. The Estonian tax system provides for the payment of profits tax only in case of profit distribution, which allows foreign companies to use Estonian companies for reinvestment. If a company does not pay dividends and invests the profit earned in business development, it is exempt from profit tax in Estonia. Profits tax is only due once – in case of profit distribution. Dividends paid out at the level of commercial partnership (OÜ) are taxable at the rate of 25% of the amount of payment. These revenues are further taxable neither at the company level nor at the level of individual shareholders. If a company does not pay dividends and invests the profit earned in business development, deposits, securities, equipment and real estate, it is exempt from profit tax in Estonia. Thus, the Estonian taxation system enables international companies to invest their profit in business development without tax losses. Estonian companies are not subject to mandatory taxes and neither do they have to hire employees. Also, a member of the Board can perform works for rewards rather than salaries.
If the principal activity of the Estonian company will take place in another country, the company has to be a tax resident of the country where the principal activity takes place. In the case of residency of an Estonian company in another country the taxation will be subject to the law of that respective country.