Update: Due to popular demand, I last updated this post in June 2020. I originally wrote it in 2017, just after setting up my business in Estonia.

In the summer of 2017, I set up my business in Estonia through the E-Residency program and decided to share my motivations and the process I went through.

Please note that this is no legal or tax advice — just my personal experience so far.

My background & motivation to establish my company in Estonia

I’m a freelance software developer and, at the time of my incorporation in Estonia, also ran a productized service business (WordPress support) with a team of four.

All my work is online and I usually don’t meet my clients (or team members) in person. I bill by the hour or package. Most of my clients in the past few years are businesses from Germany, Switzerland, and the US.

Sole trader vs. limited company

Before establishing my business in Estonia, I was a sole trader in Germany (“Einzelunternehmer”). This is the simplest form of business entity in Germany, and it was indeed a good and easy way to start, with no required investment and minimal initial paperwork. As a sole trader, my business profit was basically my gross income, so all my profit was subject to personal income tax (simplified — there are some other factors). My team members were simply contractors who invoiced me, meaning I have never officially employed anyone. As a sole trader, I was also personally liable for anything related to my business — e.g. if someone had sued me, my personal assets would have been at risk. And setting up a “real” limited company in Germany not only requires 25,000€ in capital, but also costs about 1000€ in legal and registration fees.

Complex taxes

With growing revenue and complexity however, declaring my taxes and profits soon became gruesome. I reached a point where I did not fully understood it anymore and finally hired an accountant — who charged me about 1000€ in fees for one year’s reports alone (profit and loss statement, personal income tax, VAT), month-to-month accounting and reporting not included. With my business in Germany, I did all my accounting myself, using a SaaS for about 20€/month and taking about 3 hours of worth per month for invoicing, filing expenses, monthly VAT declarations, and other activities. Throughout the month I am often unsure whether I filed all my expenses correctly and most of all dreaded the monthly VAT declarations (they can be quite complicated). Accounting ended up being something I dreaded and never felt quite sure about — think semi-personal expenses, complex VAT situations with clients or suppliers for example. And at the same time, I realized, it doesn’t drive my business forward but only takes up a lot of time and headspace. It was time for a change (admittedly, that change could have simply been to hire an accountant for all of my paperwork).

Actual paperwork

Some parts of declaring taxes and doing business in Germany still require actual physical correspondence. Which also means that I was tied to a physical address, my address of registration (“Meldeadresse”). Since I was traveling so much and spending less than 3 months on average in Germany, it became increasingly difficult to make sure I received all important mail from the authorities and kept my address updated when I moved.

When I moved my registration and thus my sole trader activity from one state to another, I had to un-register and re-register my business from scratch — a bit of a nightmare in terms of accounting and admin work.

Location independence and moving abroad

At this point I had also been a digital nomad for about two years and was barely spending any time in Germany. I was about to give up my apartment in Berlin and move to Australia for good (a whole other story and btw not an ideal combination with Estonian e-residency).

I decided to cut ties with Germany completely — not just for my business but also personally, and de-register completely. I realized that I felt quite vulnerable there legally and that my location-independent lifestyle and business still didn’t quite fit the system.

The decision to properly leave also opened up a lot of other opportunities, such as international health insurance (much better and waaay more affordable), choosing a better setup for my personal tax residency (hello Portugal!), and generally simplifying my life. And yes, there are also downsides, but that discussion is beyond the scope of this post.

To summarize, my desire to optimize my setup was drive by these factors:

  • personal liability as a sole trader vs. owning a limited company
  • business profit fully taxable as personal income — little financial incentive to reinvest into the business
  • complex paperwork and expensive or very limited accounting service
  • actual paperwork; not all business and tax administration can be done electronically in Germany
  • desire to leave Germany and re-structure my personal tax setup

Enter: the Estonian E-Residency

As you might have heard by now, the small Baltic country of Estonia launched its innovative e-residency program in 2014. The name is quite misleading though— it’s not an actual residency, a citizenship or even a visa. It’s basically just a registration and form of identification that allows you to use some of the Estonian government services, such as opening and administering a company. The e-residency alone does not allow you to visit or live in Estonia.

There is however, a pathway to temporary and later permanent residency (read: Schengen visa) through the e-residency, provided you make a certain amount of revenue for several consecutive years. Since I’m a EU citizen, I have no need for that and haven’t done any further research on it.

Advantages of Estonia

Compared to traditional offshore locations, Estonia has some crucial advantages, especially when you do business with EU clients:

  • Being in the EU, Estonia has very similar economic laws to the rest of Europe, which presumably gains you trust with European customers and, if you’re from the EU yourself, means that you basically know how things work (culture, law, economy). Not in detail maybe, but you get the gist of it.
  • It looks much more trustworthy than the Cayman Islands or similar locations with a somewhat shady image.
  • The setup of a company with the e-residency is extremely cheap and fast (see below). Furthermore, you can get accounting and tax services for well below 100€/month. Agencies in typical offshore paradises such as Malta, Cyprus or Hong Kong typically charge several thousands for the setup of your company, and you’re basically tied to them for the continuous administration.
  • Most things can be registered and administered in English.
  • Once set up, everything is entirely online and paperless. No in-person meetings or mail required. Welcome to the 21st century (finally).
  • You get an EU VAT ID, which is necessary for some services.
  • EU privacy laws apply — which still seems to mean something to some (mostly German) customers.

I expect other countries to follow suit with similar programs soon, and I welcome the entrepreneurial approach that Estonia is taking to winning over small businesses from all over the world.

Getting the Estonian E-residency

People of every citizenship are eligible for the e-residency. The application process is a simple online form and costs 100€. I had to provide some basic information about myself, a recent biometric photo, a copy of my national ID card (or passport) and the purpose of my application (i.e. why I wanted to establish my business in Estonia).

Picking up the e-residency card has to be done in person, either in an Estonian embassy or consulate, or in Tallinn. The pickup location has to be chosen at the time of the application.

My application was approved via email a couple of days after submitting it. Another four weeks later, I was invited to pick up my e-residency card at the Estonian embassy in Berlin, where my fingerprints were scanned and I received my little blue e-residency box.

My e-residency card and the box with the card reader, PINs, and instructions.

The box contains your personal e-residency ID card, your PINs, and a USB card reader. That’s all you need to use the services of e-Estonia and sign documents online. Installing the necessary software is free and easy and you’ll get used to using the card and PINs very quickly.

Pro tip for USB-C-MacBook Pro users: Depending on the type of USB-A dongle you use, the card reader won’t work without and additional USB extension cable.

Starting a company in Estonia as an e-resident

The next step was registering my company in Estonia. You can do this directly with the Estonian online government services, but I chose to sign up with an agency and have them take care of it for me.

Thanks to many recommendations from friends and other digital nomads, I chose Xolo* (formerly LeapIn). They specialize in digital-nomad-like single founder online businesses and help you set up your company and do all the accounting, invoicing and tax declarations. Depending on the type of your business, they charge about 60–100€ per month for all the gruesome (digital) paperwork. And they’re always there to answer your questions. I’m so happy to know these things in good hands now.

There are several other companies with similar services and different specializations, so I invite you to do your own research before choosing. Assuming you’re not familiar with Estonian business administration or the language (just in case), I strongly suggest you use such a company instead of doing it all by yourself.

I signed up with Xolo* just after my e-residency got approved and they made the process of registering my company very easy and smooth. I ended up registering a private limited company (OÜ) with a (somewhat voluntary) share capital of 2500€ (that’s the minimum, the “limited” aspect of your company only takes effect after paying it, but you can do business before that). The registration cost another 190€ and was completed within 3 days (comparison: registering a limited company in Germany costs a minimum of about 800€ in notary fees and takes months, just witnessed that).

Different from my German solo business, which only carries my own legal name, I had to choose a name for my OÜ. Xolo* provides a name checker to help choose a name that does not conflict with any registered trademarks in Estonia or the EU.

Opening a bank account in Estonia

Of course, no business without getting paid. Opening a business bank account with a physical Estonian bank still has to be done in person (that is about to change though). There are three major banks for business accounts in Estonia: LHV, SEB and Swedbank.

I chose LHV because they are cheap (2€/month for the debit card, 10€/month non-resident fee, no other account fees), and they have an API integration with Xolo, so Xolo can automatically balance my books and declare my salary taxes.

The fin-tech startup Holvi is another alternative for those who don’t want to travel to Estonia to open their bank account, but the fees start at 30€/month. Update: Holvi will stop onboarding new e-resident clients by the end of 2019.

To get started really quick with a temporary solution, check out the TransferWise Borderless* account.

By the way, as of 2019, any bank in the EEA can be used with an Estonian company, so you are not limited to Estonian banks anymore.

In order to open my business bank account, Xolo* provided me with the pre-filled forms which I signed digitally and they also made the appointment for me. I traveled to Tallinn for the appointment with the bank, signed the paperwork and picked up my MasterCard debit card. I could have done it in one day, including flying back and forth from Berlin.

I later activated my bank account online — the online banking is in English and you login and authenticate your transactions with your e-residency card and PINs (or Smart-ID, see below). The bank will also advise you on how to pay your share capital into your account.

Thinking of combining all the in-person work in one trip to Estonia? Unfortunately, I don’t think it’s possible to pick up the e-residency card AND open the bank account in one short trip to Tallinn. As soon as you have the e-residency card, you need to first register the company (which takes 1–2 days). Only after that you will be able to open the bank account.
Ideally, you would pick up your e-residency card in your country of residence and then take a brief trip to Tallinn to finalize opening your business bank account.

Taxes, dear taxes

Estonia is no tax haven. But there are some good opportunities for personal tax optimization. Also, the sheer simplicity alone is very appealing to me.

First of all: The profits of the company are not taxed. So no need to waste time artificially reducing your profits at the end of the year just to save on taxes. Focus on what grows your business instead and look for ways to reinvest your profits purposefully.

Only money that you as the owner take out of your company is taxed, in one of two ways:

– monthly salary payments
– dividends

You don’t have to pay any of these — you’re free to leave all the profits in the company to reinvest or save.

Salary payments

As a solo founder, by recommendation of Xolo*, salary payments are split into 30% board member salary and 70% employee salary. This is due to the assumption that, as the sole founder, you provide administrative/managing as well as expert services to the company.

The board member salary is taxed at 20% + 33% social tax. The social tax is void if you can prove that you pay social contributions in another EU country. The employee salary is not taxed. So, altogether this leaves me at a flat tax rate of just under 20%. This is a tax that the company pays — so for every 100€ that I pay myself as a salary, the company also pays 20€ in taxes to the Estonian state.

The split percentage is a guidance and apparently there is no law stating it is required to be split in any particular way. The lower the percentage of the board member salary, the lower the effective tax rate.

Update: As of 2019, it is officially okay to pay 100% employee salary if you are a freelance-like business, i.e. basically sell your time with very little other business activity, live outside of Estonia, and have a personal tax residency outside of Estonia. In this case, you would pay no taxes at all in Estonia.


Dividends are taxed at 20%, so for every 100€ paid in dividends, 80€ go to the share holder (you) and 20€ to the state.

Dividends are limited to the amount of the previous year’s profits and their maximum amount has to be chosen at the time of filing the previous yearly report. I.e. if your company made 100.000€ in profit in 2018, you can choose to reserve 50.000€ of that for dividends in 2019. In 2019, you can then pay out up to 50.000€ in dividends.

Personal income tax

Your personal income is still taxable as foreign income in your country of tax residence. It is usually declared as international or “world” income and treated similarly to “regular” employment income. Some countries however tax the profit of any company you own worldwide, so make sure to check the details of your particular situation.

Everyday banking & admin

My everyday administration and paperwork has been drastically reduced by my decision to setup my business in Estonia.

  • Banking: paying invoices and my own salary is very easy and convenient with the LHV online banking and mobile app. I now use Smart ID to login and authorize transactions, so I barely even use my ID card anymore. The MasterCard debit card I have from LHV also works like a charm for all kinds of transactions.
  • Smart ID: Smart ID is basically a TAN/login technology. You set it up once as an app on your smartphone and choose two PINs. Then you can use it to log in to your bank account, Xolo, and other supported services.
  • Filing expenses: Throughout the month, I collect invoices from contractors and other purchases on my computer. Then on the first of the month, I upload them to Xolo, which takes about a minute. There’s no need to organize or rename the invoice files.
  • Invoicing: Also usually once a month, I create all my invoices in the Xolo web app. For recurring clients, I simply duplicated previous invoices, adapt the amounts, save, and send. All of this takes only a few minutes each month.
  • Yearly reports: For the yearly reports (which are due in May), Xolo has done almost all of the work for me so far. I’ve only been asked to write a brief written report of the company’s activity and to decide the amount of dividends I’d like to pay out in the following year. When the yearly report is done, I digitally sign it based on Xolo’s instruction. Time required: maybe 20 minutes total.


I am happy and relieved to know my business in Estonia and all the administration in good hands with Xolo. I’d love to hear about your experiences and how you navigated the challenge of setting up your personal tax residency with this setup.