Date of publication: 10 January 2017
Vitali Galitskihh, Head of Tallinn Office
The perspective for the Ukrainian business to step its feet to the European markets is often stems from successful activities at the local level. At the same time while preparing for expansion to Europe Ukrainian entrepreneurs have to improve their business models in order to comply with European standards, find new ways of development and additional sources of funding. The Head of Tallinn office of Ilyashev & Partners Law Firm, Vitali Galitskihh, shares his opinion with Forbes why Estonia may be considered to be one of the most convenient locations to start business in the EU.
In our opinion Estonia offers optimal solutions for doing business in the EU. Firstly, among its advantages traditionally is its geographic location with easy access to the Northern Europe, other Baltic states and the Russian Federation. Estonia is a member of the EU, NATO and is a part of Shengen zone.
Starting from January 01, 2011 Estonia entered the euro-zone and became its 17-th member state. Sweden, Finland and Germany are among the biggest trading partners of Estonia. Estonia offers access to the whole European market holding important positions in telecommunications, textile, chemical industry, banking sphere, manufacturing of food products, wood processing, electronics, logistics etc. Estonia is also an important transport junction of transit of oil products from the Russian Federation to the Western Europe.
Secondly, Ukraine and Estonia have similar culture and shared “Soviet” period in the past but with individually formed European traditions.
Thirdly, due to provision of innovative electronic and mobile services, as well as having a progressive and well-developed banking sphere, doing business in Estonia, in comparison with other EU countries, is very cheap and, if we compare it with Ukraine, – is very simple and transparent. The level of bureaucracy and corruption is very low here. Estonia was ranked 14-th in the WJP Rule of Law Index 2016 rating, while Ukraine occupies only 78-th place.
It should be also mentioned that any Estonian firm may be managed from any place in the world and any person, regardless of his citizenship and place of residence, has the right to register a company in Estonia.
Estonian legislation does not have such term as “corporate income tax”. The level of electronic services provided in the country, quality of mobile communications and efficiency of internet applications are among the most advanced in the world.
Starting from 2000 the tax declarations are submitted in electronic form via the web portal of the Tax Department. At present moment 95% of all declarations are submitted online. Individual persons are offered to submit a preliminary completed declaration prepared by the system on the basis of information provided by the companies. It takes as little as a click of a button and less than five minutes to get your company registered.
In addition, Estonia signed a Double Taxation Treaty with 91 jurisdiction, including Ukraine.
The system of financial reporting in Estonia is easy and understandable; its accounting system has been brought into close proximity with international standards. Annual balance of Estonian companies may be not only of positive, but also of a zero value. Declarations are submitted by companies on a monthly basis: it is related to declarations on VAT and social contributions. The rate of income tax constitutes 0%, the rate of VAT – 20% (0% for domestic agreements and is case of exports).
Registration of a company
An Estonian company may be established by one or more founders who, in its turn, may be represented by individual persons or legal entities, residents or non-residents of Estonia. There are no obstacles or limitations for Ukrainian citizens.
The company may be registered by the founder in person, as well as by his representative acting by virtue of a power of attorney. Online registration may be performed by holders of Estonian, Portugal, Finland and Belgian ID cards and takes no more than one hour. In case of absence of the mentioned ID card the constituent documents must be certified by a notary public who submits them to the Commercial register.
According to the current laws Estonia has six forms of incorporation of companies which are established through introduction of corresponding information into the Commercial register:
• general partnership;
• limited partnership;
• private limited company;
• public limited company;
• commercial association;
• branch of foreign company.
The most widespread form of company incorporation is private limited company. The quantity of founders – starting from one participant, the minimum charter capital – EUR 2 500.00. The management board (actual body which carries out management of the company) may be composed of one person. There is no need in supervisory board. After becoming a member of the management board the entrepreneur receives the right to get a permanent residence permit.
Compared with the developed EU countries the manpower in Estonia is comparably cheap and its professional qualification is quite high. According to the results of international education research, PISA 2015, Estonian 15-year-old pupils achieved the highest results in Europe and are among the most educated school children in the world.
Right from the beginning foreign entrepreneurs were lured by a comparably low cost of production, but the salary rates grew in Estonia fairly quickly. Still, as before, the cost of labor is budget friendly considering for the quality and productiveness of labor.
Taking the aforementioned into consideration we may come to a conclusion that Estonian jurisdiction is quite convenient as a launching platform for Ukrainian business to enter the European market; all the more, Ukrainian business is ripe and ready to play according to the EU rules.