Financing a start-up company
As an effective means of financing their new business, start-up enterprises have the opportunity to receive a start-up grant and development grant from Enterprise Estonia, European Union structural assistance, or a start-up loan secured by KredEx.
Grants from Enterprise Estonia
The start-up grant awarded by Enterprise Estonia is aimed at start-up companies and oriented more to sustainable-growth companies than gazelles. The start-up grant can be applied for in an amount of up to 7000 euros and Enterprise Estonia accepts applications continuously. The grant can amount to a maximum of 80% of the project cost. The Enterprise Estonia development grant is aimed at rapid-growth enterprises that generate high value added and have export potential. Development grants are available for companies who have already proved their competitiveness and need support for accelerating their growth.
The start-up grant can be applied for in an amount of up to 32 000 euros and Enterprise Estonia accepts applications continuously. The grant can amount to a maximum of 65% of the project cost. Eligible applicants include both sole proprietors and enterprises, although the latter are subject to certain restrictions (a second legal person may own up to a 25% share in the enterprise and the time since company registration is an important criterion).
European Union structural assistance
If you are seeking financing for your business plan, it would be wise to look into the aid measures offered by structural funds and local governments. For instance, start-up assistance for investments into non-current assets, aid for training personnel and a wide array of measures whose conditions should be reviewed and, if suitable, applied for.
The following areas are supported from structural funds: education, labour market, research and development, private enterprise, information society, administrative capacity, environmental conservation, energy sector, transport, regional and local development, health care and social welfare.
County development centres will help you find support for your projects, and the basic consultation service is free of charge. The development centres offer you information from the development centre on structural fund measures and, if necessary, about other potential sources of support as well as private sector consultants and the services they offer.
Start-up loan
Start-up enterprises and small and medium-size enterprises that have been operating for up to three years can apply for a start-up loan for going into business, which will be secured to up to a 75% extent by KredEx. Compared to ordinary loans, the advantage of start-up loans is the fact that you, as an entrepreneur, do not have to take as high a risk with your personal assets. Above all, the start-up loan will be of assistance to companies that are only starting their activity and find it difficult to receive a bank loan due to a relative lack of credit history. The loan must be taken through a bank; the interest rate set by the bank is an estimated 7.5-12%. To obtain a start-up loan, applicants can contact a bank, Enterprise Estonia or KredEx.
Fringe benefit tax
Goods, services or monetarily appraisable gifts that you furnish as an employer to your employee (or the employee’s spouse, parent or child) are classified as fringe benefits. In effect, a fringe benefit is additional income granted to an employee, on which you must pay income and social tax.
Taxable fringe benefits fall into four groups
1. Occupational health
You may incur the obligation of paying tax for fringe benefits when you buy first aid supplies and medicines, provide vaccinations for employees, buy for them eyeglasses or work clothes, or improve non-work facilities at work, as well as in a number of other cases.
2. Company vehicles
The obligation to pay fringe benefits is incurred when you provide an employee with use of a company vehicle free of charge or at a discounted rate. Fringe benefit taxes are also to be paid if you compensate an employee for the expenses of using a personal car in an extent greater than the applicable limits.
If you let an employee use a company car only for business purposes and keep a travel log, you do not have to pay fringe benefit tax. If a user is allowed to use the car for personal use, you will have to pay a fringe benefit tax based on the amount of personal use, but not over 256 euros a month.
If an employee uses a personal car for business travel, up to 64 euros of monthly compensation is tax-free. In the case of greater benefit, fringe benefit tax is to be paid based on the amount of compensation, but not more than 256 euros a month.
3. Business trips
If you pay an employee compensation for a business trip in Estonia or abroad, this is also a fringe benefit. Compensation of expenses related to business trips and payment of daily allowances over the tax-free minimum shall be subject to income tax. The tax-free amount of daily allowance for a business trip is 32 euros. No compensation is paid for business trips within Estonia.
4. Other fringe benefits
In addition to the above, you will have to pay additional taxes for fringe benefits if you cover employees’ housing and transport costs, give them a loan on very favourable terms, grant securities free of charge or at a rate much lower than the market price, or pay costs of tuition or training.
Price and payment of fringe benefits
The basis for calculation of the price of fringe benefits is mainly the market price of the goods or services granted as fringe benefits. You will have to pay income and social tax for granting fringe benefits. It is not possible to apply for a VAT refund on purchases of goods or services granted as fringe benefits.
The taxation period for fringe benefits is a calendar month, and you are required to submit the tax return for the previous month and pay the tax to the Tax and Customs Board by the 10th day of the month subsequent to the taxation period.
Local taxes
In addition to state taxes, each local government has the right to establish local taxes. The local government decides the tax rate and mainly deals with tax collection as well.
Local governments may establish the following taxes:
• sales tax
• boat tax
• advertising tax
• road and street closure tax
• motor vehicle tax
• animal tax
• entertainment tax
• parking fee.
As of 1 January 2011, a private limited company may be established without making a contribution of share capital, if the company’s future area of activity does not require capital to be placed. The share capital of such a company is comprised of claims against the shareholders, whose liability for the contributions not actually made by them is equal to the amount they pledge to contribute. The articles of association must stipulate the period for which you wish to contribute the share capital.
How to register a new private limited company?
You can register a private limited company electronically via the e-Commercial Register’s Company Registration Portal.
To register electronically, you need the technical capability for digital signatures (ID card and ID card reader).
If your company meets at least the following requirements upon registration, you can save time by registering the private limited company electronically:
• the contribution of share capital is monetary and you pay the share capital as well as the state fee electronically via the e-Commercial Register’s Company Registration Portal;
• all of the persons involved in establishing the company have a registered place of residence in Estonia;
• all of the founders, members of the management board and other persons related to the entry have an ID card and can provide digital signatures.
Establishing a private limited company through a notary
To streamline the process of establishing a private limited company through a notary, you will have to submit the following information:
• memorandum of association, if the company is registered at the notary or, if the company is registered under electronic expedited procedure, a template articles of association, the form for which is provided;
• articles of association (except for in the case of electronic registration under expedited procedure);
• application;
• information on communications devices;
• bank certificate regarding deposit of share capital;
• certificate regarding payment of state fee (except in the case of electronic registration).
Notary offices will also have the samples of documents necessary for establishing a private limited company.
What must be done after founding a private limited company?
• If you will be operating in an area of activity subject to special requirements, you will have to apply for an activity licence.
• If your annual turnover exceeds 16 000 euros, you will have to register as a VAT payer with the Tax and Customs Board.
• If you hire employees, you will have to register them with the Health Insurance Fund.
• If you hire employees, you will have to notify the Labour Inspectorate that the private limited company has started operating.