A sole proprietorship setup and freelancer taxes in Estonia

Register as a sole proprietorship to freelance in Estonia

A sole proprietorship, also known as FIE in Estonian, is a form of small business ownership in which the individual operating the business cannot be distinguished from the business itself. In other words, you are the business and personally responsible for whatever obligations it incurs. However, the simplicity of establishing a FIE and the absence of startup capital make it an attractive strategy for individuals seeking to launch a small business.

Both Estonians and foreigners can become sole proprietors, however non-Estonians must obtain a residence visa beforehand. Before starting a sole proprietorship, you will be needed to physically relocate to Estonia if this permit is obtained remotely. In addition, you will require a business bank account.

Using the e-Business Register, you must then select a business name that includes both your given name and surname and has not been registered by anybody else. After settling on a name, you must register your company through the Company registration portal. Additionally, you can register your business with a notary. You will be required to identify the code that describes the type of activity your business will engage in and, if applicable, to apply for a license for your business type. In addition, you will be required to pay €13.

What type of taxes will I pay in Estonia as a sole proprietor?

The Estonian tax system is exceedingly simple and basic. You will be obliged to pay a 20% tax on your business income as part of your annual personal income tax filings as a sole proprietor. Additionally, you must remit any VAT collected to the Tax and Customs Board.

SOCIAL TAX FOR A SOLE PROPRIETOR (FIE)

A sole proprietor (FIE) is obliged to pay social tax on business income. The social tax rate for the FIE is 33% of business income.

Unlike companies, the tax period for the FIE is a calendar year since taxable income is determined once a year on the basis of an income tax return. The sole proprietor must pay social tax as advance payments four times a year by the 15th of each quarter. If the income is high enough for a year, the Tax and Customs Board will send a tax notice of the additional amount of social tax to be paid.

The Tax and Customs Board refunds the overpaid amount of social tax by October 1 of the year following the taxation period.

VAT

If your annual turnover exceeds 40,000 Euros or if you want to invoice international customers, you are obligated to register for VAT. You must first submit an application for registration as a VAT payer to the Estonian Tax and Customs Board within three working days as of the date on which the need for registration arises.

Alternatively, you can use Abillio - invoicing and tax compliance service for cross-border freelancing. In Abillio's case, you don't need to establish a legal entity, open bank account or apply for VAT - with Abillio's company-as-a-service solution you can start your freelancing business right away. Register your free account here >>

Note: This information is from official sources and should not be considered as a substitute for legal advice. Always check official websites or consult a lawyer or tax consultant before taking action.