High-tech industry plays an extremely important role in the European economy, and in recent decades, it has only been increasing its influence. Europe is widely known for its achievements in the field of science and technology. It continues to make a significant contribution to the development of the innovation and information technology industry at the global level. Such industries as web design, software and application development, Web 3.0 technologies, cloud services, cybersecurity, artificial intelligence, data analysis and computer games have become thoroughly entrenched in the economic structure of Europe.
This article is primarily aimed at those IT entrepreneurs who consider the European Union as a place to establish their own IT company. Within this review we will consider the main advantages of Europe in general and the European Union in particular for the IT company creation and the development of projects related to innovation and information technology. We will see into the main advantages of Estonia, as an EU member state, for the registration of IT enterprises and startups, since Estonia offers the most favorable conditions for the development of a start-up IT business, including a zero corporate income tax rate.
IT INDUSTRY DEVELOPMENT IN EUROPE
Information technology and innovation industry in the EU
IT technology industry is one of the main driving forces of the European Union’s economy — many well-known IT companies such as SAP, Nokia, Ericsson, and Spotify are based in Europe. Additionally, the region actively attracts startups and technological investments. It is also worth noting that the European Union has a large number of highly qualified and proactive specialists in the field of information technology who can move freely within the EU, due to the single labor market.
Prospects for IT sector development in the European Union
The European Union has been actively investing in innovative technologies and IT infrastructure over the past decades. This contributes to the growth and competitiveness of the IT industry in the region. Since the IT sector was supported by EU member states and structures, the result was a noticeable increase in the number of successful IT startups, research projects and private investments in the field of information technology. At the same time, the most important catalyst for the IT industry development is digital transformation. It is becoming a key goal for many companies in the region, affecting all economy sectors and contributing to the creation of new opportunities for IT companies and IT specialists.
Also, Europe offers high-quality IT infrastructure, including broadband Internet, data centers and technology parks. Moreover, there are many potential sources of funds available in Europe for IT projects and startups — from government grants and projects, to collective investments and venture capital. All these factors create prospects for the sustainable development and IT industry expansion in the region and also provide a favorable base for innovation and entrepreneurship in the field of information technology.
Common EU legislative framework for the IT industry
European countries guarantee political and economic stability, because it is important for long-term business planning and investment attraction. Besides, the European Union offers transparent and harmonized legal regulation for EU internal market participants, including a common regulatory framework for the protection of intellectual property and personal data. It is an extremely important factor for IT companies in particular and the information technology industry in general.
The single market of the European Union
Europe and the European Union specifically represent a huge market of potential customers with more than 740 million consumers. Many of them actively use IT products and digital technologies in their daily lives. Also, European countries have a large number of highly qualified specialists in the field of IT and related industries. It is the result of longstanding investments in education and research.
All of the above factors – active government support, investments in education and innovation, as well as an emphasis on digital transformation – strengthen the position of the European Union as one of the leading players in the field of information technology on the world stage. This creates a favorable environment for the dynamic and sustainable development of the IT sector in the region, opening up new opportunities for entrepreneurs, investors and specialists in this field.
IT COMPANY CREATION IN EUROPE
Registration of IT business in Europe and entry into the EU single market
Registering a company in Europe for an IT project can be an effective solution that will open up new opportunities and horizons for development and growth for an IT startup. Opening a legal entity in the EU provides an IT project with access to a huge single market where unified rules and standards are applied. Additionally, the European business climate is characterized by stability, transparent legislation and rights protection for entrepreneurs. Thus, choosing Europe to register an IT company can be the beginning of a successful path to international recognition and achieving significant commercial success.
Many European countries, including Estonia, Ireland and the Netherlands, offer favorable conditions for IT companies, including significant tax incentives and support programs for IT businesses and technology startups. Moreover, the designated countries guarantee IT startups the proper level of ease of doing business, access to highly qualified IT specialists, a stable political and economic environment, as well as the opportunity to enter the EU single market with their IT product. All of those things allow start-up companies and startups to successfully overcome initial obstacles and accelerate their growth and development.
Within the framework of this article, we propose to pay attention to Estonia as one of the most attractive jurisdictions for creating an IT company. They offer many advantages for IT companies and startups, making this region a world leader in technology and innovation.
IT SECTOR IN ESTONIA
Is it worth creating your own IT company in Estonia?
Information technology plays an important role in the economic and social development of Estonia. In recent years, Estonia has actively invested in the development of the digital economy and has become one of the world leaders in the field of e-government. Digital technologies in Estonia are integrated into almost all spheres of life, from education and healthcare to public administration and entrepreneurship.
The introduction of digital technologies, wide access to the Internet, high quality of IT education and active government support make Estonia attractive to entrepreneurs, investors and talented information technology specialists from all over the world. The fact that the IT sector development has been actively supported at the state level for many years has eventually led to the emergence of a large number of high-tech companies and startups — Estonia has become a place where such successful projects as Skype, Wise and Bolt have appeared, which helps us to draw conclusions about the productivity of the IT sector development in Estonia.
Further in this article we will look at the main advantages: why it is most profitable to choose Estonia to register a European company and create an IT business in Europe.
COMPANY REGISTRATION IN ESTONIA
Opening a company in Estonia is quick and easy
Estonia is a friendly country towards foreign entrepreneurs and investors. Thus, the process of registering a company in Estonia is simple and transparent. The corporate legislation of the Republic of Estonia is favorable for the registration of enterprises by foreign citizens. It is built in such a way that almost anyone can create a company in Estonia.
The most popular form for establishing a commercial enterprise in Estonia is a Limited Liability Partnership ( “OY” or “osaühing” in Estonian, “LLC” or “Limited Liability Company” in English). The main advantage of the LLC is the fact that the responsibility of the participants for the company’s activities is limited to the amount of 2500 euros. Also, only 1 founder is required to create a company of this type. The participants and directors of the company can be 100% foreign citizens, and the minimum amount of the authorized capital is only 0.01 euros (1 euro cent).
How to register a company in Estonia?
You can register a company in Estonia in the following ways: (a) in person: founder’s personal visit to Estonia is required, (b) by proxy: the founder issues a power of attorney in favor of the service provider and the company is registered remotely, or (c) via the Internet: the company is created online using e-Residency.
Thus, the focus of Estonian commercial legislation on foreign investors is attractive for many foreign entrepreneurs. They can easily create and develop their own companies and IT projects in Estonia with minimal initial investments and without bureaucracy. Due to these advantages, Estonia is one of the most attractive and popular jurisdictions today for registering IT companies and startups.
Our specialists have many years of experience in the registration of companies in Estonia, as well as accounting and legal support of IT business. We will be happy to help you understand all the details and nuances related to the procedure for setting up an enterprise in Estonia and help your project enter the European market in the shortest possible time.
ATTRACTIVE TAX SYSTEM IN ESTONIA
Tax benefits for entrepreneurs in the Republic of Estonia
The Estonian tax system is indeed considered one of the most attractive in the European Union, especially for entrepreneurs, businesses and investors. This has become possible thanks to flexible and transparent taxation mechanisms that contribute to the development and growth of companies. Estonia’s effective tax policy allows businesses to maximize their investments and improve their financial results.The main advantages of the Estonian tax system include the following:
No tax on undistributed profits
This means that there is no corporate income tax in Estonia and all funds accumulated by the company as profit will not be taxed until the dividends are distributed among the company’s participants. It follows that companies registered in Estonia gain a competitive advantage, because they have the opportunity to use the profits for their own development or invest their own funds in investment instruments or third-party projects without paying income tax.
Payments to freelancers are not taxed
If a company hires an employee or enters into an agreement with a freelancer who is not a tax resident of Estonia and will perform his/her work duties remotely from abroad, then the payment of wages or remuneration to such an employee is not taxed in Estonia. Thus, Estonian IT companies, having the opportunity to assemble effective international teams of IT specialists for the development and growth of their IT products, gain a significant advantage over competitors from other countries, while saving large sums of money on labor taxes.
All these factors make the Estonian tax system particularly attractive for foreign investors and entrepreneurs operating in the field of information technology. Thus, thanks to an effective tax policy, Estonia was able to attract many foreign companies, including large technology companies, becoming a center of innovation in its region.
E-Residency program as the main profit for IT entrepreneurs
In 2014, the state e-Residency program was launched in Estonia. Its’ purpose is to attract foreign entrepreneurs and investors to the local market. e-Residency offers all interested persons the opportunity to obtain the status of an electronic resident of Estonia, which, in turn, allows foreign citizens to create companies in Estonia online and remotely manage their business, regardless of their place of residence or location. The e-Residency program has proved to be very successful and top requested – more than 100 thousand people have become e-Residents of Estonia and they have created more than 25 thousand companies.
What is e-Residency?
e-Residency is a digital identity card that is designed to identify an individual in an online environment. e-Residency is a smart card with an electronic chip and is provided with PIN codes only to its owner. The electronic signature of an e-Resident of Estonia complies with all the rules and requirements specified in the e IDAS Directive (910/2014).
What advantages does e-Residency provide for IT entrepreneurs?
e-Residency attracts entrepreneurs from all over the world to Estonia. It facilitates their entry to the single market of the European Union, simplifies the business process and reduces bureaucratic obstacles. e-Resident card is especially useful for IT entrepreneurs. For them the possibility of creating a company and doing business online with direct access to the European market in the person of an Estonian company may be especially relevant.
How to get an e-Residency?
You can get e-Residency within 1-2 months by submitting an application through a special form on the website of the Estonian Police and Border Guard Department and paying a fee of 100 euros (you can pay with a credit card). You can get e-Residency in person in the following locations around the world.
Thus, the e-Resident card makes it possible to manage an Estonian company online from anywhere, sign documents with an electronic signature, file tax returns and reports, as well as gain access to electronic services of the Estonian state and much more. It is important to note that the presence of e-Residency does not grant the right to reside or enter Estonia or the European Union
WORK VISA AND RESIDENCE PERMIT IN ESTONIA FOR IT SPECIALISTS
Opportunities to attract foreign IT specialists to your project
Estonia has long been known for its support of the information technology and innovation industry, and therefore a favorable environment has been created to attract IT specialists from outside the European Union. Since the field of IT and innovation plays an important role in the development of the Estonian economy and there is a constant shortage of labor in this industry – the legal framework of the Republic of Estonia assumes a simplified procedure for obtaining a work visa or residence permit for qualified IT specialists among foreigners. It significantly reduces the waiting period and frees from unnecessary bureaucratic obstacles.
How can an IT specialist get a work visa or residence permit in Estonia?
An Estonian IT company has the opportunity to hire an IT specialist who is not a citizen of an EU member state on preferential terms in the following ways:
Work visa (D-visa)
A foreign IT specialist for temporary employment in an Estonian IT company on the basis of a work visa. An employee who has arrived in Estonia from outside the EU receives the right to work and stay in the country on the basis of a D-visa for up to 365 days for 455 consecutive days. Reduced requirements are applied to the salary of a foreign IT specialist (the Act on Foreigners § 107 cl.1) — the monthly salary must not be lower than the average gross salary for the country, which was published by the Estonian Statistics Department (1,685 euros in 2023).
Specialists in the field of information technology (programmers, developers, designers, etc.) have the right to apply for a temporary residence permit in Estonia outside the annual immigration quota, established by law (the Act on Foreigners § 115 cl.14). It is one of the most important advantages compared to representatives of other professions. Also, the legal norms (the Act on Foreigners § 178 cl.1 and cl. 1⁴) establish simplified wage requirements for a residence permit applicant from among IT specialists whose monthly income should not be less than the average monthly salary in the country (in 2023 it is 1,685 euros gross). Also, the specialist’s spouse and their minor children receive the right to obtain a residence permit. A temporary residence permit is issued for up to 5 years and can be extended on the same grounds.
It follows that the Estonian immigration legislation provides for a number of advantages for IT companies to attract qualified foreign labor, compared with enterprises from other industries. This circumstance significantly increases the competitiveness of Estonian IT projects in the international market. It also helps to relocate valuable IT specialists or even entire teams of IT startups successfully to the territory of the European Union.
The experts of our company have many years of experience in the field of immigration law. We can offer you comprehensive legal advice and also we can help in obtaining the necessary documentation for the employment of foreign employees or obtaining a residence permit or work visa
Is Estonia the best choice for setting up an IT company in the EU?
In this article, we examined the main prospects for the IT industry development in the European Union and determined that Estonia is currently the most effective jurisdiction for registering a European IT company.
Thus, Estonia offers exceptionally favorable conditions for the development of IT companies, including a simple and transparent business registration procedure, friendly corporate legislation and tax incentives. Considering the fact that the country is a member of the European Union — companies registered here, by default, get access to the entire European market and EU regulatory guarantees. In addition, Estonia has made a huge step forward in the digitalization of public life. It means that the possibility of registering and managing companies online using e-Residency has been created.
All these factors make Estonia an attractive jurisdiction for international IT startups and technology companies seeking to introduce and develop their innovations on a global level. That is why Estonia is considered today one of the most promising and attractive countries for registering IT companies in Europe.
Are you an IT developer? Do you create unique products in the field of information technology? Do you need an effective solution to enter the European market? If you are interested in the possibility of registering a company in Estonia, please, contact our lawyers and consultants! We will analyze the business model of your IT startup hand in hand, and propose the most suitable solution for bringing your innovative project to the single market of the European Union.