Setting up Company in Estonia: 7 Advantages of Holding Companies

In the realm of global business, establishing a holding company in Estonia offers numerous advantages for entrepreneurs and investors. This blog will delve into why Estonia stands out as a prime location for such entities, emphasizing the unique opportunities and benefits available.

Understanding Holding Companies:

In the business landscape, structure is a fundamental component. This principle holds true whether you’re initiating a new venture or amalgamating existing ones. There will be scenarios that necessitate the formation of a robust business structure and strategic allocation of shares.

When considering setting up a company in Estonia, it’s essential to understand the structure and benefits of holding companies. A holding company is an entity that owns shares in other companies, known as its subsidiaries. According to the Estonian Commercial Code, a parent company is defined by having either majority voting rights or significant influence over another company.

Holding companies are pivotal for risk management. If you’re looking to shield your investment capital from potential risks associated with your operating company, setting up a holding company in Estonia is an ideal solution.

Holding companies can be classified by function as following:

1. Holding company with independent economic activity. The parent company is actively engaged in economic activities and its subsidiaries operate as agencies and branches in other countries.
2. Administrative holding company. The parent company determines the principles and procedures for making and managing decisions in all subsidiaries, including strategic and capital flow management.
3. Financial holding company. Such a parent company is mainly intended for asset management, it does not perform any control or management function. Holds and supplies capital to subsidiaries or new business lines and expansions.
4. Organizational holding company. The parent company regulates the internal organization and allocates activities and responsibilities across business areas.
5. Holding company as shareholder. The parent company acts as a shareholder and the economic activities are carried out in its subsidiaries.

Holding companies with all these functionalities can be established in Estonia. As an example, headquarters provide centralised functions (marketing, human resources, financial and corporate governance), however, holding companies have the aim of holding shares of subsidiaries.

7 Reasons Why Setting Up a Holding Company in Estonia is Beneficial:

1. Business friendly tax system
   The Estonian corporate tax system is unique in Europe as the profit for the financial year is not subject to income tax. This allows the taxation of profits to be deferred indefinitely and the profits to be reinvested tax-free. The income tax liability arises from the distribution of profits, which is usually the payment of a dividend. The tax burden on dividends is 22% as of 2025, and the tax amount is calculated on the net basis – on the amount of the dividends paid out.
2. Well-functioning e-services
   The business registry is an e-service. Establishing companies and making changes to the register is done online. Shareholders and board members can apply for e-Resident status and receive a smart card with a chip that allows access to all e-services, including the digital business register and documents. Further information on applying for e-residency can be found here: https://e-resident.gov.ee/eesti/
3. The holding company is 100% owned by its owner
   A shareholder of a holding company can be both a shareholder and a member of the management board. The business register is public and changes to the register can only be made by a shareholder or board member. All changes will be notified immediately.
   
   A shareholder may transfer his shares to another person in a public notary with a regular contract or on the basis of a simple written agreement if the shares are registered in the securities register.
4. The transfer of shares in a holding company is tax free
   If a shareholder of the holding company decides to transfer his shares it is considered tax free in Estonian income tax law. The tax issue may arise if the property of the holding company is real estate located in Estonia.
5. The holding company shall not pay income tax on the purchase or sale of the shares in the subsidiary When the holding company decides to sell its shares in a subsidiary located in Estonia or other countries, it will not be liable to tax on the profits arising from the sale of the shares. Income tax is only applied when the profit is paid out as a dividend, allowing the capital to be used tax-free for investments or to lend​
6. Existence of professional service providers
   Estonia continues to offer a number of professional service providers that assist e-residents with meeting the requirements of Estonian law, such as the contact address, the contact person, and organizing accounting, submitting the annual report, and the tax report. The list of service providers is available on the government page.
7. Professional tax advice
   The main objective of holding companies in Estonia remains to improve tax efficiency. Professional tax advice is crucial, especially with the tax system updates in 2025, to find better and more cost-effective solutions for managing capital, dividend flows, and reducing tax risks.

Setting up a company in Estonia, especially a holding company, continues to offer a plethora of advantages for international entrepreneurs and investors. With its business-friendly environment, efficient e-services, and updated favorable tax system, Estonia maintains its position as a top choice for global business operations.

This article was written by Silva Hunt Tax Expert Meelis Krautmann.
Meelis is a tax expert with 18 years of experience. He has led the legal department of Estonia’s tax and customs board and worked as a tax attorney.
Silva Hunt is a e-Residency service provider who offers a safe haven to active companies while being experienced in structuring holding companies.
If you are ready to open a Holding Company in Estonia or have questions about Holding Companies, check our packages and prices here.