Evaluating Estonia and Portugal as Locations for Business Registration

Portugal's economy has been on the rise in recent years, despite some obstacles such as high government debt. The country is a favored destination for digital nomads and entrepreneurs who prefer the flexibility of operating from anywhere in Europe. Particularly attractive are the country's tax incentives for non-habitual residents (NHR), which encourage investment in high-value activities. Further, initiatives like StartUP Portugal actively bolster entrepreneurship, with a keen focus on nurturing Portugal's startup ecosystem, funding, and internationalization.

NHR offers tax breaks on foreign income, with pensions taxed at only 10%, and some foreign income taxed at a flat rate of 20%. Interestingly, there is no wealth or inheritance tax in Portugal, making it an attractive destination for foreign investors.

With a population of 1.3 million people, Estonia is considered a high-income economy by the World Bank. Estonia is in the middle of the EU countries ranked by GDP per capita with a $19,705 index. And the Estonian index has been growing annually since the time Estonia regained its independence in 1991 (except for a small decline in 2009).

Estonia also has the smallest public debt among any EU country — 6% of the country's GDP (for instance, almost half of all European countries have 50%+ of GDP public debt).

Doubtlessly, Estonia's economic achievements have a positive influence on the country's human development and living conditions. For example, the average monthly gross wage is more than €1,310 (compared with €825 in 2008) and is constantly growing. Estonian average wage growth rates are higher than in many other EU states.

The significant and highly-rising role in the country's economy plays IT sector. It's clear that the Estonian level of public service digitalization requires a lot of professional IT staff and infrastructure, as well as support from local businesses. By the way, 9% of Estonian GDP goes to the information and communication sector, the target sphere for development from the government's side.

For the past few years, Estonian has started e-Residency program that has become a widely-known program with dozens of thousands of members. This great initiative lets people worldwide incorporate a company in the EU without leaving a country. E-Residency also gives you the opportunity to manage a bunch of government e-services at your fingertips.

Currently, foreigners can establish a company in Portugal online with the assistance of an authorized agent. However, non-EU residents must secure a visa to open a business in Portugal. Portugal has announced plans for an e-residency program, but it has yet to take off. In the meantime, there are several pathways for non-residents to get a visa to start a company in Portugal. Options include the Golden Visa, which requires a minimum investment in specific investment classes.

By contrast, Estonia's e-Residency program does not require a visa, relocation, or the assistance of an authorized agent. E-residents can start a private limited company or OÜ in Estonia entirely online. If their company's management board has a foreign address, they simply need to designate a local contact person in Estonia.

Once you have met the requirements, such as obtaining a visa and work permit, you can choose from several types of businesses in Portugal. The most popular option for foreigners is the 'Sociedade por Quotas', a private limited liability company, with at least two partners (LDA). This type of company can be registered remotely via an authorized agent, thereby bypassing the visa requirement.

In Estonia, the most preferred business form for citizens and e-residents alike is the limited liability company (OÜ). E-residents can effortlessly set up a company wholly online with their digital IDs, eliminating the need for travel to Estonia.

Portugal offers ample opportunity for foreigners, both residents and non-residents, to open a business bank account. However, non-resident accounts may require additional documentation and have more restrictions.

On the other hand, Estonia offers three options for business banking. You can open an account with a FinTech company, with a bank from another EU or EEA member state, or with a traditional bank in Estonia.

Running a company in Portugal comes with its own set of responsibilities. Corporate income tax returns must be filed annually by May 31, and the standard corporate income tax rate is 21%. Additionally, companies must prepare an annual statement of accounts and a directors' report.

In Estonia, the corporate income tax rate is 20% on net distributed profits, and any profits reinvested in your company are untaxed. This means that corporate profits are not taxed until they are distributed as dividends, capital reductions, share buybacks, or other expenses and payments that do not have a business purpose.

The subsequent comparison chart provides a snapshot of the process, cost, and services available for those willing to register a company in Portugal versus Estonia.

While Portugal has made strides in digitizing its business application system, it still has some way to go. Currently, Portugal has no options for running a business entirely remotely without the help of an intermediary. Although the country's tax incentives are attractive, they primarily target individuals willing to relocate to Portugal.

On the other hand, Estonia is significantly ahead of Portugal in terms of digital government services. Estonia's e-Residency program has brought together many worldwide business owners eager to share knowledge and processes with fellow e-residents. In addition, almost all business-related tasks can be done online, including most transactions that a notary must authenticate.

Ultimately, the decision of where to form and run a business depends on several factors, including ease of set-up, costs, taxation, banking options, and remote management possibilities. We hope that this comparison of running a business in Portugal vs Estonia will help you make an informed decision.

If you’ve decided to open a company in Estonia. Enty can help you open a company with e-Residency in a matter of one day. Together with that, our Control Panel offers a unique set of tools to ease up paperwork for your company: invoicing, contract creation, hiring, and accounting automation.