Incorporation and e-residency program in Estonia

Discussions
#1

Hi Bootstrappers, I am working on a side project building a solution to help makers and indie hackers build SaaS products faster. I hope to launch in the next couple of months. As This is going to be my very first solo adventure. I want to do it in a very legal way. and for that I also want to protect myself by incorporating a limited liability company. As a Swiss resident I could do that here locally but the Minimum Required capital is 20k Euro, not to mention the high business operation costs.

One of the options that I have been reading about is the e-residency program in Estonia that would allow me to incorporate there.
I would like to use this post to ask if anyone here has some experience there or any particular opinion about it as well as any other alternatives that I might not be aware of.

Thank you so much

#2

@zak245 Probably most important is how the Swiss tax system is going to treat you. Do they say: you run your company from Switzerland, so we treat it as a Swiss company? Ask around locally, preferably an accountant who has experience in this kind of offshore setups.

#3

I considered doing something similar, but then determined that it doesn’t really bring any advantages (my business is based in Poland). I already have low taxes (19%), minimum capital requirements are low (but I didn’t even want to set up an LLC), and forming a company somewhere else is complicated: you will need to deal with two sets of laws instead of one.

Unless there is a very significant reason, I’d avoid it. Most people underestimate the cost of dealing with a second tax system, especially if that system is non-local (e.g. you can’t walk to your accountant’s office).

BTW, similarly for Stripe Atlas: I looked at it, but decided that there are too few advantages and many serious drawbacks (such as that you will be easy to sue in the US, so the first lawsuit can bankrupt your company). I wouldn’t do it, unless planning to get funding.

#4

@unboot, Thank you very much for pointing that out. I am going to be working on it this week.

#5

For me this is driven by two factors. I do not want to have any liability(I do not plan on doing anything illegal but I am just afraid of lawsuits) so I want to form an LLC, the second one is that Forming an LLC in Switzerland is quite expensive and requires a certain amount of initial capital that I simply am not willing to go through. I want to have a separate legal entity that will run any new project that I might start this way I can do B2C and B2B projects with ease I could even use it for my freelancing as well . if It does not work I checked the process of closing and it seems quite easy(long but easy)

#6

LLC provides much less protection that people seem to think.

LLC doesn’t shield you from lawsuits

In theory what it does is that if you lose a lawsuit, only the assets of your company can be taken away, not your personal assets.

There are severe limits on that protection. If you do illegal stuff personally, hiding behind LLC doesn’t work. Bernie Madoff had an LLC.

If you’re not careful in accounting, you “pierce a corporate shield” and LLC protection doesn’t work.

Even if you win a lawsuit, you still have to pay legal fees with your own money (because if you’re one member LLC, the company money is your money).

LLC is mostly like wearing a hard hat while walking in the city. It will protect you from a falling rock but rocks are not falling on your head.

While people can model the cost-benefit of wearing a hard hat, it seems like people can’t model cost-benefit of LLCs. The benefit is wildly misunderstood.

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#7

Thank you very much for your detailed reply and contribution. I do understand very well your point. and agree with you 100%.

As I mentioned in my previous post I do not have any plans or intentions on doing anything illegal I will not do anything I have doubt about and will use legal advice as much as I can.

My fear of lawsuits is not from me not respecting the law. I am just a bit extra careful and do not want to put myself nor my small family in an uncomfortable situation.

The reason why I want to go through all of this is that as a Software Developer, I want to experiment with some SaaS ideas and I don’t want some idiot throwing a rock at my head while doing so(I will eventually have to pay for the legal feels and that is fine).

As for the laws, I intend on hiring a local consultant agency and service provider for the legal advice, accounting, and taxes. I do intend to respect all of that while doing business.

I really like the Hard Hat example btw. and I am willing to wear it for my experiments

#8

First, congrats on your new venture. Talk about an exciting time. I moved to Estonia because of all the hype around startups and tech there. The intentions in Estonia are great, but after living there for two years, I found that even though there are brilliant, courageous people trying to build a new kind of society, the reality doesn’t match the marketing.

The e-residency team is wonderful and they are doing great work. With that said, there are still issues. The taxes are high and banks are difficult when it comes to accessing money and making bigger purchases.

Another factor that may come into play is the recent elections in Estonia. As progressive as part of the country is, the new controlling government is much more conservative. The country has seen cuts to science-related funding and people are nervous about what this might mean for programs like e-residency. (Sort of like Trump in the US.)

There’s a lot of promise with Estonia and e-residency but after evaluating it, I personally decided that I won’t bring my business (or my clients’ businesses) there. Conditions there are superior to some places, but when I compare this to what the US offers, there’s just too much work to be done.

e-residency might still be right for you, but I would tread carefully and sift through the marketing before making a decision.

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#9

It depends on how your home country treats income from other countries. It can turn out that you will have to pay the tax twice - first in Estonia, then in Sweden.

I have my company registered in Russia. And it has lots of benefits: ridiculously low tax (6%), no one can practically sue you from abroad, it’s allowed to have bank accounts in various currencies and cash out in those currencies without the need to convert. However I’m not sure the terms are the same for non-residents.

#10

A few years ago I got really frustrated with the complicated bureaucracy of running a business in Spain, and started looking at whether I could open a company in a country I don’t live in.

I believe someone on this forum told me that despite the pain, it is simply easier to have a company in the same country I live in. I think he is correct.

But I feel the pain of 20k Euro minimum required capital. Here in Spain it is only 3K euro AND you can withdraw it all immediately after opening the company.

#11

I fully agree, and this was my point in the comment above.

Also, when thinking about liability and “protection”, it is worth considering what the possible liability is. Unless you are in a country with a bizarre legal system (USA), you should not expect damages significantly higher than the value of what you sold. In the case of a boostrapped service-based company that does not have employees, these possible liabilities are simply not that high.

This does change once you start having employees, though, so be careful there: I know from first-hand experience that you can end up with unexpected huge debt in that case. Many countries have laws that grant extra compensation to employees in case you need to let go many of them at the same time. This means that if something goes wrong and you need to declare bankrupcy, you automatically fire all your employees, but you also suddenly owe them 3 months of extra wages.

And as others have mentioned, most jurisdictions have limits on how much protection LLC-equivalent company gives you. Details vary, but usually if you are the sole owner and/or sole management board member, the protection is limited or non-existent.