Estonia is the perfect place to register your dropshipping or FBA by Amazon business.
The e-Residency program, which allows anyone to open and operate a business in Estonia completely online, together with the innovative fiscal system of the Baltic country, is a winning combination to start selling products on your online shop, dropshipping store, or on Amazon FBA.
Thousands of entrepreneurs have already started their companies in Estonia.
Let’s see why.
Why Establishing Your Dropshipping Business in Estonia
For starters, Estonia is the most digitally advanced nation in the world. It was the first country that allowed Internet voting.
Estonians can do virtually any paperwork online, from paying their taxes to registering their new car or checking out their kid’s homework from school. 99% of governmental services are available online 24/7.
At the end of 2014, Estonia launched a pioneering initiative, the e-Residency program, which allows anyone, regardless of their citizenship or country of residence, to become a virtual resident of the Estonian digital nation.
This does not give you any right to citizenship or residency, but allows you to open a business in Estonia and manage it completely online, without ever visiting the country!
As digital entrepreneurs ourselves, we fell in love with the digital nation that Estonia has built and decided to share its advantages with as many people as possible.
With Companio, you will be able to launch and run your dropshipping company remotely, with no hassle, paperwork, or bureaucracy.
You can be traveling the world while comfortably managing your company from your laptop.
Forget about having to visit a grey government office anymore!
We know, it sounds too good to be true.
But there’s more. The online administration is a huge selling point on its own, but the Estonian tax system is also designed to help entrepreneurs and new businesses grow. Let’s see why.
Entrepreneur Friendly Tax System
Most business systems seem designed to make it difficult for entrepreneurs to open a business. They are cryptic and obscure, full of complex regulations and exceptions.
On top of that, many of these systems bury entrepreneurs and freelancers in taxes before their businesses have the chance to grow.
By contrast, the Estonian tax system has been designed to allow small entrepreneurs, freelancers, and startups, to grow.
Opening a company is easy and cheap. But the real cherry of the cake is the smart Estonian tax system, in which you do not pay taxes for non-distributed profit.
That means you only pay taxes when you distribute profit (through dividends or board member salaries).
All deductible business expenses, such as contractors’ work, hosting, and servers, public transport costs to see customers, a laptop… They are tax-free.
If you ask a web designer to build your website, that expense is free of taxes. That money is considered to be reinvested in the company.
For dropshipping businesses, online shops, or Amazon FBA e-commerce, that’s critical.
During the first months, in which the income of your online store may still be low, if you don’t distribute profit, you do not have to pay taxes.
That will allow you to grow, generate your first sales, and reinvest the earnings in your business.
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A European VAT number
One of the most important aspects of a dropshipping business that sells goods to European customers is VAT. Without one, selling to European clients can become a nightmare.
Fortunately, Estonia is a member of the European Union. As such, your Estonian online company will have a VAT number.
This is not only beneficial for dealing with your customers, but it will also make things easier if you have suppliers or providers in the EU.
Getting a VAT number is also especially important for Amazon FBA online shops, as it is one of the requisites to start selling products online with Amazon.
How Do You Apply for a VAT Number?
To get a VAT number, you will need to provide some information to the authorities, as well as comply with some requirements.
First of all, your business needs to have a bank account with European IBAN. Any country in the European Union will work.
Without a European bank account, the VAT application will most likely be rejected.
You will also need to give some information to the authorities. It is important to be as detailed as possible when providing it.
Keep in mind that the granting of the VAT number directly depends on the data you provide. You have to convince the Estonian authorities that they should grant it to you.
The Activity of the Company
First, you will need to give a detailed description of the activity of the company:
Describe here what your company does, how it carries out its activities, how it earns money, and what are the expenses, in the greatest possible detail.
Customers and Suppliers
Then, you also need to offer some information about your customers and suppliers.
- Who are your customers? Individuals/companies? Where are they from Europe, outside Europe? We need you to enumerate, including its company name and physical address or country, at least one of them.
- What companies offer you services? (hosting, software, etc.) Where are they from? We need you to list, with company name and physical address or country, at least one of them.
- Do you have suppliers of any kind? Who are they and where are their companies established?
NOTE: Find the top European Dropshipping Suppliers.
Operation of the Business
Finally, you must offer a brief description of how the business operates. Here you must answer at least these questions:
- Describe a typical example of a service or product that you serve your customers
- Describe how that service or product is purchased or acquired, and how you deliver it to the customer.
- How do your customers find you? (social networks / Adwords / forums / searches / recommendation).
The application can be a little daunting but don’t worry, in Companio, we will be happy to do it for you as part of our registration package.
Which VAT should you apply?
When your dropshipping business or Amazon FBA shop has a VAT number, you will need to add VAT to your invoices, but how much?
It may seem a little confusing at first, but it’s just a matter of knowing some simple rules.
First, the European VAT does not apply outside of Europe. That means that for your non-EU customers, you never add VAT to your invoices.
Non-EU businesses should never add VAT to the invoices they issue to you either.
Second, if you are selling to European customers, then, if they are other businesses with a valid VAT number, you add VAT 0%.
That’s one of the advantages of having an EU company with a VAT number. Your suppliers and providers from the EU also add 0% VAT to the invoices they issue to you.
For companies with no VAT number or individuals (final consumers), being a dropshipping business, you need to add the VAT of the consumer’s country.
So for example, if you are selling to a German final customer, you should add German VAT to your invoices, and if you are selling to a Croatian one, you should add Croatian VAT.
Fortunately, most e-commerce solutions offer modules to apply the right VAT based on the country of the customer.
As an exception, being an Estonian company, you will always add Estonian VAT to your invoices (20%) when invoicing an Estonian customer, regardless of whether it is a corporate or individual customer.
Registering VAT in Other Countries
Before the OSS scheme was introduced, if your sales in one country exceeded a certain threshold (which varied from country to country), your business had to get a VAT number in that country and submit regular VAT reports to the local authorities.
That was every dropshipping business’s nightmare. Fortunately, the EU introduced the VAT scheme, allowing you to declare VAT from all EU member states in one single country.
In Companio, we take care of that for you automatically. No matter where your customers are, we will do all the VAT reports at no extra cost.
You are only required to register in the OSS scheme when your overall sales exceed 10,000€. What happens if your sales don’t exceed 10,000€ per year overall? Then you don’t need to register in the OSS scheme.
If your company has a VAT number, you will apply the Estonian VAT (20%) to your sales. If not, you will not apply VAT. It’s that simple.
Once you get past 10,000€, you need to register in the OSS scheme and apply the VAT of the country of your customer.
In short, you no longer need to register VAT numbers in different European countries, it is enough to register in the OSS scheme.
Remember, however, that it is important to register into the scheme as soon as your sales exceed 10,000€.
The EORI number is an identifier that is required by certain entities that deal with export and import operations in Europe.
This affects companies established in the EU if they deal with customs or import/export of physical goods.
To qualify, a company needs to carry out activities that involve importing goods into the EU, exporting goods from the EU or making transit through the EU and also running a customs warehouse, or applying for the Biding Tariff information.
Does it affect your dropshipping business, online shop, or Amazon FBA store?
In practice, this only affects companies that deal with the goods directly, meaning, they are involved in customs operations with these goods (import or export them directly).
As a dropshipping or Amazon FBA business with no warehouse and not dealing with the goods directly, you won’t usually need an EORI number.
It might happen, however, that your providers or suppliers need to get this number, or that you need to obtain it for some administrative paperwork with other countries inside or outside the European Union.
In Estonia, the EORI number can get easily obtained completely online in a matter of days by simply filling in a form. Another advantage of a completely online administrative system!
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Why an Estonian Company Is the Perfect Solution for Your Dropshipping Business
The European market is one of the largest markets in the world, and one of the most interesting in terms of consumption habits and acquisition power from its members.
Entering that market is hard without a company from the European Union. Administrative paperwork, potential tolls and fees, and VAT can give Amazon FBA and dropshipping business owners quite a number of headaches.
Fortunately, the e-Residency program of Estonia offers an easy solution for running your European business without the hassle of paperwork and red tape.
Companio allows you to launch your company and manage it completely online. We take care of taxes and payments, accounting, and compliance for you, so you can focus on what really matters, growing your online shop.
The Estonian business system is also a huge advantage for Amazon FBA and dropshipping businesses.
The fact that your company only pays taxes when it distributes profit (usually in the form of dividends) is not only a competitive advantage in the early stages of the business, it can also mean the difference between thriving or failing in a competitive market with many competitors, where online shops sometimes find themselves.
Since its inception, the e-Residency Program has done a brilliant job in making sure everybody can join the digital nation and run a successful business completely online.
Estonia empowers entrepreneurs to run their companies completely online, wherever they are, and embrace the digital revolution.
Thousands of dropshipping and Amazon FBA business owners have found in the program a safe harbor to launch their online shops with zero paperwork, zero hassle, and zero bureaucracy. Want to join them?