OÜ or FIE: Which Business Structure to Choose in Estonia

This material is based on the current rates of the Estonian Tax and Customs Board (EMTA), the Income Tax Act, the Social Tax Act and the Simplified Business Income Taxation Act. All calculations use 2026 rates and are illustrative.

The short answer: what matters in 60 seconds

The choice between an OÜ and an FIE is usually reduced to “where are the taxes lower”. That is the wrong framing: the two forms differ less in rates than in when tax arises and how much personal liability you carry.

Key differences in 2026:

• OÜ (private limited company) is a separate legal entity. Liability is limited to the contribution. Profit is untaxed while it stays in the company; the 22/78 tax arises only when dividends are paid. Registration costs €265, share capital starts at €0.01.
• FIE (sole proprietor) is not a separate legal entity but a status held by the person. Liability is unlimited: you answer for business debts with your personal assets. Tax is charged on the current year’s income whether or not you spend it: 33% social tax plus 22% income tax.
• The business account is a third, frequently forgotten form. 20% on incoming amounts, no bookkeeping and no returns, but no right to deduct expenses.
• The tipping point is not turnover but your share of expenses and whether you withdraw profit. Where profit is reinvested, the OÜ wins almost every time. Where income is low, expenses are near zero and health insurance matters, the picture changes.
• Minimum social tax in 2026 is €292.38 per month (33% of the €886 base). For an FIE this obligation arises regardless of results — including in a loss-making year.
• For an e-resident living outside Estonia there is effectively no choice: the FIE is tied to the individual and their tax residency, so the working form is the OÜ.

Below: a nine-point comparison, calculations on concrete figures, profiles of who each form suits, and the procedure for moving from FIE to OÜ.

Three forms, not two

Articles on this topic usually compare two options. In practice there are three, and the third is often chosen in error — or ignored in error.

OÜ (osaühing). A legal entity. Separate from its founder: its own assets, its own obligations, its own balance sheet. It can hire employees, raise investment, be sold as a whole, and continue to exist without you.

FIE (füüsilisest isikust ettevõtja). Not a company but a registered business status of a natural person. You and your business are one and the same, both legally and for tax purposes. Registration in the Commercial Register is free.

Ettevõtluskonto (business account). A special account held by a private individual at a bank (currently LHV). Tax is withheld automatically from every incoming payment, there is no need to register as an entrepreneur, no bookkeeping and no tax returns.

Fundamental difference no. 1: liability

This is the parameter to consider first, before any arithmetic.

With an OÜ, liability is limited to the company’s assets. If the business cannot settle with a supplier, enforcement is directed at company assets, not at your flat. Exceptions exist (personal guarantees, driving the company into insolvency, breach of board member duties), but that is the basic construction.

With an FIE there is no separation at all. A debt to a client, a tax arrear, a contractual claim — all of these are your personal obligations, secured by everything you own.

A practical test: the higher the cost of your mistake to a client, the less appropriate the FIE. A nail technician and a private tutor risk little. A developer who can bring down a client’s system, a construction contractor, or a consultant whose advice moves other people’s money are in a fundamentally different position.

Fundamental difference no. 2: when tax arises

The second parameter, and the one that decides the question for a growing business.

An OÜ pays tax when you take money out. Earn €40,000, leave it in the company for equipment, hiring and advertising, and Estonian corporate tax is zero. Decide to pay dividends and 22/78 arises on the distributed amount.

An FIE pays tax when income is received. The current year’s income is taxed in the current year, whether or not you reinvested it. Deferring tax by putting profit into growth is not possible — expenses are deductible, but only those actually incurred in the same period.

This difference alone settles the question for any model where profit is meant to go back into the business.

Taxes in 2026: what is charged and on what

FIE

• Social tax of 33% on net business income (income less documented expenses). The social tax paid is then deducted when calculating income tax.
• Income tax of 22% on the remaining base, with the tax-free allowance applied — in 2026 a uniform €700 per month, or €8,400 per year.
• Minimum social tax obligation. The 2026 monthly base is €886 and the minimum social tax is €292.38 per month, roughly €3,509 per year. The obligation arises regardless of actual income, subject to a number of exceptions.
• Advance payments are made quarterly.
• VAT of 24% from €40,000 of annual turnover — a rule common to all forms.

OÜ

• 0% on undistributed profit.
• 22/78 on dividend payments (effectively 22% of the distributed amount).
• Salary and board member remuneration are taxed as they are for any employer: 33% social tax, unemployment insurance and 22% income tax.
• VAT of 24% from the €40,000 threshold.

A detailed breakdown of Estonian company taxes is available in our separate guide to OÜ taxation.

Business account

• 20% of the amount received into the account, where annual receipts are below €40,000. If the account holder has joined the second pension pillar, the rate increases by the contribution: 22%, 24% or 26%.
• Expenses are not deductible at all. The full amount received is taxed, not the profit.
• Health insurance arises only if at least €2,436.50 is received into the account in a calendar month — otherwise there is no cover.
• Restrictions: you cannot be VAT-registered and you cannot simultaneously be an FIE in the same or a similar field of activity.
• A pitfall for B2B: when a service is provided to a legal entity, that entity incurs its own 22/78 income tax obligation. No such obligation arises on the sale of goods.

A nine-point comparison

The calculations: where the line falls

All examples are annual, use 2026 rates and assume one person with no other sources of income. Figures are rounded and illustrative.

Scenario A: income €12,000, expenses close to zero

A tutor, a craftsperson, a consultant in the early stage.

Conclusion: at low income levels the difference in money is small and social protection decides the matter. The FIE costs roughly €1,500 more per year — and that, in essence, is the price of health insurance and pension record. If you already have cover through your main job, there is no sense in paying for it twice.

Scenario B: income €30,000, expenses €3,000

An established practice: a designer, a consultant, a small service business.

Conclusion: here the gap is already decisive. The combination of an OÜ with a moderate salary and dividends delivers both social protection and a noticeably lower burden than the FIE. This is precisely the income level at which most FIEs move to an OÜ.

Scenario C: income €30,000, expenses €12,000

A business with materials, equipment and subcontractors.

Here the business account drops out first: it taxes receipts rather than profit, so 20% of €30,000 turns into 33% of the real profit of €18,000. The FIE and the OÜ deduct expenses in the same way, and the choice again comes down to when tax arises and to liability.

The general rule: the higher your share of expenses, the worse the business account. The more you reinvest, the better the OÜ. The more social protection matters at a low income, the more sense the FIE makes.

Who the FIE suits: four profiles

Profile 1. Activity on Estonian territory with modest turnover. A craftsperson, a tradesperson, a tutor, an independent specialist. Clients are private individuals, turnover is moderate, expenses exist but are small. Registration is free and reporting is minimal.

Profile 2. Seasonal and agricultural activity. The FIE regime provides for sector-specific accounting rules, and the seasonal nature of income does not create the “frozen profit” problem that a company faces.

Profile 3. Testing a hypothesis before setting up a company. Registering an FIE costs nothing and is easy to terminate. A sensible way to test demand before a legal entity exists — provided that liability risk in your field is low.

Profile 4. A deliberate choice in favour of social protection. You need health insurance and pension record, your income is modest, and you are willing to pay the tax difference for it.

Who the OÜ suits: five profiles

Profile 1. Reinvesting profit. Any model where earnings go back into the business — equipment, development, marketing, stock. The zero rate on undistributed profit is a direct competitive advantage here.

Profile 2. Working with corporate clients. Large buyers prefer a contract with a legal entity. Add to that a transparent public register, which is checked before a contract is signed.

Profile 3. A field with real claim risk. IT development, construction, logistics, consulting with financial consequences. Limited liability here is not a convenience but a necessity.

Profile 4. Partnership or plans to raise investment. An FIE has no shares, no co-founders, no option pool and nothing to sell. An OÜ has all of these.

Profile 5. International activity and e-Residency. An EU company with a European IBAN, a VIES number and a digital signature is the standard infrastructure for cross-border work.

Who the business account suits

A narrow but real scenario: services to private individuals, virtually no expenses, turnover below €40,000, and an administrative burden you are not prepared to carry.

Classic examples: private lessons, one-off household services, selling handmade items to private individuals, side work alongside a main job.

Keep the key restrictions in mind from the outset: expenses are not deductible, you cannot be VAT-registered, you cannot be an FIE in the same field at the same time, and when you work with legal entities the client incurs an additional tax obligation — which makes you a less convenient contractor than an OÜ.

A separate note: if you are an e-resident living outside Estonia

Here there is effectively no choice, and it is worth saying so plainly.

The FIE is the status of a natural person, inseparably tied to that person and their tax residency. If you live and actually work in another country, your business income is primarily of interest to the tax authority of your country of residence, and Estonian registration merely creates a second point of reporting with no real benefit.

The business account is likewise designed for natural persons inside the Estonian tax perimeter and requires a private client account at an Estonian bank, which is a separate challenge for a non-resident.

The practical conclusion: for a location-independent entrepreneur there is one working form — the OÜ. The question “OÜ or FIE” is relevant above all to those who physically live and work in Estonia.

What it costs to maintain

Note the last row: a dormant FIE costs more than a dormant company, because the minimum social tax obligation does not go away. If activity is suspended, the FIE status should either be formally suspended or terminated.

How to move from FIE to OÜ

The transition is a normal stage of growth, not an admission of error. The sequence:

1. Register the OÜ in the e-Business Register (€265, 1–5 working days).
2. Transfer the activity: conclude new contracts in the company’s name, notify clients of the change of details, migrate payment systems and subscriptions.
3. Transfer the assets. FIE property can be transferred to the company — this is a separate procedure with its own tax consequences and calls for an accountant’s advice.
4. Close or suspend the FIE once settlements under existing contracts are complete and the final declaration has been filed.
5. Do not forget VAT: if you are registered, the FIE registration must be closed properly and, where necessary, opened for the company.

A common mistake is running both forms in parallel “just in case” for months. This doubles the reporting and invites questions about where the income actually arises.

Common mistakes when choosing

Looking only at rates. Comparing “22% against 20%” is meaningless until you account for the tax base, the moment the obligation arises, and social contributions.

Ignoring unlimited liability. The most underrated parameter. Saving €1,000 a year is not worth risking your personal assets in a field with real claims.

Registering an FIE and forgetting the minimum social tax. The obligation arises whether or not there was income. A loss-making year as an FIE still costs around €3,500.

Choosing the business account when expenses are significant. A turnover tax with expenses at 40% easily becomes an effective rate above 30% of profit.

Opening an OÜ for the “zero tax” while planning to withdraw everything monthly. The zero rate applies only to undistributed profit. If all profit goes straight to personal consumption, the advantage disappears while the obligation to keep full accounts remains.

Not checking the rules of your country of residence. For those living outside Estonia, the decisive rules are often not the Estonian ones but the local ones: tax residency, CFC rules and permanent establishment risk.

Mini glossary

OÜ (osaühing) — private limited company, the principal business form in Estonia.

FIE (füüsilisest isikust ettevõtja) — sole proprietor; a status rather than a separate legal entity.

Ettevõtluskonto — business account; a simplified regime with tax withheld automatically from receipts.

Form E declaration — an annex to the annual income tax return in which an FIE reports business income and expenses.

Minimum social tax obligation — €292.38 per month in 2026 (33% of the €886 base); the condition for health insurance to arise.

Tax-free allowance — €700 per month, or €8,400 per year, a uniform rate for everyone from 2026.

22/78 — the formula for tax on dividends of an Estonian company: effectively 22% of the distributed amount.

Kontaktisik — licensed contact person, mandatory for companies whose management board is located outside Estonia.

If the choice is an OÜ

The limited liability form comes with a mandatory condition the FIE does not have: a legal address in Estonia and, where the management board is abroad, an appointed licensed contact person through whom state authorities officially serve documents on the company.

Legal Address in Estonia provides exactly this layer for e-residents and foreign owners of Estonian companies. We supply a legal address in Tallinn and licensed contact person services with digital confirmation of the appointment at the time of registration, scan and forward official correspondence with notifications, remind you of Commercial Register and EMTA deadlines, assist with company registration and with filing changes in the e-Business Register, support VAT number applications including the preparation of an activity justification for the tightened checks of 2026, and coordinate work with trusted accounting partners.

For a founder this means one simple thing: the mandatory requirements of Estonian law are covered by a single local partner from day one, official post does not go missing, and deadlines do not pass unnoticed. Services and pricing are available at legaladdressinestonia.com.

This article is for information only and does not constitute legal, tax or accounting advice. The calculations are simplified and do not account for individual deductions, reliefs or the specifics of any particular situation. Rates and rules change; before making a decision, check the official materials of the Estonian Tax and Customs Board (emta.ee) or consult a professional accountant.