Investing through the company is an increasingly popular way to grow assets and optimize tax burden in Estonia. If you have a business or are planning to start one, a private limited company can become a powerful tool that gives you more flexibility and control in managing your investments. In this comprehensive guide, we take a step-by-step look at how to start investing from the company, what are the benefits, risks and best practices.
Why invest through a private company?
One of the biggest reasons people choose to invest under a company is tax advantages and better cash flow management. If you invest through the company, you do not have to pay income tax on the profits made immediately - the tax liability arises when the profit is withdrawn from the company. This means that you can reinvest all the income you earn and use it to grow your next investments.
Tax benefits and cash flow management
- Investing through the company allows the use of deferred taxation.
- The money remains in the company, which increases the availability of capital for new investments.
- Carrying costs (e.g. training, analytical services) into the company's expenses can also reduce taxable profits.
Long-Term Asset Cultivation
- The company provides an opportunity to raise capital on a long-term basis without paying income tax every year.
- From the bottom of the company, it is easier to structure more complex investment portfolios - for example, stocks, real estate and crowdfunding together.
The first step of creating the company - registration
If you do not have the company yet, it must first be established. In Estonia, this is a fast and digitally convenient process that can be done in the e-Business Register.
Business Registry Process
- Log in to the e-business register using your ID card or mobile ID.
- Fill out the statement of incorporation and determine the main field of activity.
- Determine the name of the company and the size of the share capital.
Defining an investment strategy
Before making your first investments, think through a strategy. Do you want to be an active trader or a long-term investor?
Passive vs Active Investing
- Passive strategy: For example, you buy index funds (ETFs) and hold them for the long term.
- Active strategy: You trade regularly, trying to profit from market fluctuations.
Assessment of the risk profile
- Think about how much risk you are willing to take.
- Determine how many percent of the the company's money you will direct into low, medium or high risk assets.
Opening a Company Bank Account
Setting up a corporate bank account
- After registering the company, you can open a bank account in most Estonian banks.
- To open an account, you need a commercial register entry application and a document proving the identity of a board member.
LEI code — why do you definitely need it and how to apply for it?
If you want to invest in securities through the company, the LEI code is mandatory. This is an international legal entity identifier that allows stock exchanges and regulators to uniquely identify your company.
Why is an LEI code needed?
- Since 2018, all legal entities wishing to trade securities (including stocks, ETFs, bonds) are required to have an LEI code.
- If there is no LEI, the broker will not be able to execute any transactions on your behalf.
- This requirement arises from the regulation of the European Union (MiFID II).
How do I apply for an LEI code?
The LEI code can be requested from several registration centers, such as:
- Bloomberg LEI— Simple and fast registration process.
- Register LEI— popular in Estonia
- LHV or Swedbank— Estonian banks offer LEI registration as an intermediary service.
Application steps:
- Go to the LEI service provider's website.
- Fill in the details of the company (registry code, address, contacts).
- Pay the LEI code registration fee (~60 to 120 euros per year, depending on the service provider).
- The code is usually issued within 1-3 business days.
- The LEI must be renewed annually.
Taxation and accounting when investing under OÜ
Investing through the company requires accurate accounting and reporting.
Taxation of profits and dividends
- If the company makes a profit, then when paying it out as a dividend, income tax of 22% is applied.
- As long as the profits remain in the company, no income tax will be incurred.
Accounting and declaration of expenses
- Investment costs (brokerage fees, training) are generally the costs of the company.
- Each transaction must be reflected in the accounting.
The most popular investment options for the company
Investing through the company does not only mean buying shares — on behalf of the company you can choose between different asset classes and create a diversified portfolio.
Stocks and ETFs
- One of the easiest ways to get started is to invest in exchange-listed stocks and ETFs.
- ETFs (exchange-traded funds) allow for broad-based dispersion at a lower cost.
Real Estate and Crowdfunding
- On behalf of the company, real estate can be purchased for rent or for the purpose of price increase.
- Crowdfunding platforms (e.g. EstateGuru, Crowdestate) offer the opportunity to invest in loans or real estate projects.
These asset classes differ in terms of risk, liquidity, and potential returns. Before making a decision, it makes sense to draw up an investment plan and assess the financial condition of the company.
Disadvantages and risks of investing under the company
Although there are several advantages to investing through the company, there are also possible limitations to consider.
Accounting burden
- Each transaction must be correctly reflected in the accounting.
- With a small volume, this may seem disproportionately expensive and difficult.
It is important to know that confusing business and personal assets can lead to legal and tax risks. When managing investments, you need to keep clear records of which funds belong to the company and which belong to you personally.
When to start investing with the company?
Investing through a company may not be suitable for every investor. It is worth assessing whether:
- Your investment portfolio is large enough to benefit from tax advantages.
- You want to keep your investments separate from your personal money.
- You are ready for additional work related to accounting and reporting.
An example of the investment process of the company step by step
Let's give one simplified example of what the process of investing through the company looks like:
- Register in the commercial register of the company.
- Open a company bank account.
- Transfer money to the company account.
- Develop an investment strategy and select asset classes.
- Make investments through a broker, bank or platform.
- Maintain the necessary documentation.
- The profit remains with the company and you can use it for reinvestment or later to pay dividends.
Is investing through the company only suitable for large amounts?
It is often believed that investing through the company is only the domain of wealthy entrepreneurs. In fact, it is also suitable for smaller amounts, if you have a clear plan and goal to grow your investment regularly.
Opportunities for small investors
- You can also start with a few hundred euros, for example by investing in ETFs.
- Over a longer period of time, capital accumulates, the tax advantages of which manifest themselves more and more clearly.
If you invest consistently and in the long term, the company solution can be beneficial even for moderate amounts.
How to choose a platform and broker for a business?
The right investment platform or broker is key to successful investing.
Comparison of service charges
- Carefully compare commissions and maintenance fees.
- Low transaction fees can significantly increase returns in the long run.
Some common options in Estonia are LHV, Swedbank, Interactive Brokers and Lightyear.
Summary — Why you should consider investing through the company
Investing through the company provides an opportunity to:
- Deferred for taxation and faster capital growth.
- To separate money from personal funds and clearer accounting.
If you plan to grow your assets systematically, the company is a very effective tool. Feelfin will help you understand the whole process and carry it out smoothly.
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