What is an SPV?
A Special Purpose Vehicle (SPV) is a legal entity created for a specific, limited purpose, typically an investment or a project. In Estonia, SPVs are often used for investment purposes like real estate, startups, or cryptocurrencies. Estonia is becoming a favored destination for creating SPVs due to its highly digitalized infrastructure and tax-friendly system. Estonian SPVs are usually structured as private limited companies (OÜs) and provide multiple benefits, including tax optimization, risk isolation, and ease of management through digital tools like e-Residency.
Key Benefits of an Estonian SPV
One of the most significant benefits of setting up an SPV in Estonia is the tax system. Unlike many other countries, Estonia doesn’t tax reinvested profits—corporate tax is only applied when dividends are distributed. This allows companies to reinvest earnings tax-free, which is particularly useful for businesses aiming to grow quickly by reinvesting profits.
Furthermore, Estonia has entered into double tax treaties with over 60 countries, allowing investors to avoid double taxation, a critical factor for cross-border investments.
Estonia’s e-Residency program allows investors from anywhere in the world to easily set up and manage their SPVs remotely. With this digital infrastructure, almost all bureaucratic processes—from company formation to financial reporting—can be done online. This eliminates the need for physical presence, making Estonia one of the most convenient places to set up an SPV.
Estonian SPVs offer strong risk isolation. By establishing each SPV as a separate legal entity for individual projects or investments, investors can ensure that potential losses from one venture do not impact other business activities. This is particularly useful in high-risk industries such as real estate or venture capital.
Setting Up an SPV in Estonia: Step-by-Step Guide
Most SPVs in Estonia are incorporated as OÜs (Private Limited Companies). You will need to select a unique company name, draft the Articles of Association (AoA), and register with the Estonian Commercial Register.
After incorporation, it’s necessary to register for VAT (if applicable) and ensure that all financial and legal requirements are met. Depending on the activities of the SPV, it may also need to register with the Register of Economic Activities.
Opening a bank account for the SPV is essential for handling its financial transactions. Estonian banks offer online banking, further simplifying the management of the SPV.
Having a well-structured Shareholders Agreement is crucial. This document outlines the decision-making processes, the management of funds, and the exit strategies for investors.
Use Cases for Estonian SPVs
Investors often use SPVs for real estate investments to isolate risk for each project. The SPV structure helps to separate liability, making it easier to manage individual property investments without risking the entire portfolio.
Estonian SPVs are increasingly popular in the venture capital and startup sectors, allowing investors to pool resources for a single investment in a promising startup. The low barriers to entry and tax deferral on profits make Estonia an attractive hub for these activities.
Estonia’s regulatory framework for cryptocurrencies makes it a favorable location for SPVs investing in digital assets. The country has specific legal structures designed to support investments in blockchain technology and cryptocurrency.