Complete Guide to EU Company Formation
Everything you need to know about forming a company in the EU, from e-residency to post-formation setup and compliance.
Forming a company in the European Union has become the gold standard for digital nomads, remote entrepreneurs, and location-independent freelancers. Unlike traditional business structures that tie you to a physical location, EU companies (especially in Estonia and Lithuania) can be formed and managed 100% online from anywhere in the world.
The EU's digital infrastructure has evolved dramatically over the past decade. Estonia's e-residency program launched in 2014 and now serves over 100,000 entrepreneurs from 170+ countries. This pioneering program allows non-residents to access Estonian services remotely, sign documents digitally, and run businesses entirely online. Lithuania followed with similar remote-friendly options, offering faster setup without e-residency requirements.
What You'll Learn
- How to choose the right EU country for your business (Estonia, Lithuania, Germany, or Netherlands)
- Understanding e-residency vs physical residency and the application process
- Comparing formation services (Xolo Leap, Enty, 1Office) to find the best fit
- Essential post-formation setup: banking, accounting, tax registration, and compliance
- Ongoing costs and compliance requirements to keep your company in good standing
Choosing the Right Country
The first major decision in forming your EU company is choosing which country to establish in. Estonia and Lithuania are the top choices for digital nomads, but Germany and Netherlands serve specific use cases.
Estonia
Estonia is the gold standard for digital nomads and remote businesses. The e-residency program has made it the top choice for location-independent entrepreneurs worldwide.
Key Advantages
- • E-residency program (100,000+ members)
- • 100% online business management
- • 20% tax on distributed profits only
- • Excellent digital infrastructure
- • Strong international reputation
- • Large service provider ecosystem
Considerations
- • Requires e-residency (4-8 weeks, €100-120)
- • Must pick up card at embassy/pickup point
- • Need card reader for digital signatures
- • Higher formation costs vs DIY
Best for: Digital nomads, SaaS founders, freelancers, consultants, and anyone prioritizing remote management and international credibility.
Lithuania
Lithuania offers a faster alternative to Estonia without requiring e-residency. Available through services like Xolo Growth with similar tax advantages.
Key Advantages
- • No e-residency requirement
- • Faster setup (start immediately)
- • 15% corporate tax rate
- • Similar digital infrastructure
- • Remote formation available
- • Growing expat community
Considerations
- • Less known internationally than Estonia
- • Fewer service provider options
- • Smaller ecosystem
- • Limited English documentation
Best for: Entrepreneurs who need to start immediately without waiting for e-residency, or those who want Xolo's platform without e-residency requirements.
Germany
Germany is ideal if you need a strong local presence in the largest European economy, especially for B2B businesses.
Key Advantages
- • Strongest brand recognition in EU
- • Excellent for B2B credibility
- • Large market (83 million people)
- • Strong legal system
- • Good infrastructure
Considerations
- • High complexity and bureaucracy
- • Expensive (€500-2,000 formation)
- • Requires German language skills
- • Higher accounting costs (€200-500/month)
- • Not optimized for remote management
Best for: B2B businesses selling to German-speaking markets, companies needing local presence for client requirements, or founders planning to relocate to Germany.
Netherlands
The Netherlands is popular for international business, holding companies, and access to global markets through favorable tax treaties.
Key Advantages
- • Strong international reputation
- • Excellent tax treaties worldwide
- • Good for holding companies
- • English widely spoken
- • Business-friendly environment
Considerations
- • High formation costs (€1,000-3,000)
- • Complex tax system
- • Expensive accounting (€200-400/month)
- • Not optimized for small businesses
- • Overkill for most freelancers
Best for: International holding companies, businesses with significant IP, or companies needing favorable tax treaties (not recommended for small freelancers).
Our Recommendation
Start with Estonia if you can wait 4-8 weeks for e-residency. It offers the best balance of remote management, costs, and international credibility. Choose Lithuania if you need to start immediately or prefer avoiding e-residency. Skip Germany and Netherlands unless you have specific local presence requirements or complex international structure needs.
E-Residency vs Physical Residency
Understanding the difference between e-residency and physical residency is crucial for digital nomads. Many entrepreneurs confuse the two, so let's clarify.
E-Residency
A digital identity that allows remote access to Estonian services. Not physical residency or citizenship.
- Form and manage Estonian company online
- Sign documents digitally with legal validity
- Access Estonian banking and services
- Available to anyone worldwide (€100-120)
- Does NOT grant right to live in Estonia
- Does NOT provide visa benefits
Physical Residency
Legal permission to live in a country. Separate from company formation and e-residency.
- Right to live and stay in the country
- Access to local healthcare and services
- May be required for tax residency
- Different visa options (D-visa, residence permit)
- NOT required to form a company
- Separate application process
E-Residency Application Process
Apply Online
Visit e-resident.gov.ee and complete application (20 minutes). Provide passport details, photo, and motivation statement. Pay €100 application fee.
Background Check
Wait 4-8 weeks for Estonian Police and Border Guard Board background check. Approval rate ~95%. You'll receive email when approved.
Pick Up Card
Collect digital ID card at Estonian embassy or e-residency pickup point (130+ locations worldwide). Bring passport for identity verification. Pickup fee €0-20 depending on location.
Set Up Software
Install DigiDoc4 software and get USB card reader (€10-20). Test digital signature functionality. You're now ready to form your company.
Benefits of E-Residency
- • Run business 100% remotely from anywhere
- • Digital signatures recognized EU-wide
- • Access to Estonian banking (LHV, SEB)
- • Manage company via e-Business Register
- • 5-year validity (€50 renewal)
- • Join community of 100,000+ e-residents
Limitations of E-Residency
- • Not physical residency or citizenship
- • No visa or right to live in Estonia/EU
- • Must still handle personal tax residency separately
- • Card pickup required (can't be mailed)
- • 4-8 week wait time before company formation
- • Not needed for Lithuania company formation
Formation Service Options
Choosing the right formation service is crucial for your long-term success. Here's a detailed comparison of the top options for EU company formation.
Xolo Leap
All-in-one platform for freelancers and SaaS founders
€59/mo
Formation included
Setup Time
5-10 days
First Year Cost
€708
Countries
Estonia, Lithuania
What's Included
- Company formation (no separate fee)
- Full accounting and bookkeeping
- Tax filing and compliance
- Legal address and mail forwarding
- Invoice and expense management
- API access for integrations
- Dedicated accountant
- E-residency support
Best For
- • Freelancers wanting all-in-one solution
- • SaaS founders needing API integrations
- • Digital nomads prioritizing support
- • Entrepreneurs preferring no upfront costs
- • Businesses expecting €50k+ annual revenue
Enty
Budget-friendly all-in-one solution
€33/mo
+ €199 formation
Setup Time
7-14 days
First Year Cost
€595
Countries
Estonia
What's Included
- Company formation (€199 one-time)
- Full accounting and bookkeeping
- Tax filing included
- Legal address
- Invoice management
- E-residency guidance
- No API access
Best For
- • Cost-conscious freelancers
- • Solo entrepreneurs and consultants
- • Simple businesses under €50k revenue
- • First-time company owners
- • Entrepreneurs comfortable with €199 upfront
1Office
Local Estonian accounting firm
€15/mo
+ €315 formation + accounting
Setup Time
3-7 days
First Year Cost
€1,515-4,815
Countries
Estonia
What's Included
- Company formation (€315)
- Fastest setup (3-7 days)
- Legal address (€15/month)
- Local Estonian expertise
- Accounting costs extra (€100-300/month)
- No all-in-one platform
Best For
- • Complex businesses needing traditional CPA
- • Companies with high transaction volume
- • Businesses requiring personalized advice
- • Entrepreneurs comfortable with manual processes
- • Those needing fastest setup time
DIY Formation
Do-it-yourself approach
€0
+ legal address + accountant
Warning:
DIY formation saves €200-300 upfront but typically costs more in time and mistakes. Not recommended unless you're fluent in Estonian/Lithuanian and have accounting experience.
What You'll Need
- Navigate business registry (Estonian/Lithuanian)
- Find legal address provider (€15-50/month)
- Hire accountant separately (€100-300/month)
- Handle all legal documentation yourself
- 20-40 hours time investment
Reality Check
Even saving €200-300 on formation, you'll likely pay more for:
- • Your own time (20-40 hours)
- • Higher accounting fees (no bulk discount)
- • Fixing legal mistakes later
- • Separate tools for invoicing, expenses
Service Comparison Summary
Best Overall
Xolo Leap - All-in-one platform with premium features
Best Value
Enty - Lowest monthly costs with full accounting
Fastest
1Office - 3-7 days setup for traditional needs
Post-Formation Setup
Company formation is just the beginning. Here's everything you need to set up in your first 30 days to start doing business legally and professionally.
1Business Banking
Open a business bank account within the first week. This is essential for receiving client payments and maintaining proper separation of business and personal finances.
Wise Business (Recommended)
- • Most popular for digital nomads
- • Multi-currency accounts (50+ currencies)
- • €0 monthly fee (pay per transaction)
- • Can open before formation completes
- • Low international transfer fees
- • Setup time: 1-3 days
Revolut Business
- • Good for European transactions
- • €0-25/month depending on plan
- • Modern mobile-first interface
- • Instant currency exchange
- • Business cards for team
- • Setup time: 1-3 days
Pro tip: Start with Wise Business for simplicity. You can add Revolut or LHV Bank later if needed for specific requirements.
2Accounting Setup
Proper accounting from day one prevents headaches during tax season. If you chose Xolo or Enty, this is automatic. If not, hire an accountant immediately.
With Xolo/Enty (Automatic)
Your accountant is assigned automatically. Simply connect your bank account, upload receipts, and approve monthly reports. Quarterly VAT and annual tax returns handled for you.
With 1Office or DIY (Manual)
Contact local accountant immediately. Expect €100-300/month depending on transaction volume. Provide bank statements, invoices, and receipts monthly.
Essential Accounting Tasks:
- • Track all income and expenses
- • Keep digital copies of all invoices and receipts
- • Categorize transactions properly
- • Submit quarterly reports (even with €0 revenue)
- • File annual tax return by March 31
3Tax Registration
Understand which tax registrations you need. Your accountant handles the actual registrations, but you should know what's required.
VAT Registration
Required when:
- • You expect €40,000+ annual taxable turnover in Estonia (threshold varies by country)
- • You sell goods within the EU
- • Some B2B clients require it
Timeline: Your accountant registers you when needed. VAT returns due monthly or quarterly.
Corporate Income Tax
Automatic registration at formation. Estonia/Lithuania tax distributed profits only (20%). Annual declaration due March 31. Your accountant handles this.
Personal Tax Residency (Important!)
Forming an EU company does NOT change your personal tax residency. If you're a digital nomad, research tax residency rules for your home country and where you spend time. Many countries use 183-day rule. Consult international tax advisor.
4Compliance Requirements
EU companies have regular compliance obligations. Missing deadlines results in fines. Here's what you need to stay on top of:
Monthly/Quarterly
Bookkeeping (Continuous)
Upload receipts and categorize transactions as they happen
VAT Returns (If registered)
Monthly or quarterly submission. Accountant handles this.
Annual
Annual Report (July 1)
Submit to business registry. Due by July 1 for previous year.
Tax Return (March 31)
Corporate income tax declaration. Accountant handles this.
Penalty Warning:
Late annual reports incur €100-400 fines. Missed VAT returns cost €50-200. Incomplete bookkeeping creates legal liability. Always prioritize compliance.
First 30 Days Checklist
Week 1:
- Apply to Wise Business
- Set up accounting system
- Create invoice template
Week 2-4:
- Update client contracts
- Send first invoices
- Set up expense tracking
Frequently Asked Questions About EU Company Formation
All information verified as of October 2025. Prices and features subject to change. Always verify current pricing with providers.
