|Fund Structure||Limited Partner Fund|
|Cost||Formation is generally cheaper than the UK and Luxembourg|
€13 to register the Limited Partner Fund
€12.75 for a notary fee and an additional €18.20 if the notary prepares the draft application plus VAT
|Timing||5-10 business days to register the fund manager|
60-120 days to register with the EFSA
|Fund Marketing||Fund Managers are subject to AIFMD and NPPR of Estonia|
AIFM required to notify regulator via informal letter within 2 weeks of commencing pre-marketing activities
|Tax Treatment||Limited Partner Fund is tax transparent |
In most cases, non-resident investors are not taxed in Estonia and will only have to declare investment income earned from the fund if such income is taxed in Estonia
|Estonian Private Equity and Venture Capital Association||https://www.estvca.ee/|
In 2016, Estonia implemented legislation for closed-end PE and VC funds similar to investment schemes in the UK and Luxembourg. However, establishing a fund in Estonia is relatively cheaper than in the UK or Luxembourg, making Estonia an attractive fund domicile in the EU. In addition, Estonia’s business-friendly laws and transparent tax system make it a favorable jurisdiction to domicile a VC fund. Another point worth mentioning is Estonian-based funds have the ability to manage cryptocurrencies and crypto-products, whereas there are regulatory limitations related to crypto in other jurisdictions.
Most VC fund managers who domicile their fund in Estonia choose to register their fund as a Small Investment Fund. A Small Investment Fund is structured as a Limited Partner Fund (LPF), which is similar to a PFLP in England or a SCSp in Luxembourg. The fund is managed by a fund manager, which is a company limited by shares. There are four steps to fund formation in Estonia:
- The fund manager needs to be registered with the Estonian Financial Services Authority (“EFSA”). The fund manager entity needs to have at least two board members in order to be formed.
- Then the fund manager will apply for a statement from the FSA confirming the fund manager is authorized as an alternative investment fund manager (AIFM).
- The fund manager will also need to submit the fund’s AML politics to the Estonian Financial Intelligence Unit to obtain a license for the future operations of the fund manager.
- After this statement is received, the AIFM can form the LPF with the Estonian Commercial Register.
Please note the formation and registration process can take ~5-20 business days to register the AIFM and an additional 60-120 days to register with the EFSA. The liability of an investor is limited to the investor’s contribution to the fund. In addition, fund managers are not required to publish the names of limited partners or their investment amounts.
LPFs are tax transparent so income is allocated to the underlying investors on a pro rata basis. Investors are typically able to rely on tax treaties between their resident state and the source state of any income that is generated. Generally, non-resident investors are not taxed on any income allocated to them unless such income would be taxed in Estonia. If such income is taxed in Estonia, the non-resident investor will have to declare this investment income.
As an EU member state, Estonia is subject to AIFMD and therefore fund managers registered in Estonia must comply with AIFMD as well as the National Private Placement Regime (NPPR) in Estonia. Importantly, fund managers may not make a public offering of the LPF’s units in Estonia.
More Domicile Analysis
For more information on fund domiciles, including details and analysis below: