The Estonian Limited Partnership Fund – A Guide for VC Investors

Following the UK’s and Luxembourg’s lead on designing attractive investment schemes for closed-end collective private equity and venture capital investments, Estonia has implemented the Limited Partnership Fund (“LPF”) structure (similar to the Private Fund Limited Partnership or PFLP in the UK, and to Société en Commandite Spéciale or SCSp in Luxembourg).

This regime enables investors to easily set up a VC fund in Estonia and allows the partners to shape the relations between themselves in a flexible manner within the limited Partnership Agreement (“LPA”).

The benefits

There are multiple benefits to establishing and running an Estonian LPF:

  • no requirement to publish the identity of its limited partners (investors);
  • no requirement to publish the amount of the investments made by each investor;
  • considerably lower cost of establishment compared to the UK and Luxembourg;
  • fast registration process – up to 5 working days for the LPF, up to 2 months if the General Partner registers its activities with the Estonian Financial Supervision Authority (“FSA”).

Establishing process in short

The registration process of the fund can be divided into three steps:

Step 1: Registering a General Partner in Estonia (or using a pre-existing legal entity).

Step 2: General Partner applies for a statement from the FSA to confirm that the General Partner or the fund management company has been properly registered or authorized as an alternative investment fund manager.

Step 3: General Partner submits an application together with the statement by the FSA to the Estonian Commercial Register to establish the LPF.

The Hedman Partners attorneys will provide you with end-to-end services, including representation upon request (power of attorney). 

Registering the fund General Partner

The General Partner can manage an LPF if it is an investment fund manager that has either:

  • obtained an investment fund manager activity license from an EEA state;
  • obtained an activity license of a fund manager from FSA, or;
  • registered its activities with FSA.

In practice, most General Partners use the third option as it comes with the least restrictions for the activities of the fund, including no requirements to the share capital, to the own funds of an LPF, or to the board members of the General Partner personally. This option can be used if the General Partner only manages small funds. This means that the General Partner either:

(1) manages less than EUR 100M total assets (incl. leverages) through all sub-funds, or

(2) the fund manages less than EUR 500M total assets if all sub-funds are unleveraged and any investments made into any sub-funds do not allow exits within 5 years as of the date of the investments made.

Legal obligations of the General Partner

The General Partners that are registered with the FSA are required to submit once a year to the FSA the data on its managed funds and the fund’s investment policies.

Taxation and liabilities

All LPF-s registered in Estonia are tax transparent. This means that the LPF is not a person liable for tax in Estonia. Any profit earned by the fund will be treated as the profit of the investors (i.e. the look-through principle).

The liabilities of the General Partner:

  • unlimited liability for the obligations of the fund.

The liabilities of the Limited Partners:

  • limited to the amount of the limited partner’s contribution to the LPF;
  • limited if the limited partner refrains from participating in the day-to-day management of the fund (so-called “Safe Harbour” clauses).

Flexibility of the Limited Partnership Agreement (“LPA”) terms

The activities of the fund are governed by the LPA concluded between the General Partner and the limited partner(s).

There are a few mandatory rules for an LPF, such as:

  • prohibition to publicly offer the LPF’s units;
  • restrictions on restructuring, and;
  • limitation for the funds to only manage their own asset.

The majority of the governance-related matters (investment policies, contributions, distribution of profits, termination of the partnership) are up to the partners to agree upon in the LPA.

Taxation on corporations

The Estonian liberal and transparent tax system have been attracting investments and benefitting investors for almost 20 years.

The most relevant facts to an investor:

  • Corporate income tax on capital gains, retained and reinvested profits of Estonian registered companies (“EstCo”): 0%;
  • Tax on distributing profits from an EstCo to an Estonian tax resident: 20/80 (i.e. net sum x 1,25)* paid by EstCo-;
  • Taxation in Estonia on distributing profits from an EstCo to a UK tax resident (for example dividends paid as a result of an Asset Sale in EstCo): 20/80 (i.e. net sum x 1,25)* paid by EstCo.;
  • Taxation in Estonia on sale of shares in an EstCo belonging to a UK tax resident (i.e. Share Sale type of an exit): 0% taxable in Estonia, excluding real estate related transactions;
  • VAT: 20%.

* In certain cases, 14/86 applies to dividends; in case of liquidation proceedings income tax applies to sums exceeding the amounts paid into owners’ equity.


The Estonian LPF structure combines the best elements of the VC fund framework in popular jurisdictions to enable investors and fund managers alike to set up and manage VC funds at a low cost.

In addition, all investors and fund managers can benefit from the Estonian digital infrastructure (also known as the e-Estonia), tax transparency, and the maximum flexibility on the LPA terms.

Hedman Partners Law Firm, an experienced partner

We at Hedman Partners Law Firm are dedicated to helping the VC investors and fund managers to enter the Estonian market and invest in the Estonian start-up companies every step of the way.

Interesting facts about the start-up investments in Estonia in 2018 according to available public data:

  • In 2018 Estonian start-ups raised more than 328 MEUR, which is 56 MEUR more compared to 2017 (272MEUR) and 222 MEUR more than 2016 (106 MEUR);
  • In 2018 Bolt (Taxify) received 150 MEUR, followed by Pipedrive and Monese with 60 MUSD each;
  • The average deal size in 2018 was around 11 MEUR (30 reported deals);
  • During 2018 the aggregate employee count of Estonian start-ups amounted to around 3800.

To request a consultation, please contact us:

Merlin Salvik
Managing Partner at Hedman Partners

Valter Võhma
Partner at Hedman Partners

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