diff --git a/tests/Unit/Service/SetupServiceTest.php b/tests/Unit/Service/SetupServiceTest.php
new file mode 100644
index 0000000000..d687a399ee
--- /dev/null
+++ b/tests/Unit/Service/SetupServiceTest.php
@@ -0,0 +1,331 @@
+<?php
+
+declare(strict_types=1);
+
+/**
+ * SPDX-FileCopyrightText: 2025 Nextcloud GmbH and Nextcloud contributors
+ * SPDX-License-Identifier: AGPL-3.0-or-later
+ */
+
+namespace OCA\Mail\Tests\Unit\Service;
+
+use ChristophWurst\Nextcloud\Testing\TestCase;
+use Horde_Imap_Client_Exception;
+use Horde_Imap_Client_Socket;
+use Horde_Mail_Exception;
+use Horde_Mail_Transport_Smtphorde;
+use InvalidArgumentException;
+use OCA\Mail\Account;
+use OCA\Mail\Db\MailAccount;
+use OCA\Mail\Db\TagMapper;
+use OCA\Mail\Exception\CouldNotConnectException;
+use OCA\Mail\IMAP\IMAPClientFactory;
+use OCA\Mail\Service\AccountService;
+use OCA\Mail\Service\SetupService;
+use OCA\Mail\SMTP\SmtpClientFactory;
+use OCP\Security\ICrypto;
+use PHPUnit\Framework\MockObject\MockObject;
+use Psr\Log\LoggerInterface;
+
+class SetupServiceTest extends TestCase {
+	private const ACCOUNT_NAME = 'Test Account';
+	private const EMAIL_ADDRESS = 'test@example.com';
+	private const IMAP_HOST = 'imap.example.com';
+	private const IMAP_PORT = 993;
+	private const IMAP_SSL_MODE = 'ssl';
+	private const IMAP_USER = 'test@example.com';
+	private const IMAP_PASSWORD = 'imap-password';
+	private const SMTP_HOST = 'smtp.example.com';
+	private const SMTP_PORT = 465;
+	private const SMTP_SSL_MODE = 'ssl';
+	private const SMTP_USER = 'test@example.com';
+	private const SMTP_PASSWORD = 'smtp-password';
+	private const USER_ID = 'user123';
+	private const AUTH_METHOD_PASSWORD = 'password';
+	private const AUTH_METHOD_OAUTH2 = 'xoauth2';
+
+	private AccountService&MockObject $accountService;
+	private ICrypto&MockObject $crypto;
+	private SmtpClientFactory&MockObject $smtpClientFactory;
+	private IMAPClientFactory&MockObject $imapClientFactory;
+	private LoggerInterface&MockObject $logger;
+	private TagMapper&MockObject $tagMapper;
+	private SetupService $setupService;
+
+	protected function setUp(): void {
+		parent::setUp();
+
+		$this->accountService = $this->createMock(AccountService::class);
+		$this->crypto = $this->createMock(ICrypto::class);
+		$this->smtpClientFactory = $this->createMock(SmtpClientFactory::class);
+		$this->imapClientFactory = $this->createMock(IMAPClientFactory::class);
+		$this->logger = $this->createMock(LoggerInterface::class);
+		$this->tagMapper = $this->createMock(TagMapper::class);
+
+		$this->setupService = new SetupService(
+			$this->accountService,
+			$this->crypto,
+			$this->smtpClientFactory,
+			$this->imapClientFactory,
+			$this->logger,
+			$this->tagMapper
+		);
+	}
+
+	private function mockSuccessfulImapConnection(): Horde_Imap_Client_Socket&MockObject {
+		$imapClient = $this->createMock(Horde_Imap_Client_Socket::class);
+		$imapClient->expects(self::once())->method('login');
+		$imapClient->expects(self::once())->method('logout');
+
+		$this->imapClientFactory->expects(self::once())
+			->method('getClient')
+			->willReturn($imapClient);
+
+		return $imapClient;
+	}
+
+	private function mockSuccessfulSmtpConnection(): Horde_Mail_Transport_Smtphorde&MockObject {
+		$smtpTransport = $this->createMock(Horde_Mail_Transport_Smtphorde::class);
+		$smtpTransport->expects(self::once())->method('getSMTPObject');
+
+		$this->smtpClientFactory->expects(self::once())
+			->method('create')
+			->willReturn($smtpTransport);
+
+		return $smtpTransport;
+	}
+
+	private function mockPasswordEncryption(): void {
+		$this->crypto->expects(self::exactly(2))
+			->method('encrypt')
+			->willReturnOnConsecutiveCalls('encrypted-imap-password', 'encrypted-smtp-password');
+	}
+
+	private function assertAccountPropertiesMatch(
+		MailAccount $account,
+		string $accountName,
+		string $emailAddress,
+		string $imapHost,
+		int $imapPort,
+		string $imapSslMode,
+		string $imapUser,
+		string $smtpHost,
+		int $smtpPort,
+		string $smtpSslMode,
+		string $smtpUser,
+		string $uid,
+		string $authMethod,
+	): void {
+		self::assertSame($accountName, $account->getName(), 'Account name does not match');
+		self::assertSame($emailAddress, $account->getEmail(), 'Email address does not match');
+		self::assertSame($imapHost, $account->getInboundHost(), 'IMAP host does not match');
+		self::assertSame($imapPort, $account->getInboundPort(), 'IMAP port does not match');
+		self::assertSame($imapSslMode, $account->getInboundSslMode(), 'IMAP SSL mode does not match');
+		self::assertSame($imapUser, $account->getInboundUser(), 'IMAP user does not match');
+		self::assertSame($smtpHost, $account->getOutboundHost(), 'SMTP host does not match');
+		self::assertSame($smtpPort, $account->getOutboundPort(), 'SMTP port does not match');
+		self::assertSame($smtpSslMode, $account->getOutboundSslMode(), 'SMTP SSL mode does not match');
+		self::assertSame($smtpUser, $account->getOutboundUser(), 'SMTP user does not match');
+		self::assertSame($uid, $account->getUserId(), 'User ID does not match');
+		self::assertSame($authMethod, $account->getAuthMethod(), 'Auth method does not match');
+	}
+
+	public function testCreateNewAccountWithPasswordAuth(): void {
+		$this->mockPasswordEncryption();
+
+		$this->logger->expects(self::once())
+			->method('info')
+			->with('Setting up manually configured account');
+
+		$debugCalls = [];
+		$this->logger->expects(self::exactly(2))
+			->method('debug')
+			->willReturnCallback(function (string $message, array $context = []) use (&$debugCalls): void {
+				$debugCalls[] = ['message' => $message, 'context' => $context];
+			});
+
+		$this->mockSuccessfulImapConnection();
+		$this->mockSuccessfulSmtpConnection();
+
+		$this->accountService->expects(self::once())
+			->method('save')
+			->with(self::callback(function (MailAccount $account): bool {
+				$this->assertAccountPropertiesMatch(
+					$account,
+					self::ACCOUNT_NAME,
+					self::EMAIL_ADDRESS,
+					self::IMAP_HOST,
+					self::IMAP_PORT,
+					self::IMAP_SSL_MODE,
+					self::IMAP_USER,
+					self::SMTP_HOST,
+					self::SMTP_PORT,
+					self::SMTP_SSL_MODE,
+					self::SMTP_USER,
+					self::USER_ID,
+					self::AUTH_METHOD_PASSWORD
+				);
+				return true;
+			}));
+
+		$this->tagMapper->expects(self::once())
+			->method('createDefaultTags')
+			->with(self::isInstanceOf(MailAccount::class));
+
+		$result = $this->setupService->createNewAccount(
+			self::ACCOUNT_NAME,
+			self::EMAIL_ADDRESS,
+			self::IMAP_HOST,
+			self::IMAP_PORT,
+			self::IMAP_SSL_MODE,
+			self::IMAP_USER,
+			self::IMAP_PASSWORD,
+			self::SMTP_HOST,
+			self::SMTP_PORT,
+			self::SMTP_SSL_MODE,
+			self::SMTP_USER,
+			self::SMTP_PASSWORD,
+			self::USER_ID,
+			self::AUTH_METHOD_PASSWORD
+		);
+
+		self::assertInstanceOf(Account::class, $result);
+
+		// Verify debug log calls
+		self::assertCount(2, $debugCalls);
+		self::assertSame('Connecting to account {account}', $debugCalls[0]['message']);
+		self::assertSame(['account' => self::EMAIL_ADDRESS], $debugCalls[0]['context']);
+		self::assertStringContainsString('account created ', $debugCalls[1]['message']);
+		self::assertSame([], $debugCalls[1]['context']);
+	}
+
+	public function testCreateNewAccountWithOAuth2(): void {
+		$this->crypto->expects(self::never())->method('encrypt');
+
+		$this->logger->expects(self::once())
+			->method('info')
+			->with('Setting up manually configured account');
+		$this->logger->expects(self::once())
+			->method('debug')
+			->with(self::stringContains('account created '));
+
+		$this->imapClientFactory->expects(self::never())->method('getClient');
+		$this->smtpClientFactory->expects(self::never())->method('create');
+
+		$this->accountService->expects(self::once())
+			->method('save')
+			->with(self::callback(function (MailAccount $account): bool {
+				return $account->getAuthMethod() === self::AUTH_METHOD_OAUTH2;
+			}));
+
+		$this->tagMapper->expects(self::once())->method('createDefaultTags');
+
+		$result = $this->setupService->createNewAccount(
+			'OAuth2 Account',
+			'oauth@example.com',
+			self::IMAP_HOST,
+			self::IMAP_PORT,
+			self::IMAP_SSL_MODE,
+			'oauth@example.com',
+			null,
+			self::SMTP_HOST,
+			self::SMTP_PORT,
+			self::SMTP_SSL_MODE,
+			'oauth@example.com',
+			null,
+			'user456',
+			self::AUTH_METHOD_OAUTH2
+		);
+
+		self::assertInstanceOf(Account::class, $result);
+	}
+
+	public function testCreateNewAccountWithInvalidAuthMethod(): void {
+		$this->expectException(InvalidArgumentException::class);
+		$this->expectExceptionMessage('Invalid auth method invalid');
+
+		$this->setupService->createNewAccount(
+			self::ACCOUNT_NAME,
+			self::EMAIL_ADDRESS,
+			self::IMAP_HOST,
+			self::IMAP_PORT,
+			self::IMAP_SSL_MODE,
+			self::IMAP_USER,
+			self::IMAP_PASSWORD,
+			self::SMTP_HOST,
+			self::SMTP_PORT,
+			self::SMTP_SSL_MODE,
+			self::SMTP_USER,
+			self::SMTP_PASSWORD,
+			self::USER_ID,
+			'invalid'
+		);
+	}
+
+	public function testCreateNewAccountImapConnectionFailure(): void {
+		$this->expectException(CouldNotConnectException::class);
+
+		$this->mockPasswordEncryption();
+
+		$imapClient = $this->createMock(Horde_Imap_Client_Socket::class);
+		$imapClient->expects(self::once())
+			->method('login')
+			->willThrowException(new Horde_Imap_Client_Exception('Connection failed'));
+		$imapClient->expects(self::once())
+			->method('logout');
+
+		$this->imapClientFactory->expects(self::once())
+			->method('getClient')
+			->willReturn($imapClient);
+
+		$this->setupService->createNewAccount(
+			self::ACCOUNT_NAME,
+			self::EMAIL_ADDRESS,
+			self::IMAP_HOST,
+			self::IMAP_PORT,
+			self::IMAP_SSL_MODE,
+			self::IMAP_USER,
+			self::IMAP_PASSWORD,
+			self::SMTP_HOST,
+			self::SMTP_PORT,
+			self::SMTP_SSL_MODE,
+			self::SMTP_USER,
+			self::SMTP_PASSWORD,
+			self::USER_ID,
+			self::AUTH_METHOD_PASSWORD
+		);
+	}
+
+	public function testCreateNewAccountSmtpConnectionFailure(): void {
+		$this->expectException(CouldNotConnectException::class);
+
+		$this->mockPasswordEncryption();
+		$this->mockSuccessfulImapConnection();
+
+		$smtpTransport = $this->createMock(Horde_Mail_Transport_Smtphorde::class);
+		$smtpTransport->expects(self::once())
+			->method('getSMTPObject')
+			->willThrowException(new Horde_Mail_Exception('SMTP connection failed'));
+
+		$this->smtpClientFactory->expects(self::once())
+			->method('create')
+			->willReturn($smtpTransport);
+
+		$this->setupService->createNewAccount(
+			self::ACCOUNT_NAME,
+			self::EMAIL_ADDRESS,
+			self::IMAP_HOST,
+			self::IMAP_PORT,
+			self::IMAP_SSL_MODE,
+			self::IMAP_USER,
+			self::IMAP_PASSWORD,
+			self::SMTP_HOST,
+			self::SMTP_PORT,
+			self::SMTP_SSL_MODE,
+			self::SMTP_USER,
+			self::SMTP_PASSWORD,
+			self::USER_ID,
+			self::AUTH_METHOD_PASSWORD
+		);
+	}
+}