Your Key Undertakings when operating an Estonian company

Before starting your business operations, it is important to ensure that the company has all required licenses and tax registrations. Remember that if the company operates internationally, it may need to comply with different requirements in each country. If an Estonian company does business in another country, it may be subject to licensing and taxation in that country, rather than in Estonia.

VAT number is not automatically included with the company. You must apply for a VAT number where applicable (VAT number registration). Depending on your business profile, your company may need a VAT number in locations other than Estonia. Once you have obtained an Estonian VAT number, your company must do accounting and submit monthly VAT reports from the first month, even if the business hasn’t started yet.

The details of your company, shareholders and directors must be updated in the Business Register promptly after any changes occur. This includes updates to your registered Contact Person and Virtual Office in Estonia and company e-mail address. Failure to submit the required information can result in repeated fines for both the company and its management board members.

If your company remains inactive, certain obligations still apply, such as preparing and submitting an annual report (in some countries also known as a yearly tax return/statement). If the company is standard VAT registered but has no taxable sales, monthly VAT reports are still required to be submitted.

Some company expenses may require monthly reporting, even if the company has no income yet. These costs are any online- or digital services, non-business expenses, daily allowances, salaries, and payments without eligible receipts (credit card receipts are not accepted as proof of payment), and purchase of goods.

Annual reports must be submitted no later than 6 months after the end of the financial year. The finacial year can either be 12 months from the month of incorporation of the company or a calendar year. You can check the financial year of your company at any time from the Business Register. If you do not submit the report in due time, the court maintaining the Business Register may fine both the company and its management board members without warning. Furthermore, the company may be deleted unilaterally by the Business Register.

The initial share capital can range from €1.00 to €50,000.00 (from one euro to fifty thousand euros). Setting the share capital based on the expected startup expenses for the business is recommended until it becomes self-sustainable. Keep in mind that the minimum liability for the shareholder(s) is €2,500, and with a larger share capital, the liability and risk increase accordingly. If the share capital is less than €2,500, the shareholder(s) liability towards the company will still be €2,500.

By law, each company’s equity must be at least 50% of the share capital. Equity is the net assets of the company, including money, goods, receivables, and accumulated profits from previous years. This requirement is in place to protect creditors. For example, if a company’s share capital is €1000, its equity should not be less than €500. If equity falls below the required amount, the company should try to increase its profits, add shareholder reserves, or write off shareholder claims. In severe cases, liquidation may need to be considered. The business register will monitor a company’s equity based on annual financial reports and will issue a notice if the equity requirement is not met.

We hope that your company never faces financial difficulties, but you must ensure its net assets (equity capital) don’t fall below half of its share capital, or below the minimum share capital required by law. This may occur if expenses are higher than income or are reported inaccurately. Possible solutions to restore equity include earning profits, adding capital from shareholders, or converting shareholder loans into equity reserves. If the company is insolvent for an extended period, the management board must file a bankruptcy petition with the court immediately. 

The company must be dissolved by undergoing a voluntary liquidation process when shareholders are no longer interested in keeping it and it has ceased operation. Don’t leave the company inactive without properly submitting required reports, or neglect it completely.