Accounting is an integral part of doing business on behalf of an Estonian company, the purpose of which is to keep records and obtain an overview of the economic performance and financial state of the company.
All companies and branches of foreign companies operating in Estonia are subject to accounting. Accounting for each company must comply with government-set standards for the results to be comparable and understandable.
To begin with, you should prepare an opening balance sheet, which lists the assets, liabilities, and the share capital of your company before you start an economic activity.
Procedures for maintaining internal accounting should be developed at the beginning of the activity.
Internal accounting procedures should:
Internal accounting rules are binding and individual for each and every company.
Estonian companies can choose between two types of income statement schemes. In Chart 1 of the income statement, business expenses are divided by the nature of expenses (for example, material costs, labor costs, depreciation deductions). This is often used by smaller companies that do not need to assort costs by function.
In Chart 2 of the income statement, operating expenses are assorted by function (e.g. cost of goods sold, advertising costs, general administrative expenses). Chart 2 is usually more difficult to implement because all business expenses require a decision about which business function they are associated with. Certain costs (for example, labor costs) must be apportioned pro rata across the various functions. The profit statement based on Chart 2 gives a better overview of the costs of various functions of the company, while the distribution of costs by function is subjective.
The choice of the appropriate chart for the profit statement should be based on which division gives the best idea of the dynamics of the economic activity. However, if it turns out that the current choice of the chart has not justified itself, you can switch to another chart. It should be borne in mind that when moving from one chart to another, comparable indicators of the previous period must also be adjusted retrospectively (in accordance with the new method).
An entity is also required to indicate in its internal accounting procedures whether it is a micro, small, medium, or large company, since there are significant differences in accounting policies and reporting forms depending on the business category.
| Minimum service cost | 30 EUR/month | Capital obligation | not required |
| Annual report writing | from 250 EUR | Local staff member | not required |
| Corporate income tax | 0% | Physical office | not required |
| Convention for the Avoidance of Double Taxation | 62 countries | Accounting audit | not required |
There are two systems for accounting for business transactions in Estonia – accrual and cash accounting. Accounting in Estonian companies is on an accrual basis, but sole proprietors (FIEs) are allowed to account on a cash basis. In the case of accrual accounting, transactions should be recorded as they occurred, regardless of whether the related funds were received or disbursed.
Annually, no later than 6 months after the end of the financial year, an annual report should be prepared and submitted to the Commercial Register containing a comprehensive overview of the company’s results for the previous financial year. In addition to the above, additional reports and declarations must be submitted in accordance with the form, structure, and scope of the enterprise.
The annual report is mandatory for all accounting organisations in Estonia and must comply with the form prescribed by law. The annual report consists of an annual accounting report and a report on the activities of the company.
The financial year of the company is 12 months. In most cases, the fiscal year is a calendar year (from January 1 to December 31), but a company charter or other document that regulates its activities may also set a different fiscal year in accordance with the operating cycle of the accounting entity. In exceptional cases, the financial year may be shorter or longer than 12 months, but not longer than 18 months.
The annual financial statements must contain up-to-date and truthful information about the financial situation, financial results, and cash flows of the accounting organisation. The annual report consists of the main reports (balance sheet, profit and loss statement, cash flow statement and statement of changes in equity) and annexes.
According to the Accounting Law, micro- and small-scale enterprises can prepare an abridged annual report, which consists of at least two main reports – a balance sheet and a profit statement, as well as up to 3 annexes. The micro-enterprise can (optionally) prepare an abridged or full annual report. Therefore, a micro-enterprise that uses the abridged annual report option is not required to prepare a management report.
The abridged annual report of a small-scale company is drawn up in accordance with the Estonian financial reporting standard and consists of two main reports: a detailed balance sheet and an income statement, as well as up to 9 annexes. The small business also undertakes to prepare a management report.
The annual report is drawn up either in accordance with the requirements of the Estonian financial reporting standard, or in accordance with the requirements of the International Financial Reporting Standards (IFRS): a management report, 4 main reports, and an average of 15 annexes. A full annual report is required for medium-sized and large companies as well as non-profit associations and foundations.
Financial statements are prepared in Estonian language in euros (the official currency of Estonia), indicating the degree of accuracy used in figures.
The balance sheet reflects the financial situation (assets, liabilities, and capital) of the accounting entity at the end of the financial year. The income statement is a statement of income and expenses and reflects the economic results for the reporting period.
This report reflects the cash flow for the reporting period (receipts and payments of cash). The indication of receipts and payments for the reporting period occurs by grouping them in accordance with their purpose for financial, investment, and commercial activities.
This report reflects changes in the equity of the company during the reporting period. The financial statements include contributions to the share capital and distributions to owners, profit or loss, the effect of changes in accounting policies, increases and decreases in provisions, and other transactions that impact entries in equity.
The number of attachments to the annual report depends on the specifics of the company, but you should definitely include:
The management report provides an overview of the company’s operations and the circumstances that have played a decisive role in assessing the financial situation and business activities, significant events in the financial year, and the expected directions of development in the next financial year.
If at the end of the financial year the capital of the company does not comply with the requirements of the Commercial Code (that is, it is negative), then the management report should describe the actions that are being taken to ensure the stability of the enterprise in the future, if such have not yet been taken.
For accounting entities subject to audit, the management report must include the main financial ratios for the financial year and the previous financial year, as well as the methodology (formulas) for their calculation.
An audit or review of the annual financial statement aims to increase the reliability of your company’s financial information in the eyes of investors, shareholders, and the public.
If the company is to be audited, the annual report must be accompanied by a certified/sworn auditor’s report. An audit of annual report is mandatory for accounting entities, the annual report of which must include at least two indicators of the financial year that exceed the following conditions:
Also, an audit of annual report is mandatory for accounting entities, in whose annual statements at least one of the indicators of the financial year exceeds the following conditions:
An audit of annual accounting is mandatory for:
The audit is carried out by an independent appraiser, that is, a certified auditor or an audit firm. The Board of the company appoints an auditor, determines the number of auditors, terms of payment, and the deadline of full powers. Appointment of an auditor requires their written consent. Prior to the audit, it is necessary to conclude a contract with a natural person included in the list of certified auditors in Estonia.
The certified auditor is obliged to keep confidential the information obtained during the audit and is liable for damage caused by violation of their duties arising from their professional activities.
It is important to remember that a certified audit report does not relieve the Management Board from liability for the content of the accounting report.
| Title | Description |
|---|---|
 EMTA |
Estonian Tax and Customs Board |
 ariregister.rik.ee |
Business register |
 creditinfo.ee |
Krediidiinfo |
 kalkulaator.ee |
Salary/Wage and Tax Calculator |
The Estonian Economic Code permits the establishment of a limited liability partnership without contribution, but prohibits the increase and reduction of the charter capital of a limited liability partnership, and payments from a limited liability company until the deposits are paid in full. Therefore, in order to be able to make payments from accumulated profits to shareholders, the authorized capital must be paid in full.
Only an individual can be a shareholder in a private limited liability company without a deposit. Prohibited payments mean payments to shareholders from capital (dividends, buybacks of own shares, etc. etc.), so payments made in the ordinary course of business (wages, remuneration of a member of the board of directors, etc. are not subject to the prohibition.
The distribution of dividends in a limited liability company requires the existence of already distributed profits. Thus, in addition to monetary and non-monetary contributions, the question also arises as to whether and to what extent the equity of a private company can be paid without contributions from (free or tied) equity, i.e. issue a fund and/or compensate (dividend) claim. When the nominal value of a share increases due to free capital, that is. e. in the case of the issue of the fund, there is no obligation to pay profits to shareholders (as opposed to paying dividends to shareholders)and thus one or the other solution may also mean another tax regime.
Until the contribution is paid in full, the distribution of profits (dividends) among the shareholders is excluded, and thus there can be no shareholder claim for payment of dividends (to be deducted) to the limited liability company. This is primarily because the dividends cannot be distributed chronologically until an internal payment is made. In practice, the interpretations of the Ministry of Justice and the Commercial Register (courts) differ. The Ministry considers the real «monetary» payment to shareholders as a payment, and the Commercial Register considers the payment as creation of a claim. If a private limited liability company has money, in practice it is still possible to lend to shareholders and compensate for later liability on payment of dividends with a comparable loan requirement. Such conduct is not likely to infringe the interests of creditors, but is contrary to the prohibition of lending in the Economic Code. The interpretation of the Ministry of Justice can be assessed in the same way, in which case the interests of creditors are not violated, but contradicts the ban on payments provided by the Economic Code. For example, such profit sharing is considered as shareholder sharing for tax purposes.
Although, according to the Commercial Code, a limited liability company may increase its authorised capital at the expense of the equity of a limited liability company without making contributions (issue of a fund)the share of the shareholder increases in proportion to the nominal value of the share in the event of the release of the fund. Since the Economic Code prohibits increasing (and reducing) the authorised capital of a private company until the full payment of contributions, and the increase in the nominal value of a share means an increase in the authorised capital, it becomes unrealistic to make a contribution from own capital. It also does not depend on the treatment of unpaid authorised capital, as:
In the first case, the issue of a fund would clearly mean an increase in the authorised capital and, would thus, be contrary to the prohibition of an increase in the authorised capital in the Economic Code. The second and third options, too, will not be much better, so the surest way to pay for a deposit is a monetary or non-monetary contribution to the charter capital.
+372 5696 6260