Accounting Services in Estonia

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.

BOOKKEEPING SERVICES IN ESTONIA

Basic requirements for the organisation of accounting

Each company must prepare and submit an annual return to the Commercial Register for the previous year by June 30 of the current year.

All business transactions must be recorded in accounting programs.

All business transactions must be documented.

Accounting should provide a reliable, objective, and comparable view of the financial situation, performance, and cash flows of the company.

All accounting documents must be kept in the archive for at least 7 years.

Opening balance sheet

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.

Accounting policies and procedures

Procedures for maintaining internal accounting should be developed at the beginning of the activity.

Internal accounting procedures should:

  • Describe the required chart of accounts with a description of the content of these accounts.
  • Regulate the procedure for documenting and recording transactions.
  • Establish circulation and storage of primary documents.
  • Regulate the maintenance of accounting registers.
  • Reflect income and expenses in the profit and loss statement.
  • Describe the inventory, assets, and liabilities of the company.
  • Determine the accounting policy, reporting procedure and other accounting.

Internal accounting rules are binding and individual for each and every company.

Charts of accounting

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 90 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

Methods of accounting

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.

Annual report of an Estonian company

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.

Financial year report

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.

Stages of preparation of an annual report

  1. Preparation of annual accounts
  2. Preparation of a report on the activities of the enterprise
  3. Approval of the annual report

Filing of the annual report includes the following steps:

  • Drawing up a proposal for the distribution of profits or coverage of losses for the financial year
  • Submission of an annual report for approval

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.

Micro-enterprise

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.

Small-scale business

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.

Medium-sized and large enterprise

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.

Components of the annual report

1. Balance sheet and income statement

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.

2. Statement of cash flow

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.

3. Statement of changes in share capital

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.

4. Attachments

The number of attachments to the annual report depends on the specifics of the company, but you should definitely include:

  • Specification of the financial reporting standard, on the basis of which the annual accounting report was prepared
  • The accounting policy used in preparing the annual report
  • Clarification of material items of the main reports and their changes during the reporting period
  • Other significant circumstances related to the entity’s financial situation, performance, and cash flows

Company management report

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.

Audit of Estonian companies

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.

Liabilities

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:

  • Income/profit from sales – 4,000,000 EUR
  • Total assets at the reporting date – 2,000,000 EUR
  • Personnel of the company – 50 people

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:

  • Income/profit from sales – 12,000,000 EUR
  • Total amount of assets at the reporting date – 6,000,000 EUR
  • The number of personnel is 180 people

An audit of annual accounting is mandatory for:

  • All public limited liability partnerships with more than two shareholders
  • Local authority
  • A state accounting institution
  • Legal entities governed by public law
  • Political parties and companies receiving funding from the state budget

Organisation of audits

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.

Liability of the parties

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.

Useful references

Title Description
EMTAEMTA Estonian Tax and Customs Board
Business registerariregister.rik.ee Business register
Credit infocreditinfo.ee Krediidiinfo
Kalkukalkulaator.ee Salary/Wage and Tax Calculator

Accounting services in Estonia 2023

Distributed profit and distribution dividends. Limited liability companies without registered capital

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:

  1. If the share capital of 0 EUR and the shareholder requirements of 0 EUR (mainly justified by the lack of time to fulfill the deposit obligation), the issue of the fund will mean an increase in the authorised capital;
  2. Recognition of the authorised capital (e.g. 2,500 euros) and shareholder (unpaid authorised capital) requirements of 2,500 euros (justified, especially in cases where the term of payment is specified in the constituent documents)The issue of the fund will require an increase in the authorised capital and a simultaneous reduction with the liquidation of the claim;
  3. If the share capital is specified with 0, where the unregistered share capital (e.g.) is 2,500 euros and the shareholder requirements are 2,500 euros (justified, in particular, in cases, when the share issued on the reporting date and filed for registration, but not yet registered in the trade register), the authorized capital should also be increased taking into account the issue of the fund and at the same time reduced if the requirement is excluded.

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.

Wisor Group OÜ offers accounting services for Estonian companies that already have a VAT number, as well as accounting services for companies without a VAT number. We have successful experience in various business segments and are currently developing over 900+ companies in Estonia and abroad. Therefore, our company additionally offers clients assistance in registering a VAT number in Estonia, assistance in obtaining an EORI number, and drawing up an annual report.

FREQUENTLY ASKED QUESTIONS

When doing business in Estonia, an entrepreneur undertakes to comply with local accounting standards. The company needs to maintain accounting records so that creditors and business partners can be confident in the company’s financial position, as well as for accurate tax calculations.

Yes. In this case, the price will depend on the number of transactions for the relevant financial period. Please contact us for a quote.

Responsibility for providing false information lies with the contracting organisation and the Accountant at the same time. The client is responsible for ensuring the accuracy of the provided data on the income and expenses of the organisation, while the Accountant is responsible for the use and processing of the initial data in accordance with the letter of the law.

You can grant us access to your accounting by using a digital signature through authorisation in the e-MTA, send a power of attorney/application by email or in person at a service bureau.
A step-by-step guide is added to the order confirmation of our services.

Annually, no later than 6 months after the end of the financial year (often – the calendar year, from 1 January to 31 December), an annual report should be prepared and submitted to the Commercial Register containing a comprehensive overview of the company’s performance for the previous financial year.

Yes, even if there was no business activity.

The information that must be provided in the annual report depends directly on the size of the company.

  • Micro-enterprise
    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.
  • Small-scale business
    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.
  • Medium-sized and large enterprise
    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.

We accept documents in many languages (the accounting department considers each case on an individual basis). Be prepared that we can contact you to clarify the content of the source documents. Financial statements are prepared in Estonian (in the official currency of Estonia – the euro, indicating the degree of accuracy used in figures).

Purchase and sales invoices must include the following information:

  • Title
  • Account number
  • Date of issue
  • Description of purchased goods or services
  • Amounts (quantity, unit price, total amount)
  • Names of supplier and customer
  • Addresses of supplier and customer
  • Supplier company registration number
  • VAT number of the company

Bank statements are allowed in PDF and XML formats.

No. If the company has employees who are not tax residents of Estonia and work outside Estonia, the salary payments to these foreign employees are not taxed in Estonia, and we do not file tax returns for these employees. Foreign employees must declare their income on behalf of an Estonian company in the country in which they are taxable.

After concluding with us an agreement on the provision of accounting services, all the source documents of your company must be sent to the provided email address of your assigned Accountant.

You will receive an access to enter our electronic accounting environment by email, where all information about your business is stored.

Our Accountants use the following software: SimpleBooks, e-arveldaja, and 1C Company.

Merle

Merle Paju

Managing Associate

+ 372 555 90 537
contact@wisorgroup.com