Category: Accountancy

How You Can Check up on an Estonian Company

[vc_row][vc_column][vc_column_text]When planning to conclude a deal with a counterparty from Estonia, you may have a problem finding reliable information resources based on which you can verify the necessary information about the counterparty, such as the date of establishment, location address, number of employees, turnover for previous periods, the presence of tax debts, etc.

In today’s interconnected business world, international partnerships and collaborations are common. However, the lack of easy access to this essential information can lead to uncertainty and potential risks. Therefore, it is crucial to seek assistance from experienced professionals or trusted service providers who specialize in due diligence and can help ensure the reliability of your potential Estonian counterpart. Making informed decisions and mitigating risks through thorough research and verification is the key to successful and secure international business ventures.

Verification of information that is available in the database ariregister.rik.ee. Such a verification will help to get a sufficiently capacious idea of the counterparty company.

The e-Business Register is the official portal of the Estonian state that includes the data of all legal entities registered in Estonia in a single environment. The Registration Department of Tartu County Court is the registrar. In addition, information on foreign companies is also available through the European Business Register.

While it is possible to conduct an independent examination of the company, it’s important to note that a comprehensive assessment, encompassing legal and financial aspects, is typically executed by legal professionals and accountants. We recommend utilizing our services to ensure a thorough and legally sound evaluation of the company, providing a comprehensive and accurate overview.

Service will be glad to help you in checking Estonian legal entities and verify the financial and tax information.

Estonian company legal check up service — 750 EUR includes:

  • Information about the legal status of the company (operating company, reorganization, bankruptcy, liquidation)
  • The address of the legal entity
  • A list of documents of legal entities that are available at the current time (decisions of members of the Management board, financial statements, etc.)
  • Extract about the company with data on the amount of the authorized capital, shares, founders, members of the Management board and participants
  • The history of events for the entire existence and activity of the company
  • Copies of the company’s financial statements for a certain year

Service will be happy to provide you with a legal check up on Estonian companies based on your requirements. Please leave your request on our website and our specialists will contact you as soon as possible.[/vc_column_text][us_btn label=”contact us” link=”%7B%22url%22%3A%22https%3A%2F%2Fwww.estonia-company.ee%2Fcontacts%2F%22%7D” align=”center”][/vc_column][/vc_row]

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Partnership Possibility with Service

[vc_row][vc_column][vc_column_text]It is of utmost importance to consider partnering with a legal entity in the chosen jurisdiction when you have a valuable client. Our expertise, dedication, and comprehensive solutions ensure that your client’s needs are not only met but exceeded. We bring a proven track record of delivering exceptional results, making us the ideal choice for a successful partnership that can enhance your client relationships and drive mutual success.

Our company frequently receives inquiries from various service providers, indicating their clients’ keen interest in commencing business operations in Estonia. To ensure a mutually advantageous process for all parties – our company, the service providers, and the clients – it is imperative to establish a collaborative partnership in advance. By doing so, we can guarantee a legal, efficient, and seamless progression of the business setup process, ultimately fostering success and satisfaction for everyone involved.

Our company is always eager to initiate partnerships based on mutual agreements and shared benefits. We are committed to facilitating successful collaborations. From our side, we can offer two distinct options to commence the process:

  1. Start the process immediately based on the selected service and provide your client to us. In this scenario, the service provider has the flexibility to adjust or get their commission.
  2. You can assist the client by yourself and adjust a commission above our price based on your preferences and requirements. We will provide you the services, and you can communicate based on the client name with me.

In both cases, our company is dedicated to ensuring a smooth and productive partnership by signing a cooperation agreement in advance.

In the event that the second option is preferred, it is crucial to formally enter into a Non-Disclosure Agreement (NDA) in advance. Within the business context, collaborative endeavors are commonly acknowledged as integral to the attainment of success.

Partnerships between companies, individuals, or organizations can be powerful catalysts for innovation, growth, and achieving common goals. However, as these collaborations grow more complex and encompass sensitive information, ensuring security and trust becomes paramount. This is where Non-Disclosure Agreements (NDAs) play a pivotal role.

NDAs are legally binding documents that define the terms and conditions under which confidential information is shared between parties. Their importance cannot be overstated when embarking on a collaborative venture. Here’s why they are essential:

  • Protecting Sensitive Information: Collaborators often need to share proprietary data, trade secrets, and other sensitive information. An NDA establishes a legal framework to protect this information, ensuring it remains confidential and is not disclosed to unauthorized parties.
  • Building Trust: NDAs create an environment of trust and assurance. They demonstrate a commitment to protecting each other’s interests and ideas, which is crucial for fostering a strong, mutually beneficial partnership.
  • Security in Communication: Secure communication is vital in any collaborative effort. NDAs set the expectation that sensitive discussions will remain confidential, encouraging partners to communicate openly without fear of information leaks.
  • Enforcing Exclusivity: The exclusivity clause within an NDA can prevent the collaborating parties from engaging with clients who came from your side or disclosing information to them. This exclusivity fosters a sense of unity, making it clear that both parties are working exclusively to help each other succeed.
  • Defining the Rules of Engagement: NDAs establish clear rules and guidelines for handling confidential information, thereby reducing the risk of misunderstandings and disputes. This clarity ensures that both parties are on the same page and that there is a shared commitment to the partnership’s success.
  • Achieving Common Goals: Collaborations often have specific goals and objectives. NDAs help partners remain focused on these goals by minimizing distractions related to the misuse or mishandling of sensitive information.

These agreements create a foundation of trust, security, and exclusivity that is essential for achieving common goals. By safeguarding confidential information, encouraging open communication, and providing a clear roadmap for the partnership, NDAs play a crucial role in the success of collaborative endeavours. So, when embarking on a new partnership, remember that an NDA is not just a formality but a key tool for ensuring the prosperity and security of our shared ambitions.

Service is consistently prepared and eager to initiate a partnership. Please submit your request and inform us of your questions.[/vc_column_text][us_btn label=”contact us” link=”%7B%22url%22%3A%22https%3A%2F%2Fwww.estonia-company.ee%2Fcontacts%2F%22%7D” align=”center”][/vc_column][/vc_row]

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Taxes in Estonia 2024

[vc_row][vc_column][vc_column_text]22% instead of the previous 20%.

Due to this change in the Law on Turnover Tax (Käibemaksuseadus, KMS) there are two transitional provisions:

  • A person obliged by turnover tax, who uses the cash basis of accounting for turnover tax, as early as December 31, 2025, may pay tax on the turnover of goods or services that occurred after December 31, 2023, at the rate of 20%, if the buyer was issued an account, and the goods were shipped or available or the service was provided before January 1, 2024.
  • In the case of transactions involving long-term contracts, particularly those involving real estate, the person obliged by turnover tax has the right to apply until 31 December 2025 the rate of turnover tax of 20% in the transfer of taxable goods or services on the basis of a written contract concluded before 1 May 2023, If the relevant contract provides that the price of the goods or services includes a turnover tax or a 20% turnover tax is added to the price, and the contract does not provide for a price change due to a possible change in the turnover tax rate.

Article 16 of KMS lists goods and services exempted from turnover tax, as well as cases arising from various articles of the law that are not considered turnover and which are therefore also not subject to tax.

According to KMS Article 15, Part 21, the turnover tax rate is 5% of the taxable value of a periodical on both physical and electronic media, except for the periodical, Publishing mainly advertising and private ads or erotic and pornographic materials, video or audio content.

Part 2 of Article 15 of KMS lists goods and services taxed at the rate of 9%, part 3 lists goods taxed at the rate of 0%, and part 4 lists services taxed at the rate of 0%.

Other goods and services are taxed from 01.01.2024 at a rate of 22%.

The turnover limit, exceeding which from the beginning of the calendar year there is an obligation to register as a person liable for turnover tax, is 40,000 euros.

A person obliged by turnover tax is a person engaged in business activity, including a public-legal entity, a state, municipality or city institution, which is registered or obliged to register as a taxable person, regardless of residence.

Income tax

Income tax rates are 20%; 14%, 10%, 7%, 0%, 20/80 and 14/86.

A significant change in income tax rates is foreseen from 01.01.2025.

The tax rate of 20% applies to natural persons (i.e. both residents and non-residents), contractual investment funds, equity funds and non-resident legal entities that receive taxable income, which means that the tax rate of 20% applies to non-resident legal entities that have no permanent place of activity in Estonia.

The 14% tax rate applies in the case specified in Article 471 of the Income Tax Act (Tulumaksuseadus, hereinafter TuMS), which relates to advance payments of the resident credit institution and the Estonian branch of the non-resident credit institution.

According to Article 47.1 of TuMS, the resident credit institution and the Estonian branch of the non-resident credit institution are obliged to pay by the 10th of the third month of each quarter to the bank account of the Tax and Customs Department advance payments on income tax according to the rate, established by Article 4, paragraph 5 (14%), from profits made in the last quarter prior to the performance of the duty to pay taxes under Article 50, parts 1 and 2, Article 501 and Article 53, part 4.

The tax rate of 10% applies to the income of an individual specified in article 201, paragraph 4, and article 21, parts 2 and 3 of TuMS.

In article 201, paragraph 4, TuMS establishes: Payments not indicated in part 3 to the insured person, the owner of units and the user of the investment pension account, as well as payments on the basis of part 5 of article 724 of the Law on Funded Pensions are subject to income tax at the rate specified in part 2 of article 4 of this Law, if the beneficiary of the payment has reached the age of old-age pension in the meaning of the Law on State Pension Insurance or reaches it within five years».

Article 21, paragraph 2, of TuMS deals with the payments listed herein which are made to the insured person on the basis of an insurance contract, an additional funded pension, which corresponds or is equivalent to the conditions laid down in article 63 of the Act on Funded Pensions, an insurance company that has a permit for activities issued in a Contracting State.

Part 3 of Article 21 TuMS refers to the payments listed therein made to the owners of units of the voluntary pension fund established in Estonia in accordance with the procedure established by the Act on Funded Pensions and the voluntary pension fund, acting in a Contracting State on equal grounds.

The 7% tax rate should apply to the payment of dividends to an individual who is taxed under section 501 of TuMS (i.e. at 14/86) at the level of a business partnership paying dividends or at the level of a business partnership, which distributed the profits on which dividends are based, and if they are not taxed under Article 50, Paragraph 1.

If the dividends taxed under section 501 TuMS are paid to a non-resident natural person, then in the case of the double taxation treaty (tax treaty) the withholding rate of income tax shall be applied, specified in the tax treaty if it is less than 7%.
If the Estonian Business Association pays the individual dividends that it has taxed at the rate of 14/86, the payer already withholds 7% of the income tax on dividends, and the individual is no longer obliged to pay the additional tax on dividends.

For example, tax treaties with the United Arab Emirates, Bahrain, Georgia, Jersey, Cyprus, the Isle of Man and Mexico exempt income tax dividends if there is a residence certificate, and tax treaties with Bulgaria, Macedonia and Israel reduce their withholding rate to 5%.
The remuneration paid to a ship’s crew member shall be taxed at the rate of 0% in the cases specified in paragraphs 5 and 6 of article 13 TuMS.

At the tax rate 20/80 are taxed payments made by a resident legal entity, a public revenue institution and a permanent place of business in Estonia of a non-resident legal entity (special benefits, gifts, donations, reception expenses, dividends, expenses not related to business, profit attributable to a permanent place of activity, deducted in cash or in kind from a permanent place of activity during the tax period, Lost income or expenses incurred in operations with a tax advantage, the difference between the market value and the book value of the property withdrawn on departure from Estonia, the cost of using the loan, the profit of the commercial partnership, controlled by a foreign company, the amount that caused the tax non-conformity).

The payers of income tax with a special allowance (tax rate 20/80), specified in article 48 TuMS, are an employer-natural person, a legal entity resident, a non-resident with a permanent place of activity in Estonia, A non-resident acting as an employer in Estonia, an Estonian public institution and a local government unit in Estonia that provide taxable special benefits.

The tax rate 14/86 applies to dividends paid by a legal entity resident, a public revenue institution and a permanent place of activity of a non-resident legal entity in Estonia (profit distribution), which are paid and taxed according to the procedure set in article 501 of TuMS.

The income of a natural person exempted from income tax depends on the person’s income and is up to EUR 654 per month and up to EUR 7848 per year.

According to 23.5 TuMS, starting from the tax period when a natural person who is a resident of a contracting state reaches the retirement age of old age, The taxable income of the tax period is deducted from his taxable income up to twelve times the average old-age pension (this amount is set by the State Budget Act at €704 per month).

From 1 January 2024, the Income Tax Act abolished the right to deduction from the taxable income of an individual:

  • additional income not subject to income tax for child support;
  • additional income tax-free income for the spouse (spouse) and
  • housing interest.

The non-taxable daily subsistence allowance for foreign business trips is 50 euros for the first 15 days of the foreign business trip, but not more than 15 days in a calendar month, and 32 euros for each subsequent day.

According to paragraph 6 of Article 48 TuMS, paragraph 4, the granting of credit at an interest rate below market conditions is a special benefit, unless the interest at the time of payment is equal to at least twice the interest rate, last published in accordance with Part 2 of Article 94 of the Law of Obligations (Võlaõigusseadus).

In Official Communications (Ametlikud Teadaanded) the Bank of Estonia announces the interest rate twice a year (i.e. until January 1 and July 1 of each year), applied to the main refinancing operations of the European Central Bank mentioned in Part 1 of Article 94 of the Law of Obligations Act, and for a long time it was 0.00%, but on 30 June 2023 the Bank of Estonia announced that the last interest rate, applicable to the main refinancing operations of the European Central Bank until 01.07.2023, is 4%.

In accordance with article 48, paragraph 8, of TuMS, when providing for the use of a car in the use or possession of an employer, for the performance of activities not connected with the performance of work or official tasks, or for activity, The price of the special allowance is 1.96 euros per month for each engine power unit (kW) in the vehicle register. In the case of a car over five years of age, the price of a special allowance is 1.47 euros per unit of power (kW) of a car.

Simplified taxation of business income

According to article 4 of the law on simplified taxation of business income (Ettevõtlustulu lihtsustatud maksustamise seadus), the tax rate on entrepreneurial income is:

  • 20% of the amount deposited in the business account if the amount does not exceed 25,000 euros in the calendar year;
  • 40% of the amount received in the business account exceeded 25,000 euros in the calendar year.

The payer of the business income tax is a natural person who has an entrepreneurial account, which cannot be obligated by the turnover tax of a person or to conduct activities as a natural person entrepreneur in the same or similar field of activity.

Social tax

The social tax rate is 33%.

The monthly rate, which is the basis for the minimum social tax obligation in 2023, is 654 euros.

According to article 21 of the Law on Social Tax, the monthly social tax rate, which is the basis for payment of social tax, is established by the State budget for the budget year. The monthly rate approved by the State budget may not be lower than the minimum monthly rate for work established by the Government of the Republic, which was in force on 1 July of the year preceding the budget year. Assuming that the monthly rate for work in 2023 was 725 euros, the monthly social tax rate in 2024 would be 725 euros.

An individual entrepreneur pays social tax per year at least twelve times the monthly rate established by the State Budget Act.

According to article 4 of the Social Tax Act, social tax payers are:

  • resident legal person;
  • individual;
  • non-resident having a permanent place of activity in Estonia or making payments specified in Part 1 of Article 2 of this Law;
  • public, parish or city institution;
  • the State, parish or city in the cases provided for in Article 6 of this Law.

Unemployment insurance payments

The unemployment insurance rate is 1.6% for the employee and 0.8% for the employer.

The insured person’s obligation to calculate and retain unemployment insurance contributions ends on the last day of the month on which the insured person reaches the age of old-age pension or the granting of an early or flexible old-age pension.

Mandatory funded pension contribution

The rate of contribution of the mandatory funded pension is 2%.

Land tax

The land tax is paid by the landowner or land user in the case established by Article 10 of the Law on Land Tax.

Local governments set new land tax rates on the basis of the value of the land (i.e. its taxable price) no later than 1 July 2023, and submit them to the Tax and Customs Department no later than 1 September 2023.

In order to mitigate the impact of land revaluation, which will have an impact on land tax, tax rates have been reduced from 0.1% to 2.5%, from 0.1% to 1.0% from 2024.

The maximum tax rates established by the Law on Land Tax from the taxable price of land per year are in 2024:

  • 0.1-0.5 per cent: Land for housing and outbuildings of agricultural land
  • 0.1-0.5 per cent: agricultural land
  • 0.1-1.0 per cent: land of other use.

The land tax is calculated and the land tax notice is sent by the Tax and Customs Department. The land tax is transferred to the bank account of the Tax and Customs Department. If the annual amount of the land tax does not exceed 64 euros, the land tax must be paid simultaneously by 31 March. In the case of a tax exceeding 64 euros, at least half of the tax must be paid by 31 March, but not less than 64 euros. The remainder of the land tax must be paid no later than 1 October.

Starting in the autumn of 2023, all land tax payers can see in the e-services of the Tax and Customs Department the projected amount of land tax for 2024.

Heavy duty

Heavy goods vehicles are taxed for the carriage of goods:

  • a truck registered in the road register with a total mass of 12 tons or more, except for the truck referred to in paragraph 2 of this article;
  • a road train consisting of a lorry and one or more trailers with a registered or full mass of 12 tons or more, the truck of which is registered in the road register.

The taxation of a truck depends on the registered mass, the number of axles and the type of axle suspension.

Tax rates for heavy goods vehicles are given in the Schedule to the Law.

The tax period for heavy goods vehicles is the quarter, and the tax must be paid to the Tax and Customs Department no later than the 15th of the first month of the tax period.

For more information on heavy goods vehicle tax, please visit the Tax and Customs Department website.

Excise duty

In Estonia, excises are imposed on alcohol, tobacco, fuel, electricity and packaging. Taxation of excises is mainly regulated by the Law on Excise Duties on Alcohol, Tobacco, Fuel and Electricity and the Law on Excise Duties on Packaging.

You can read more about excise duties on the website of the Tax and Customs Department.

Local taxes

Local taxes are established by decree of the county or city council in accordance with the conditions stipulated by the Law on Local Taxes. The parish or city transmits the tax decree electronically or electronically to the Tax and Customs Department and it is published on the home page of the Tax and Customs Department.

Local taxes

  • advertising tax;
  • road and street closures tax;
  • motor vehicle tax;
  • animal maintenance tax
  • entertainment tax;
  • parking charge.

Environmental charge

Environmental charges are divided into the right to use natural resources and pollution charges.

Royalties for the use of natural resources under article 7 of the Environmental Fees Act (Keskkonnatasude seadus) are royalties for mining rights, fees for special water use, fees for fishing rights and fees for hunting rights, The rates are set out in articles 9 to 121 of the Act. Pollution charges are applied for the discharge of pollutants into outdoor air, water, groundwater or soil or the disposal of waste.

Environmental charges shall be paid by a person who has obtained the right to extract natural resources from the natural state, discharge of pollutants into the environment or disposal of wastes on the basis of a permit or on other grounds stipulated by law, or to those who have done so without the corresponding right.

Accountants and tax advisors of Service will be happy to advise you on tax matters related to your Estonian company and provide accounting services in Estonia.[/vc_column_text][us_btn label=”contact us” link=”url:https%3A%2F%2Fwww.estonia-company.ee%2Fcontacts%2F” align=”center”][/vc_column][/vc_row]

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Tax Changes in Estonia Will Not Affect International Entrepreneurs

[vc_row][vc_column][vc_column_text]Tax Changes in Estonia Will Not Affect International Entrepreneurs

Lawyers and tax consultants from Service OÜ have prepared detailed information on the forthcoming tax changes in Estonia in 2023 – 2025.

Growth of the tax-free minimum

Since 2023, Estonia has been increasing the income-exempt minimum and will compensate for the previously suspended payments to the second pension. The following is an overview of the significant legislative changes in the area of responsibility of the Ministry of Finance, which will come into force in 2023.

Tax-free income from this year increased from 500 to 654 euros per month or from 6,000 euros to 7,848 euros per year.

The tax-free minimum is calculated for a calendar year and employees earning up to 14,400 euros per year will be able to use it in full, i.e. deduct 7,848 euros from their taxable income. For those earning more than EUR 14,400 a year, the tax deduction is gradually reduced to zero for people earning more than EUR 25,200 a year.

For recipients of the old-age pension, the tax-free income is equal to the average old-age pension, which in 2023 will amount to 704 euros per month. For old-age pensioners, this tax deduction is retained regardless of their total annual income.

Fuel excise increase postponed

The reduced excise rates were extended until 30 April 2024 – this applies to diesel fuel, fuel oil, natural gas, liquefied gas and electricity.

The gradual increase of excise duties to the pre-crisis level is planned for the period from May 1, 2024 to May 1, 2027.

Until 30 April 2024, the agricultural and shale sectors will be able to use diesel fuel with special marking at a minimum allowed rate of 21 euros per 1000 litres (excise duty on conventional diesel is now 372 euros per 1000 litres).

Increased excise duty on tobacco products and re-introduced excise duty on nicotine-containing liquids

Reimbursement of suspended contributions to pension pillar II

At the end of January, participants in the second pillar will be reimbursed for the public portion of contributions that were suspended for 14 months in 2020-2021.

These are persons born since 1961 who did not leave the secondary level and who continued to pay 2 percent of their gross income between 1 July 2020 and 31 August 2021, despite the fact that the State has suspended payments of 4 per cent. State payments were not suspended for those born before 1961. Those who left the second stage will also not be compensated in January, as they have already been compensated.

If payments are made to the pension and investment account, the compensable amount will also be transferred to the investment account. Those leaving second pillar in January will simply receive an additional payment.

The compensable amount is calculated on the basis of contributions made by the person during the period of suspension of public payments. If in the period from July 1, 2020 to December 31, 2022, the average yield of pension funds II stage is positive, then the compensable amount is increased by this yield.

Second-tier payments made by debtors can now be seized

As of 1 January 2023, the bailiffs have the power to seize the second-pillar debtor. This means that the owner of the pension register withholds the amount of the debt from the debtor. If funds are held in a pension fund, in a pension investment account or have been invested in securities through a pension investment account, they can still not be recovered to cover debts.

Increase in VAT and personal income tax

New coalition agreement provides for an increase in VAT and income tax

will increase from 1 January 2024 by 2 percentage points, and personal income tax – by 2 percentage points from 1 January 2025. The tax-free minimum will rise to 700 euros.

“Yes, it is clear that these are unpopular decisions. But, unfortunately, in the current security situation, we have no other option. We must increase defence expenditures and be ready to defend Estonia, no one else will bear these costs for us. In addition, in recent years we have built a kind of welfare state, and maintaining such a state requires expanding the tax base,” said Prime Minister of Estonia Kaya Kallas.

Conclusion

As can be seen from the above, tax changes will affect only the permanent residents of Estonia and will not affect the international entrepreneurs opening a company in Estonia – the tax on the retained earnings of the company will remain 0%. Also, the investment profit of the company is not subject to taxation – the purchase of real estate, vehicles, office equipment and furniture for business needs will not be subject to additional taxes. An Estonian company may not have local employees and the use of a virtual office is allowed, and the profit of the owner of the company may be distributed dividends, to the size and frequency of payments which are also not strict obligations.

A more detailed analysis of Estonia’s tax advantages over other European countries is available here.[/vc_column_text][us_btn label=”contact us” link=”url:https%3A%2F%2Fwww.estonia-company.ee%2Fcontacts%2F|title:Contacts” align=”center”][/vc_column][/vc_row]

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Europe Corporate Tax Rate

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Undistributed corporate income tax The need for employment of employees Social tax Minimal social tax to pay Personal income tax (from salary) Mandatory audit
Estonia 0% No 33% 0 EUR 20%
No
Latvia
0% Yes 34.09% 585 EUR 23% No
Cyprus 12.5% No 16.60% 0 EUR 35% Yes
Lithuania 15% Yes 21.27% 178 EUR 42%
No
Czech Republic 19% No 44.80% 0 EUR 22% No
Poland 19% No 35.85% 0 EUR 17% No
United Kingdom 23% No 31.55% 0 EUR 45% No
Spain 30% No 36.25% 0 EUR 42% No
Germany 30% No 36.66% 0 EUR 45% No
France 33% No 68% 0 EUR 45% No

[/vc_column_text][us_btn label=”contact us” link=”url:https%3A%2F%2Fwww.estonia-company.ee%2Fcontacts%2F” align=”center” css=”%7B%22default%22%3A%7B%22margin-top%22%3A%2220px%22%7D%7D”][vc_column_text]

ESTONIA

Estonia is a suitable country to establish a company because it is consistently appearing among the most open, competitive, and transparent economies in the world. This success is due to the intensive work on reducing bureaucracy, the rule of law and significant investments in infra-structure and human capital, which creates an environment that facilitates the search, development and supply of solutions and services on a global level. The attractiveness of Estonia is proved by many foreign investors, as well as the dominance of world-famous foreign companies in some sectors of the Estonian economy. The current income tax rate in Estonia is 20%. From the beginning of 2023, the generally applicable tax-free minimum is €654 per month. Registration requires at least one shareholder and one director (individual). 100% foreign ownership is allowed. If the majority of the directors do not reside in Estonia, the company must provide the e-Business Register with the contact details of the local representative who will be responsible for further communication with the public authorities. Annual reporting is submitted online to the e-Business Register. The audit is mandatory only for large firms. The size of the company is determined based on its total assets, income, and number of employees. Estonia’s e-residency is a unique programme of the Estonian government. Entrepreneurs who have received an e-resident card have access to all the country’s electronic services – they can manage the firm completely online, from signing contracts to paying taxes. But an e-resident card is not an analogue of an Estonian passport: it does not give the right to live in Estonia and does not grant tax status.

LITHUANIA

The Republic of Lithuania implements a business-friendly tax policy, and the entire tax system of the Republic of Lithuania is designed in accordance with the EU legislation and adheres to their provisions. Over time, after the restoration of Lithuanian independence, the tax system of the Republic of Lithuania underwent changes, i.e. it was redesigned in such a way that the state could attract as many foreign investments as possible, creating favourable conditions for them; in addition, efforts were made to expand the labour market. The main legislative act that sets out and regulates the principles of taxation in the Republic of Lithuania is the Law on Tax Administration, which not only establishes the rights and obligations of the tax administrator and taxpayers, but also regulates the procedure for calculating taxes.

CZECH REPUBLIC

The Czech Republic has a progressive taxation system that applies to both individuals and companies. In order to do business in the Czech Republic, companies must register with the Czech Trade Register and obtain a business license. Companies must also comply with local labour laws and regulations, as well as file taxes and other appropriate documents. Companies must also abide by the Czech Republic’s anti-money laundering and counter-terrorist financing regulations. The Czech Republic is a member of the European Union (EU) and the Economic and Monetary Union (EMU), which means that it is part of the single market and enjoys the benefits of the EU’s common external tariff and customs union. This means that goods can be imported and exported freely within the EU, and that EU companies can benefit from the free movement of goods and services across the region.

CYPRUS

Cyprus is known as an attractive location to do business due to its low corporate tax rate of 12.5%. This is one of the lowest tax rates in the European Union. Additionally, profits derived from foreign activities are not taxed in Cyprus, providing a great incentive for international businesses to set up shop in the country. Cyprus also has a number of tax incentives available to businesses. These include double taxation treaties with many other countries, which allow companies to pay taxes on their income in the jurisdiction where they operate rather than in the country where they are based. Other incentives include exemptions from withholding taxes, reduced tax rates for certain activities, and restrictions on capital gains tax. Cyprus does not require an employee, however, it requires a nominal director on site.

SPAIN

In Spain, businesses are subject to corporate taxes, which are calculated on their profits. The rate of tax depends on the size and nature of the company, but it is typically 25%. Additionally, companies may be subject to value-added tax (VAT), which is a tax on goods and services that is charged at a rate of 21%. Companies may also be subject to other taxes, such as social security contributions, property taxes, and withholding taxes. The most common complaint of those who want to start a business in Spain is the difficulty of obtaining legal documents for any company. This includes the extra time and money needed to account for when planning a business in that country.

LATVIA

In recent years, in an effort to harmonize its fiscal system with the generally accepted norms of the European area, Latvia has been constantly changing tax legislation. Due to this, the vast majority of the norms and requirements of the tax system are in line with those in other EU countries. One of the important indicators for entrepreneurs, taxes in Latvia remain the lowest in Europe. The reason for this, despite the low level of public debt and the small state budget deficit, is that the economy is not yet fully strengthened. To ensure its consistently high growth, the country introduces tax incentives for entrepreneurs. Concerning the employment in Latvia, when company is established, it is not required, however, it is required after to obtain VAT number. Without an employee, they do not give a VAT number and, in general, the tax board does not allow you to work without employees.

POLAND

Poland is one of the few countries in Europe where there is a constant increase in economic performance and improvement in social standards. In Poland, entrepreneurial activity can be carried out by an individual entrepreneur or in the form of a legal entity. All companies in Poland must be registered with the National Court Register (Krajowy Rejestr SÄ…dowy). Today, doing business in Poland is carried out in the form of individual entrepreneurial activity and in the form of an analogue of a limited liability company – Sp. z o. o. (Spółka z ograniczonÄ… odpowiedzialnoĹ›ciÄ…), which is one of the most common forms of doing business in Poland, both among Poles and foreign citizens.

UNITED KINGDOM

The tax system in the United Kingdom cannot be called soft, but from year to year, thousands of foreign entrepreneurs and just wealthy people choose the United Kingdom to start a business and optimize taxes. Such popularity is due to some features of British legislation that allow reducing tax costs for both individuals and companies. It is important that legal methods of reducing fiscal payments in the British Isles have been practised for decades and this is not considered a criminal activity. If you are just planning to move to the UK, you will probably be interested in learning about several ways to reduce your tax burden in England at once. But before telling how a newly minted resident does not have to pay at least part of the taxes without violating strict English laws, let’s understand the basic concepts.

FRANCE

In addition to corporate taxes, employers are subject to both social security contributions and payroll taxes. Social security contributions are paid by employers and employees and are used to fund the state-run social security system. Payroll taxes, such as the income tax, are paid by employees and are used to fund the state’s budget. In France, the limited liability company (LLC) is known as a “sociĂ©tĂ© Ă  responsabilitĂ© limitĂ©e” (SARL). It is a popular form of business entity among entrepreneurs and small business owners, as it offers limited liability protection and flexible ownership and management structures. To form an SARL in France, at least one shareholder and one director are required. The shareholders’ liability is limited to their capital contributions, and the company must have a minimum capital of €1. The directors can be individuals or legal entities, and they are responsible for managing the company’s affairs and making decisions. The SARL is subject to corporate income tax (CIT) on its profits, which is levied at a standard rate of 26.5% for 2022. The company is also required to file an annual financial statement and tax return with the French tax authorities.

GERMANY

Germany has a complex and intricate taxation system. The taxation system is based on the principle of progressive taxation and is composed of a number of taxes including income tax, corporation tax, value added tax, and capital gains tax. Income tax is levied on the income of individuals and corporations, and is determined by the individual’s or corporation’s tax class. Tax classes are determined by the taxpayer’s marital status and employment status. In general, income tax is charged at progressive rates depending on the amount of income earned. Corporation tax is levied on the profits of corporations, and is determined by the type of corporation and the amount of profits earned. Corporation tax rates vary depending on the size and type of corporation.[/vc_column_text][/vc_column][/vc_row]

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Transformation of a Joint-stock Company into a Private Company

[vc_row][vc_column][vc_column_text]Transformation of a Joint-stock Company into a Private CompanyAn Estonian company may be changed or transformed into another type of company by the decision of the owners/shareholders. Reorganization is often the simplest, fastest and cheapest alternative to two separate procedures – liquidation of the company and creation of a new one. But what should be noted in this case?

When comparing a joint-stock company and a private limited company, the law imposes much more serious requirements on a joint-stock company. For example, a joint-stock company has a three-tier management structure, an auditor’s requirement and an obligation to audit the annual report even if the company does not operate during the year. As a result, the maintenance costs of an excise company are much higher than those of a limited liability company, so it may be advisable to transform a joint-stock company into a limited liability company. Below is a brief description of the steps to be taken to transform a joint-stock company into a private limited liability company in Estonia.

Conversion process

If the company wants to change the structure, you need to follow certain procedural steps:

  1. The Board of the transforming company must prepare a written report on the transformation, in which the transformation is legally and economically justified.
  2. The report shall be submitted to the shareholders together with the report for the last financial year for review at least one month prior to the general meeting that adopted the conversion decision.
  3. If more than six months have elapsed since the end of the financial year report at the time of the general meeting, an interim balance shall also be established. A transformation report need not be prepared if there is only one shareholder in the converted company or if all shareholders agree that a transformation report is not prepared.
  4. The decision on transformation is made by the shareholders at the general meeting with the adoption of the decision on transformation. General meeting shall be carried out as required. The decision to reorganize shall be in writing and shall be supported by not less than 2/3 of the votes presented at the General Meeting, unless the Statute requires otherwise.
  5. A new charter must be drawn up for the new limited liability company. The charter must be approved by a decision on transformation.
  6. In addition, the members of the Board shall be elected together with the decision.

 The decision on conversion shall specify:

  • into which type of business the joint stock company will be transformed
  • new company name
  • shareholder replacement ratio
  • the amount of authorized capital, the rights granted to shareholders
  • the effects of the transformation on employees
  • the time at which transactions of a reorganized society are considered completed by a newly reorganized society

Also, when transforming a joint-stock company into a limited liability company, it is necessary to inform the holder of the securities registry.

Application for conversion to a business register

A company is deemed to have been transformed if the transformation is entered in the commercial register. The board of the transformed company must apply to the Business Register for conversion to the Business Register – this can be done if at least one month has elapsed since the conversion decision was made.

Together with the application should be provided:

  • minutes of the shareholders’ meeting
  • conversion solution
  • charter of the New Association
  • transformation report, balance
  • board and board members’ data
  • confirmation by the securities registry holder of the conversion notification.

The members of the Board should also confirm in the application that they had not contested the conversion.

For the incorporation of the company into the Business Register, the state must pay 130 euros. Applications shall be processed in the commercial register within five working days. By making the transformation in the commercial register, the company is considered to be transformed. After conversion to the Business Register, the company must immediately inform creditors of the company’s transformation by issuing a notice in the official notices.

Transformation takes at least two months.

  1. A month before the General Meeting, shareholders must be presented with a report on the conversion.
  2. A month after the decision is made, an application can be submitted to the Business Register.
  3. The application will be considered in the business register within 5 days.

For detailed advice on the transformation of your Estonian Company, please contact the legal department of Service OĂś and get answers to your questions.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][us_btn label=”contat us” link=”url:https%3A%2F%2Fwww.estonia-company.ee%2Fcontacts%2F” align=”center”][/vc_column][/vc_row]

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Drawing up an Optional Contract in Estonia

[vc_row][vc_column][vc_column_text]Drawing up an optional contract in EstoniaIn recent years, providing employee options has become increasingly popular.  This means that if an employee is hired by the employer after a certain period of time, the employee has the opportunity to acquire a share in the employer’s company. Options are a very good way to motivate employees and tie them to the company – the employee does not look at the labor market so easily, and he develops a sense of «ownership», which hopefully reflects on the best results of the employee in the Estonian company.

What is an option?

The option is essentially a derivative instrument entitling an employer to acquire a share in the future, subject to certain conditions stipulated in the optional contract. For the employer, the option of participation is the opportunity to pay wages not with money, but with promise. Thus, the positive impact of the option on the company’s cash flow is obvious. The content of this promise is to give the employee a stake in the employer’s company in the future.

Positive side of the option for the employer

Unlike wages, options are not taxable. The option is not subject to special tax. Therefore, if an additional labor tax is required for the payment of wages, there are no tax costs for the option.

The most important and best condition for an employer is the so-called transition period – an employee receives a share only if he works for his employer for a certain minimum period of time. This gives the employer the opportunity to connect with good specialists for a longer term,  and there is no need to use other options that often accompany hiring top managers.

Estonian tax law requires the employer and the employee to agree on a payment period of at least 3 years. Specifically, the Income Tax Act provides that the exercise of an option, that is, the conversion of a promise given to an employee,  into a share, may not be regarded as a special benefit if at least three years have elapsed between the granting of an option. If the option is fulfilled before the end of the 3-year period, it will usually be subject to preferential taxes, which means that tax efficiency will also be lost in such performance.

In some exceptional cases, it is also possible to avoid paying preferential taxes when converting an option into shares of the company within a 3-year period. This is the case, for example, in the case of the sale of the entire share of the employer. In such a case, the exercise of such a number of options shall not be taxed, which is proportional to the time elapsed after three years.

Example

The employee and the employer agree on the participation option, the eligibility period is 3 years, and the employee is given an option to receive a nominal 100 euro share. After a year and a half, the employer’s shareholder sells its entire stake to a foreign investor, which results in a new shareholder for the employer. In this case, the employee can realize half of the options and receive a part of the nominal value of 50 euros without special tax. Typically, a shareholder of a new employer requires that it also be able to buy shares from employees when buying a share, in which case the employee can simultaneously sell his share to a new investor.

Advantages of the option for employees

For an employee the option option is a good solution if he plans to be associated with his employer for a long period of time (at least three years of cooperation). For an employee, the option gives the opportunity to join his employer’s shareholders with full shareholder rights, i.e. to vote at the shareholders’ meeting, receive dividends, influence the company’s strategic decisions and finally sell the company’s shares. When receiving dividends, the employee’s remuneration no longer depends only on his own contribution to the success of the company, but also on the contribution of all his colleagues and the growth of his employer’s business as a whole. This option is especially valuable when we look at how Estonian unicorns have grown and what opportunities they offer their employees at the moment.

The positive aspect of receiving dividends is that the state has to pay them a much smaller tax than the wages. Dividends paid by the Estonian employer are taxed on income either only at the level of the employer at the rate of 20%, or income tax at the rate of 14% at the level of the employer and income tax at the rate of 7% at the level of the employee. For foreign employers, these rates may differ.

The transfer of a company’s share creates a tax credit similar to the payment of dividends,  because it is a passive income as opposed to wages. When the share is transferred, the employee must pay income tax at the rate of 20 percent of the profit received,  the social tax obligation does not arise when the share is transferred. It is clear that this benefits the employer, who is the payer of social tax in the case of wages.

How to provide an option?

To provide an option, an optional contract is concluded with the employee, which must be either digitally signed or notarized. The form requirement also needs to be considered when options are provided through other documents, for example by joining an optional program.

In the case of options, it is usually agreed that in their performance, the employer issues an additional share to the employee, and the authorized capital is increased by the nominal value of the corresponding share. From a corporate law point of view, this is the simplest way to issue options, so it would be prudent to provide the charter capital in the constitution of a company not as a specific amount, but as a range.

Items that must be included in an optional contract

  1. Option contract duration
  2. Option procedure
  3. Buying Options
  4. Termination and options
  5. Company sales and options

Option contract duration and option transfer

Since one of the purposes of providing options to an employee is to bind the employee to the company for a longer period of time, the employer must consider and determine the period of working out options in the contract. To be allowed to participate fully in the company, an employee must work for the same employer for the entire period of the option. After the expiry of this term, the employee has the right to purchase a part of the company or shares of the company.

The most favorable situation from the tax point of view arises when the period of granting the right of option lasts at least three years, after which the employee has the right to purchase the given options in full.

Alternatively, it may be stated in the contract that the employee receives options on a continuous basis for a period of proportional time worked. This means that although the entire period of the option is three years, for example, rights should not wait until three years have passed and the employee is entitled to options earlier, taking into account the time already worked.

For example, in the case of a three-year endowment period, an employee is already entitled to one third of the options after one year from the beginning of the endowment period. After the second year there is a right to two-thirds etc. In this case, a clause in the defense of the employer is usually included in the contract, that if the employee resigns before, for example, six months or a year after the signing of the optional contract, the employee loses all rights to options. Since the employer’s interest in providing options is to ensure the employee’s long-term commitment, it is unreasonable to include in the contract an option to acquire a share after only a few months of work.

Option repayment

The option contract should specify when and how the options will be redeemed. One option sets a time limit within which an employee must declare an interest in actually acquiring a share. This may be, for example, one year after the period of option awarding. At this stage, it is advisable for the employer to consider how in general the program of options for employees should be organized, so that it does not create an excessive administrative burden, and accordingly write down the time and order of purchase of options in the contract.

In order for an employee to convert their earned options into shares, the employer must submit an application stating that the employee wishes to buy the options.  It is recommended that the application form be added to the end of the optional contract in order to avoid misunderstandings related to the creation or purchase of shares.

What happens if the employee leaves before the deadline?

While both parties may have only the best intentions at the time of signing the optional agreement, sometimes life does make adjustments and the employment relationship does not continue until the end of the option period. For such situations, the option agreement specifies exactly which exit the employee retains the right to an option and which does not.

Each employer should carefully weigh when it is not possible to continue the optional contract and reflect this appropriately in the option contract. If an employee resigns during the period of employment through no fault of his own (illness, death or serious breach of the law by the employer), the employee is generally considered to be entitled to options in proportion to the time already worked.

Sale of the company during the option period

If it is a company whose owner plans to sell all or most of its company, these future plans should be reflected in an option contract. You should consider what happens to the employee’s right to receive options in the event of a sale of the employer’s company. Sometimes it is stipulated that in case of sale of the company the employee has the right

Immediately redeem their options and should not wait until the end of the entitlement period. However, if the employee is of key importance in the company and the employer’s buyer may have an interest in a company with key employees,  it may be stipulated that in the case of a sale of the company, the employee may obtain some of its capabilities. In any event, plans for the future should be considered and, if necessary, reflected in an option agreement.

In addition to the topics mentioned in this article, of course, the basic terms of participation should also be written. You can read about them in the document «Conditions of participation» prepared by EMTA. It is also important to note that an optional agreement can be notarized or digitally signed.

If you are interested in drawing up an optional contract, please contact Service OĂś and receive information today.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][us_btn label=”contact us” link=”url:https%3A%2F%2Fwww.estonia-company.ee%2Fcontacts%2F” align=”center”][/vc_column][/vc_row]

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Turnover of Estonian Startups Exceeded 1.5 Billion Euros

[vc_row][vc_column][vc_column_text]Turnover of Estonian startups exceeded 1.5 billion eurosThe total turnover of Estonian startups for the three quarters of this year increased by 64% year-on-year to 1.5 billion euros.

Estonian startups also attracted record investments – a total of 1.2 billion euros, including 40 transactions worth more than one million euros.

In 2021, the total turnover of the startup sector in Estonia amounted to 1.4 billion euros, i.e. in the nine months of this year, startups have already exceeded the last year’s result. Since at the end of the third quarter 2022, the total turnover of startups amounted to 927 million euros, there has been 64% growth year-on-year.

The managing director of Startup Estonia, Eva Peterson, said that although global markets are now suffering, Estonian startups continue to grow rapidly. “Estonia has a very good international image, and the foundation that we laid in difficult times over the years is working in our favor. Of course, the key role is also played by the experience of our startup entrepreneurs, who have repeatedly proved to investors, customers and employees that they are able to quickly adapt to changes in the conditions and turn the situation in the market in their favour, “Peterson said.

The highest turnover at the end of the third quarter of this year was posted by Bolt (775.3 million euros), Veriff (50.5 million euros), Swappie 47.6 (million euros), Comodule (27.8 million euros) and Starship Technologies (24.6 million euros). Data on turnover of startup enterprises are based on quarterly data on turnover tax provided by the Tax and Customs Board, which are based on VAT declarations. Turnover data may differ from the data provided in the annual report of the startup company, but they give the best possible overview of the current situation regarding the growth of the startup sector.

According to Startup Estonia, 1446 startup companies have been registered in Estonia at the moment, of which 418 or 29% have been operating for five years or more.

According to the data of the Estonian Tax and Customs Board, for the three quarters of this year, startup companies paid a total of 134 million euros (an increase of 48%) in labour taxes to the state. In the same period last year, startups paid 90.5 million euros in labour taxes to the state.

Estonian startups raised 1.2 billion euros in investments in the three quarters of this year, in a total of 61 deals. The average size of the investment was 19.3 million euros, while 40 investments were worth more than one million euros. A year ago, the volume of funding raised amounted to 870 million euros in 66 transactions, and the average size of the funding transaction was 13.2 million euros, 34 transactions amounted to more than 34 million euros.

Peterson added that Estonian and international investors believe in Estonian startups. “This is evidenced by the constant increase in the total value of transactions, as well as statistics shows that in addition to the most famous and large startups, many other Estonian startup companies are also investing in startups, ” she said.

The largest funding raised in the third quarter of 2022 was attracted by Ready Player Me (55.1 million euros), Monese (35 million euros), Lightyear (25 million euros), Klaus (12 million euros) and Jobbatical (11.6 million euros).

Startup Estonia is funded by the European Regional Development Fund.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][us_btn label=”contact us” link=”url:https%3A%2F%2Fwww.estonia-company.ee%2Fcontacts%2F” align=”center”][/vc_column][/vc_row]

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Bankruptcy of an Estonian Company

[vc_row][vc_column][vc_column_text]Bankruptcy of an Estonian CompanyThe termination of a company’s activity is as natural a stage in the development of any business as its beginning. At the same time, it is often very difficult to liquidate an enterprise due to the large number of legal and business relations, obligations, and often debts that are part of the company’s business activity.

Depending on economic circumstances, the company owner, who has decided to end the business, must make a choice between liquidation or bankruptcy.

If it is a question of voluntary termination (the law also establishes cases when the company is terminated forcibly), the issue is resolved at the general meeting of shareholders, and in case of a positive decision, the liquidation process begins. This lengthy and time-consuming procedure of debt collection, sale of property and satisfaction of creditors’ claims involves many issues of both a legal and economic nature. As a result of the liquidation, the assets remaining after the satisfaction of the creditors’ claims will be distributed among the shareholders, after which the company is deregistered from the Commercial Register.

The process is somewhat different in the case of bankruptcy. The main difference here is the fact that the company is unable to satisfy the claims of creditors, and that this inability is not temporary, taking into account the economic situation. If such a situation occurs, the members of the management board of the company must immediately file to the court an application for declaring bankruptcy. It should be stressed that the filing of an application for bankruptcy in this case is the responsibility of the members of the board and, in the event of non-compliance, members of the management board may incur both civil and criminal liability.

Not only the debtor but also the creditor may file an application to the court to declare a company bankrupt, however, it should be remembered that the main condition here the debtor’s insolvency.

In any case, the processes described above are quite complex from both a legal and an economic point of view, and it is extremely difficult to navigate in them without in-depth knowledge. A good way in building this knowledge is to start with simple consultation. The further participation of our specialists will be determined solely by your needs.

If the Estonian company is put into liquidation, the company’s creditors (clients) can file their claims through the appointed liquidator within four months. If the assets of the company are insufficient to fulfil all its obligations, the liquidator is required to file to the court an application to declare the company bankrupt.

The court will most likely declare the company bankrupt and appoint an interim bankruptcy trustee, The court proceedings will begin. If the company does not have any assets that can be sold in the process of bankruptcy, and none of the company’s creditors deposits with the court funds to cover the future work of the bankruptcy trustee, the bankruptcy process will end on the basis of the deregistration of the company. After that, it is no longer possible to submit a claim against the company’s former management board member.[/vc_column_text][vc_column_text]

Bankruptcy procedure description

In the current economic situation, issues related to insolvency proceedings – restructuring, bankruptcy, debt adjustment – have become particularly relevant.

Competition law and bankruptcy and liquidation procedures are one of the most important activities of our company. By combining both legal and economic experience and thinking, we can be doubly useful and effective in addressing possible problems.

Bankruptcy is not necessarily a dead end for the debtor or creditor, but it can also be a solution – not a good solution, but still a solution. Bankrupt nests often have resources that, when handled skilfully, can satisfy creditors’ claims, and although this is not common in practice, it is also possible to rehabilitate the debtor company by judiciously using the resource found in it.

Our lawyers have many years of experience in representing the interests of both creditors and debtors in bankruptcy proceedings. In addition, we advise clients at all stages of restructuring, debt adjustment and liquidation procedures.

If the above is not entirely related to your problem, feel free to contact us. Only by accurately describing our problem can we decide how we can best help you.

We can support you with the following questions:

  • Legal analysis of pre-bankruptcy transactions;
  • Initiation of bankruptcy proceedings, including filing for bankruptcy and filing for bankruptcy;
  • Advising debtors on finding optimal solutions in a pre-bankrupt situation;
  • Representation in court during the consideration of the bankruptcy application, by way of submission and admission of claims, at general meetings of creditors, etc.;
  • Preparation of applications, claims, complaints, and other documents necessary for bankruptcy proceedings;
  • Advice on restructuring procedures;
  • Consulting and representation in liquidation procedures;
  • Representation in transactions with insolvency practitioners, creditors, or the debtor;
  • Representation of insolvency practitioners in more complex proceedings.

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Amendments to the Estonian Commercial Code in 2023

[vc_row][vc_column][vc_column_text]Amendments to the Estonian Commercial CodeThe provisions of the current Estonian Commercial Code governing the Business Register will be included in a separate Law on the Business Register and the existing Commercial Code will be substantially amended.

The Law on the Commercial Register will enter into force in three stages: the general period of entry into force is February 1, 2023, changes in the maintenance of the list of shareholders and the list of members of the construction company will come into force on September 1, 2023, and only from March 1, 2024. The changes associated with the reservation of the brand name and the entry on a certain date, only from March 1, 2024.

These changes in Estonian legislation primarily provide legal clarity and ensure the reliability of the data submitted to the Estonian electronic business register. The main objective is to simplify the activities of both the entrepreneur and the registrar, including to provide legal certainty for third parties by relying on the data of the registry. I

The new provision allows the registrar to fine the person obliged to provide data on the beneficiaries in case of failure to provide the data required by the legislation or to provide knowingly false information. In this way, the data published about companies in the commercial register become more reliable and allow third parties to analyze the history and business competence of the legal entity before starting a business relationship. Third parties will also have access to information about fines imposed on individuals associated with Estonian legal entities, which makes the Estonian business environment even more open.

Minimum capital requirement for companies to be abolished

When establishing a company in Estonia without paying the authorized capital, the current Economic Code does not set a term for making a contribution to the authorized capital, but leaves it to the discretion of the shareholders, which leads to a situation where the authorized capital is not contributed. The authorized capital must be paid if the shareholders wish to increase, reduce or pay dividends. The regulation of private companies is becoming more flexible as the requirement of a minimum authorized capital is eliminated. This means that the limited liability partnership can no longer be created without the contribution of the authorized capital, but the amount of the authorized capital is left to the discretion of the founders, because the minimum authorized capital requirement (EUR 2,500) established by law is generally not related to the actual capital requirements of the company.

Thus, a limited liability partnership may be established with a minimum authorized capital (1 euro).

Maintenance of the list of shareholders of a private limited liability company in the commercial register

From 1 September 2023, the list of shareholders of the limited liability partnership will be kept in the commercial register, which means that the data on the list of shareholders will be registered in the commercial register. This is accompanied by public reliability of data, which greatly increases legal certainty in transactions with shares of a private company. According to the current regulation, the shareholder must submit the contract confirming the acquisition of the share to a notary to confirm the share in the limited liability company and transfer the share. But in the future both the transmitter and the acquiring part can rely on publicly available and reliable data from the business register.

The amendment applies to companies whose shares are not registered in the securities register or which have not renounced the formal requirement for the disposition transaction. If the shares are registered in the securities register, the list of shareholders is still kept in the register, and if the formal requirement of the alienation transaction has been abolished, the list of shareholders is kept by the board of a private company.

Failure to submit the annual report of the Estonian Company

At the moment, a significant problem is the deadline for submitting the annual report of legal entities, because the submission of the report is delayed or the annual report is not submitted at all. The legislator took the position that a systematic failure to submit an annual report is unacceptable, as it is a matter of business security.

The new provision of the Act allows for the imposition of a fine on a legal entity that has not submitted an annual report within the prescribed time limit, without a warning. When imposing a fine, the registrar is given a great deal of discretion, so a fine may be imposed repeatedly until the annual report of the Estonian company is submitted. Among other things, when making a decision, it may be taken into account how many times the legal entity has not submitted an annual report in time, How much time has elapsed since the deadline for the submission of the report and other circumstances important to the registrar for the imposition of the fine and its determination. In addition to the legal person, the registrar may also impose a fine on a member of the board of a limited liability partnership and, as an innovation, in the case of private companies, if they do not have a board, also on shareholders.

If the legal entity does not submit the report within the deadline set by the registrar and at least three months have passed since the statutory deadline for the submission of the annual report, the legal entity may simply be removed from the register under certain conditions (no assets, not party to any ongoing proceedings).

In order to reduce the abuse associated with the breach of the reporting obligation and to avoid situations where it is desirable to get rid of associations that have not submitted an annual report and do not want to comply with this obligation, the law has been amended, which states that the registrar shall not record in the commercial register a merger, division or transformation until the legal person involved in the merger, division or transformation has submitted the missing financial year report.

Possibility of entering an entry in the commercial register at a certain date

From 1 January 2024, companies will be able to reserve one brand name for up to six months. When reserving the brand name, it is necessary to specify the scope of the company for which the brand name will be used, as well as the organizational and legal form of the company, which cannot be changed in the future when reserving.

In addition, in justified cases, registration in the business register may be requested on a specific date. This can be done, for example, if it is necessary for the merger to take effect on a certain date and with sufficient time it becomes clear whether there are defects in the application or whether the entry can be made on the desired date.

An application to make an entry on a certain date can only be submitted for a change of data, but not for the first application to establish an Estonian company. The state fee for the reservation of the brand name is 150 euros and is not refundable in case of cancellation of the reservation of the brand name.

Reinstatement of a person from the Estonian Register

Under the changes in force, the registrar may remove a legal person from the registry in a simplified and faster manner than before, for example, in the case of failure to submit an annual report or absence of a contact person. For example, if an annual report is not submitted, a legal entity may be removed from the register no earlier than three months after the deadline for filing the report. A legal person may also be removed from the register if it has not specified a mandatory contact person. The company is now obliged to appoint a contact person for a certain period of time. At the end of the term it can be extended or the contact will be automatically removed from the register.

A legal person may be reinstated in the registry on the basis of a declaration, both for the purpose of continuing the activity and for the conduct of liquidation proceedings, if it turns out that the expelled person has retained property. Reinstatement in the roster is possible within three years after removal from the roster, if the person has been excluded due to the failure to submit an annual report or the absence of a contact person (forced exclusion). In other cases, if the compulsorily liquidated company had assets and it was desirable to terminate activities related to assets, the company could be reinstated in the registry to cease operations. This is called additional liquidation and in this case there is no time to reinstate such a company.

In the case of the reinstatement of a legal entity in the registry, the expiry of the claims against it ceases from the moment of its exclusion from the register until the moment of its reinstatement in the registry.

Other important changes

The amendment removes from the law the requirement that the net assets (equity) of a limited liability partnership must not be lower than the minimum authorized capital of a limited liability company provided by law.

Temporary (two-month) prescription of distribution of property of the liquidated joint-stock company is excluded if the joint-stock company has only one shareholder or, in addition to the shareholder, the shareholder is the joint-stock company itself.

The foreign subsidiary is no longer obliged to appoint a contact person, it becomes a voluntary procedure. A branch of a foreign company is obliged to enter in the register the Estonian address of the branch, since the requirement for the appointment of a contact person, which was still in force, is cancelled if the head of the branch was in a foreign country.

When creating group rules clarify the responsibility of members of the board and specify in which cases the board of the subsidiary is not responsible for damage caused by the execution of orders of the parent company.

The requirement that at least one liquidator must have a residence in Estonia has been abolished and the requirement does not apply to board members, who are often liquidators.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][us_btn label=”Contact us” link=”url:https%3A%2F%2Fwww.estonia-company.ee%2Fcontacts%2F” align=”center”][/vc_column][/vc_row][vc_row][vc_column][us_page_block id=”10363″][/vc_column][/vc_row]

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