General
Accounting rules and taxation
‘Most foreign businesspeople operating an Estonian company consider Estonian accounting rules and taxation system simple and straightforward. Accounting and bureaucracy related costs are generally rather low in Estonia.
Estonian accounting rules are not much different from those applied in other EU countries; however, there are a number of details that are important to be aware of.
Although the corporate income tax rate charged on corporate profits is 0% (22% tax is applied when profits are distributed) certain costs are not eligible as business expenses. All costs of the company need to be substantiated (at least at some level) as being related to the company’s enterprise. If the corporate bank card is used to pay for any expenses, and no invoice is presented to prove that the expense is business related, such expense is subject the corporate income tax. All costs need to be backed up by source documents (invoices, etc).
Accounting requirements
The Accounting Act (valid from 1 January 2003) regulates basic accounting functions in all business entities registered in Estonia. It does not regulate accounting for taxes, which are regulated by other laws and acts. The essence of the law is framed in compliance with International Accounting Standards (IAS).
Almost all Estonian companies can choose whether to prepare their consolidated and annual accounts in accordance with International Financial Reporting Standards (IFRS) or in accordance with the Estonian accounting standards ("Estonian GAAP"). Listed companies and financial institutions are required to prepare their accounts in accordance with IFRS. The Estonian GAAP is written by the Estonian Accounting Standards Board.
The length of a financial year is 12 months. At the end of each financial year, an accounting entity is required to prepare an annual report that consists of the annual accounts and the management report. The auditor's report and, in the case of a company, the profit distribution proposal for the financial year should be annexed to the annual report. The auditor's report need not be annexed to the annual report if auditing is not compulsory.
Annual reports must be filed to the register even if the company has had no transactions in the financial year.
Annual reports must be filed within 6 months following the close of the financial year. A penalty can be charged if an annual report is filed late. However, generally no penalty is charged if the delay is short.
If the owners’ equity drops under 2500 EUR or is less than 50% of the registered share capital the owners must either restore the equity capital or dissolve the company. To avoid unnecessary waste of time, it is advisable to ensure that your company’s share capital is covered enough before filing the annual report.
For practical reasons, if the company has salaried employees it is better to pay the salary at the beginning of the months following the month when the salary was earned, which is a common practice in Estonia. Otherwise too little time is left for tax accounting (payroll taxes are due at the latest on the 10th day of the month following the month when the salary was paid).
If the company has no VAT ID
It is important to understand that without a VAT ID the company is not eligible for VAT refunds. In practice this means that whenever you buy something, you will lose VAT equalling 22% of the price.
If the company pays no salary under the Estonian employment rules, no payroll taxes are payable in Estonia and the company need not file monthly tax returns. This means that the company can prepare the accounts once a year, i.e. for the purpose of filing the annual report, and keep accounting costs low.
If the company has a VAT ID
The company has to file VAT and payroll related tax returns even if there have been no payments or transactions. Payroll returns must be filed and payroll taxes paid by the 10th day of the next month, while VAT returns must be submitted and VAT paid by the 20th day of the month following the month that the return applies to.
If for some months the company has had no sales subject to VAT, the company’s VAT ID could be revoked. However, before that the company is always sent a written caution.
If a company has paid excess VAT, such excess amount is generally refunded within 30 days after the relevant application is filed. However, in most cases the tax authorities check the company’s paperwork thoroughly.
Assignment abroad
Related expenses and daily allowance
Daily allowance
Daily allowance for an assignment abroad is payable for the day of departure, if the means of transport heading to a foreign destination leaves at the latest at 09.00 p.m. Daily allowance for an assignment abroad is payable for the day of arrival, if the means of transport arrives after 03.00 a.m.
Accommodation expenses
The employee has the right to charge the employer for travel and accommodation expenses and other reasonable expenses associated with an assignment abroad (such as expenses connected with purchasing of travel tickets, travel insurance premiums, visa fees, luggage carriage, costs stemming from exchange rate differences, etc), and to receive a daily allowance in the amount of 32 EUR.
Documentary evidence
Any expenses connected with business travel shall be compensated on the basis of documents proving the expense.
Compensation for expenses
Compensation for expenses born in connection with business travel and daily allowance is paid by the employer on the basis of a written decision. The document constituting the basis for disbursement must state the business travel destination, the duration and the purpose of the assignment, the extent to which the expenses are compensated and the daily allowance payable.
Audit is required for an Estonian company
valid if fiscal year starts after 01.01.2017
The financial statements should be audited for all public limited companies and foundations.
For other companies audit requirements are below
An accounting entity should be fully audited
This audit obligation applies to an accounting entity in whose annual financial statements at least two of the indicators listed on the right exceed the following values:
sales revenue or income 4 000 000 euros;
total assets as at the balance sheet date 2 000 000 euros;
average number of employees 50.
Furthermore, the obligation also applies to an accounting entity in whose annual financial statements at least one of the indicators listed on the right exceeds the following value:
sales revenue or income 12 000 000 euros;
total assets as at the balance sheet date 6 000 000 euros;
average number of employees 180.
An accounting entity should be reviewed by an auditor
This audit review obligation applies to an accounting entity in whose annual financial statements at least two of the indicators listed right exceed the following values:
sales revenue or income 1 600 000 euros;
total assets as at the balance sheet date 800 000 euros;
average number of employees 24.
Furthermore, the review obligation also applies to an accounting entity in whose annual financial statements at least one of the indicators listed below exceeds the following value:
sales revenue or income 4 800 000 euros;
total assets as at the balance sheet date 2 400 000 euros;
average number of employees 72.
How to submit annual report for the Estonian company
We send you a preliminary draft of an annual report (pdf).
If everything is correct, please print out the signature page (last page of Estonian language version).
Write (type) your name and sign the signature page (signature of one management board member is sufficient).
Add date to the top of the page.
Scan the signature page
Send it to us by e-mail.
After receiving it we will submit the annual report with the signature page.
Submitting an annual report in this way is possible only if no one from the company management board members has an Estonian ID.
Authorizing an accountant to enter the data and submit the annual report for an Estonian company
If you have an Estonian ID and it is presented in the Commercial Register with your data, you must provide access rights to the accountant as follows:
Log in the Company Registration Portal www.rik.ee
From upper bar choose Annual report
From bar below choose „Defining persons entering data“
Press below button „Add new person for entering data“
Fill in the field „Personal identification code of the person entering data”
Select the company you want to add the person entering data
Tick: “The person entering data is authorized to submit the report”
Click „Save“ button below
Now your accountant can enter your annual report data and submit it.
Accounting documents required for annual report
Dormant company accounting
Company is considered dormant if during the fiscal year:
No transactions happened on company’s bank account(s) or securities accounts
No sales invoices issued
No purchase invoices received
No assets changes
No liabilities changes
To prepare dormant company’s annual report we need your confirmation that the company did not have any transactions during the fiscal year.
In case something above is not "NO" then company’s annual report can't be prepared and submitted as dormant but active company (see beside).
Active company accounting
To prepare an annual report we must have the following information and documents (originals or copies)
Short description of Company’s business (sales and purchases scheme)
Company’s bank statements for full fiscal year (pdf and xls/csv files)
All purchase invoices and receipts for full fiscal year
All sales invoices and receipts for full fiscal year
If some business transactions are not covered with sales or purchase invoices, then please provide other supporting documents (contracts etc.)*
Loan contracts (if applicable)
Purchase and sales contracts of real estate (if applicable)
Investment portfolio statements (sales and purchases of whole year and market value of Dec 31) (if applicable)
If Company owns shares of other Companies: Purchase and sales contracts of shares
If company has subsidiaries (with ownership 50% or more), then the subsidiary’s annual report must be provided.
* Company is subject to income tax if no supporting documents are provided or expenses are not related to business.
Please note that the list may not be final, and we may need other statements or supporting documents.
Please also note that even if your company has not done any transactions the annual report must be submitted anyway.
How to pay dividends and corporate income tax
in Estonia
In case the profit of an Estonian company is not received from the subsidiary where it is already taxed, taxation in Estonia works as follows:
Decide how much from the gross profit you want to distribute. Let's assume you want to distribute 100 000 EUR gross profit.
Pay to the shareholder(s) account 80 000 EUR (80% from gross profit you want to distribute). Description might be "distribution of profit" or "distribution of dividends".
Latest by the 10th date of the next calendar month you need to submit corresponding tax returns, which are usually done by your accountant in Estonia and pay taxes related to it. If you pay dividends on October 15th, then corresponding taxes must be paid and tax returns must be submitted latest by November 10th.
Company tax reference number is required
For payment of taxes you must know your company's tax reference number which you can find below. You need to enter your company's registration number and as a result you get your company's tax reference number. Unfortunately this query works only in Estonian, but since it is very simple, everybody can handle it regardless of the language.
Company tax reference number query (enter company registration number)
When you have paid the corporate income tax by November 10th the latest, you can complete the payment order like this:
Beneficiary's name
Beneficiary's account
Amount
Details
Reference number
Maksu- ja Tolliamet
EE522200221013264447 or see accounts
20 000 EUR
corporate income tax
your company reference number
If Wisor provides you accounting services and will submit corresponding tax returns, then we need to have an ID code for private person dividend receiver(s). Estonian (e-residency) or foreign ID code is OK. In case the dividend receiver has no ID code, then that person must obtain an ID code from the Estonian tax authorities.
