When conducting business in Estonia, you should comply with the local accounting and legal standards. A company needs to keep its books so that the creditors and business partners may rest assured about the financial position of the company and taxes can be calculated correctly.
There are three main accounting policies to abide by
- the Accounting Act of the Republic of Estonia;
- Estonia’s Good Accounting Practices;
- the guidelines issued by the Accounting Board of the Republic of Estonia.
The financial statements should be prepared using either the Estonian financial reporting standard (local GAAP) or IFRS as adopted by the EU. When you are running a small or medium-sized company, then using the local GAAP is usually recommended as it is more simplistic compared to IFRS.
For your newly-formed business as for all other Estonian companies, compiling an annual report is mandatory. The financial year in Estonia is 12 months long and usually coincides with the calendar year, meaning that it starts on the 1st of January and ends on the 31st of December (although it is possible to change it to any 12-month period). Generally, the annual report should consist of the annual accounts (balance sheet, income statement, cash flow report and statement of changes in equity, plus annexes) and the management report.
In the case of your company, however, which most likely would be classified as a micro-enterprise by Estonian standards, an abridged annual report may be prepared, meaning that only two basic reports must be added to the annual accounts (balance sheet and income statement plus up to three annexes). Compiling a management report is not necessary. The annual report should be submitted to the Commercial Register within six months after the end of the financial year. You can file your annual report through the Company Registration Portal in XBRL format.
Micro-enterprise - a private limited company or Osaühing („OÜ“) complying with all the criteria described below:
- total assets do not exceed EUR 175,000;
- revenue does not exceed EUR 50,000;
- total liabilities do not exceed total equity;
- one shareholder who also acts as a member of the Management Board.
Also, you have the obligation to preserve important accounting source documents and financial statements. These include invoices, accounting ledgers, journals, contracts and other relevant business documents, which may be necessary for the purposes of a potential audit or reconstruction of transactions. Generally, the relevant accounting documents must be preserved for at least 7 years after the end of the financial year. There are slight variations with documents relating to long-term rights/obligations for example, where the 7-year preservation rule starts after the expiration of the document.
Finally, there are certain quantitative thresholds in place, which help you recognise the moment an audit or a review becomes mandatory. Despite the fact that reaching said thresholds might be quite a challenge for a smaller company, it is probably best to familiarise yourself with them early on so you won’t be caught by surprise in the future.
Relevant thresholds regarding revenue, employees and total assets
|Two of the indicators exceed the threshold
|One of the indicators exceeds the threshold
|EUR 4 million
|EUR 1,6 million
|EUR 12 million
|EUR 4,8 million
|EUR 2 million
|EUR 0,8 million
|EUR 6 million
|EUR 2,4 million
* Total for the financial year
** Average for the financial year
*** As of the end of the financial year
Articles in the Knowledge Base are intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. This information should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers.