The annual report might be just one of the most important and famous documents that any company must submit to the governmental bodies around the world, and the same goes in Estonia. Many of our clients are confused about what should they include, who must submit, and when they should their annual reports about their Estonian companies. Therefore, we have put together a guide below explaining just that.
Yearly statements, accounting requirements and their policies are regulated by the Accounting Act, which states that all Estonian companies (including sole-proprietors, private limited, and public limited companies) must submit their statements every year about the previous fiscal year. The fiscal year in Estonia is 12 months long and most businesses choose to follow the calendar year, although it can be different. The period where you must submit your annual report starts at the end of your fiscal year and ends 6 months after it. Not submitting your yearly statements within this timeframe will result in a reminder in which the government will give you a new deadline, and in some cases, it may result in a financial penalty. Also, not submitting the reports for two years in the row will result in a compulsory liquidation.
The contents of the annual report, however, are variable, and depend on the size of your company. The government has divided companies into four different categories which give the basis for the reporting: micro-enterprises, small businesses, medium-sized enterprises, and big enterprises:
|Conditions||Micro-enterprise||Small business||Medium-sized business||Big business|
|Indicators on the balance sheet date of the reporting year||All conditions must be met||One figure may exceed||One figure may exceed||At least two indicators exceed|
|Company type||A private limited company of which the sole shareholder is also a member of the management board||All non-micro companies||All companies that are not micro or small businesses||A business|
|Equity requirement||Liabilities do not exceed equity||Not applicable||Not applicable||Not applicable|
|Assets (€)||Up to 150 000||4 000 000||20 000 000||20 000 000|
|Sales revenue (€)||Up to 50 000||8 000 000||40 000 000||40 000 000|
|Employees||Does not apply||50||250||250|
Before preparing your annual report, it is important for you to know that you must submit it in Estonian. If you wish, you can provide an additional report in English, but it will be only complimentary, as the original must be in Estonian. If you submit your report in both languages, then both versions will become publicly available in the Estonian business registry, where you also prepare the report itself. (In case you want to learn more about the business registry and how to use it, please click here)
Also, if it is the first year that your company has been operating, your reporting period can be longer, up to 18 months, which is beneficial to avoid reporting twice if you started your business at the end of the previous fiscal year.
Now, when you prepare your yearly statements, you must consider the information and the documentation that the government asks that is specific to your situation. In all cases, the mandatory components of the annual report are an income statement and a balance sheet.
For micro-enterprises, the annual report comprises a balance sheet and an income statement, whereas the report for small enterprises also must contain the management report. Mandatory notes include accounting policies, labour costs, and transactions with related parties. In addition, a micro- enterprise, depending on one’s needs, may add up to three additional notes on the accounts. The respective choice for small enterprises is considerably larger. Lastly, the profit distribution proposal is added to the end of the notes.
The annual report in the Estonian business registry has fewer rows on the balance sheet for micro-enterprises compared to small enterprises. The income statement is the same for both. As for accounting policies, micro-enterprises are required to provide information on whether the enterprise is still operational. Notes on accounting policies and related transactions with parties both contain less information for micro-enterprises compared to small enterprises.
The requirements for the annual report are different for micro and small enterprises that have been established during the second half of the financial year and who are planning to submit an annual report for a longer period than 12 months. In that case, similarly to medium-sized and big enterprises, the cash flow statement and the statement of change in owner’s equity must be presented besides the balance sheet and income statement.
The management report is a textual section in which an overview of the enterprise’s operations and primary area of activity is provided in it is entirety, and significant events which have occurred during the financial year and likely future developments. It is worth to remember interested parties such as clients, competitors, potential or existing partners will all have access to the financial reporting. As a result, we advise to thoroughly think through on what to write in the report.
In addition, if you run a big company, you may have to have an audit or a review of your yearly financial statements - more about that at the end of the article.
In case your company has been inactive during the reporting fiscal year - has no income, has no labour costs, etc.—you are still obligated to submit your annual report. The required documentation corresponds to the size of your company. However, this should be relatively easy if the company is not actually operating. Failure to submit the statement of your inoperative company may result in a financial penalty by the state, and as mentioned before, not submitting your yearly statements for two years in a row will result in a compulsory liquidation.
Once you have prepared your annual report, the company’s management must approve, sign it, and add the date. Only one board member is required for this step if she/he has representation rights. In case a person who needs to sign the statement does not have an Estonian ID-card or the e-Residency card, the report must be signed physically, then scanned and finally uploaded into the system as a PDF document.
Also, if your company operates in a regulated industry, you must submit your activity licence or an activity notice together with your annual report. The government set this rule in 2015 and it ensures that your documents are up to date and that you can actively and legally operate in that specific industry.
Once you have all your documents gathered, approved, signed and ready for submission, there are basically 3 different ways to submit them.
Submitting the annual report as a non-resident, who also does not have an e-Residency card, must be done via a notary who then can present the yearly statement to the business registry.
In case you do not have the Estonian e-Residency card yet but are interested in finding out more about it, please click here!
All Estonian residents and e-residents with the e-Residency card can submit their annual reports electronically if they are board members or a single shareholder of the company. You can do this via the business registry, where the ID must be used to log in and get access to the company.
Also, you can grant permission to an accountant of your choosing, who then can enter data and submit annual reports on the company’s behalf. There are various service providers on the market, who offer such services and take care of your financial statements, so you do not have to worry about them. If you are interested in using such services, please feel free to contact us!
1. Go to the Estonian business registry’s website
2. Click on Annual reports
3. Click Add new report
4. Choose the company for which you want to submit the report
5. Check the period for which the report is provided (the reporting period is specified in the Statute)
6. Choose Annual report (if it is a regular report, not related to liquidation)
7. Recheck the size of the enterprise (you can click on the information icon "i" - it will be indicated in more detail)
8. Click add (Add new report)
9. Next, fill in the balance sheet. It can be found in the form "Filling in reporting forms". If there were no activities in the company, then we simply copy last year's figures into this year's column.
10. Next, we should fill in your business’ income statement - everything should be marked 0 if there was no activity.
11. Fill in notes to the report. In the case of a micro-enterprise, only 3 notes are mandatory: accounting policies, labour expenses, related parties.
12. Click Back to the main view of the report
13. Fill in the breakdown of sales revenue
14. Clicking Continue to the next step
15. Click Generate the final PDF
16. Click Send the report to signing
17. Click on Digital signing of the report (if it is possible to sign with a digital signature)
18. Click Continue to the next step
19. Fill in Proposal for profit distribution/covering loss
20. Click Submit the report to the register
Sworn auditor reviews are mandatory for larger companies, who’s numbers in financial performance, assets or workforce are considerably high. Having an audit or a review can be done also voluntarily by businesses who for example wish to prepare for investments. The companies who have gone through an audit or a review must include an auditor’s report, together with their other annual report documents from the financial year.
Per the Audit Law, for you to present your yearly financial statements for review or an audit to an auditor, your company must have exceeded at least two of the conditions below:
|Sales revenue or income||€4,000,000;||€1,600,000;|
|Total assets as of the balance sheet date||€2,000,000;||€800,000;|
|Average number of employees||50 employees||24 employees|
Your company needs an audit or a review if it meets at least one of the following conditions within the fiscal year:
|Sales revenue or income||€12,000,000;||€4,800,000;|
|Total assets as of the balance sheet date||€6,000,000;||€2,400,000;|
|Average number of employees||180 employees||
Note - All public limited companies must audit their yearly accounts if it has over two shareholders.
In case you are interested in finding out more about accounting for an Estonian company, please click here!
In case you are looking for professionals to help you with your Estonian business' accounting or management, we are here for you! We can assist you with submitting this year's or any previous annual reports, as well as with a merger and liquidation of your Estonian company. If you need help, please feel free to contact us.
Disclaimer: This article provides general information, which may or may not be correct, complete or current at the time of reading. No recipients of content from this site should act on the basis of content of the article without seeking appropriate legal advice or other professional counseling.