All companies in Estonia have to follow the accounting requirements that are set out in the Estonian Accounting Act that creates the
legal bases and establishes general requirements for organising accounting and financial reporting.
Annual Report for Estonian Company
Every Estonian company must file a mandatory annual report at the end of each financial year. The financial year in Estonia is 12 months and is usually the same as the calendar year, starting on 1 January and ending on 31 December. However, it is possible to change the financial year of the company by applying to the Business Register. The annual report must be submitted at least six months after the end of the financial year. So, if the company follows the standard financial year, the deadline for submission is 30 June. In 2020, the annual report deadline was extended due to the Covid-19 with the new deadline of the 2019 annual report being 31 October. You can order an annual report from us here.
The mandatory components of the annual report are the management report, balance sheet, income statement, and notes to the annual accounts. Larger companies must additionally submit a cash flow statement and statement of changes in equity. Read more about the Estonian annual report here.
Is it mandatory to Do Monthly Accounting in Estonia?
Monthly accounting is mandatory for those Estonian companies that have registered for the VAT number or if the company pays salaries to employees/board members under the Estonian employment rules. VAT also becomes mandatory for the Estonian companies whose EU turnover is more than 40 000 €. It is also possible to apply for the VAT number before the company’s EU turnover is 40 000 €. You will have to explain in your application why you want a VAT number. Whether the Tax and Customs Board will register your company depends on your business goals and reasoning.
What Happens After You Register for a VAT Number?
If you have registered for the VAT in Estonia, then the VAT declaration must be submitted to the Tax Department on the 20th day, following the month that the return applies. The VAT declaration must be submitted even if there have not been any payments or transactions. Make sure to submit your VAT declarations on time to avoid penalties by the Tax and Customs Board.
Declaration of income and social tax (TSD) must be submitted by the 10th of each month if you are paying out salaries to employees under the Estonian employment rules.
Value Added Tax (VAT) with Limited Liability
If you haven’t registered for a VAT in Estonia but purchase goods from another EU company outside of Estonia, then you must register for a VAT with limited liability if the value of these transactions exceeds 10 000 € per calendar year.
Also, when an Estonian company receives certain services from any foreign person or a company, it must register as a VAT payer with limited liability as of the date of receiving the services. These services include but are not limited to advertising, accounting, legal, financial, workforce, and intellectual property. When purchasing services from a foreign person or a company, the obligation to register for a limited VAT arises from the moment of the purchase, and it doesn’t depend on the amount.
The VAT payer with limited liability pays value-added tax only on the purchases of goods exceeding the threshold from the EU companies outside of Estonia and the services received from any foreign persons or companies outside of Estonia. A VAT payer with limited liability can’t add VAT to the goods he/she sells or the services he/she provides. Therefore, they don’t have the right to deduct the input VAT.
Accounting Options Best Suited for Your Company’s Needs
If an Estonian company has not registered for a VAT in Estonia, pays no salaries under the Estonian employment rules, or is not subject to the registration for a VAT payer with limited liability, then it is sufficient to do accounting at least once a year, before submitting the annual report. You still need to collect all your source documents and organise them in a way that they are easily found when an annual report has to be submitted.
One option to conveniently create sales invoices and keep all your expense documents in one place is to use our self-accounting solution. It is a good option for the companies that are starting or are small businesses, but in both cases the companies do not have a VAT number.
If your annual EU sales turnover exceeds 40 000 €, then registering for a VAT becomes mandatory in Estonia. It is highly recommendable to get a dedicated accountant if you have a VAT number, pay salaries for employees, or are subject to VAT of limited liability as the VAT rules are quite difficult to comprehend and require a deep understanding of accounting. You also need to use accounting services if you want to use fringe benefits or wish to involve capital from investors.
If you start with our self-accounting solution, make sure to pay attention to when you should switch to a dedicated accountant. It will save you time and money in the end when you keep your accounting in order as you go, instead of trying to fix it later when the annual report is due. Please contact us if you need a consultation or would like to get an exact accounting offer for your business.