In normal circumstances you as the owner of the company make decisions about your company. Sometimes those decisions are made by the government.

In 2023 Estonian government introduced legislation that gave the business register the authority to delete companies in case their owners fail to comply with the legislation.

Business register monitors if directors of the company fulfill their legal obligations and if they fail to do so, the register has authority to charge a penalty or decide to delete the company. Deleting takes place on two occasions:

– due to failure to submit annual report

– due to lack of contact person

By May 2024, more than 20 000 companies, including more than 4000 e-resident companies have been shut down by the business register. Losing your company can create legal and financial problems for your business. It can also trigger personal tax liability for the owners of the business.

Business register follows these three requirements that need to be fulfilled for deleting the company without approval of the owners:

1. company has no assets registered in Estonia. Having assets outside Estonia, including money on a bank account, is not an obstacle for deleting the company.
2. company is not a party to any on-going court proceedings, criminal proceedings or enforcement proceedings. Having a legal dispute outside Estonia, does not prevent Estonian business register from deleting your company.
3. the tax office has provided their consent. Companies with VAT number or other tax liabilities, such as salaries or management fees, are not granted the approval for deleting, therefore for those companies the penalty as described below apply.

Lately, the practice of the business register has changed, and instead of deleting the company, business register has started to issue penalties for non-compliance with the law. The initial penalty is 200 EUR and is gradually increased until the management board has eliminated the deficiencies, i.e. submitted annual report and registered contact person. It’s important to note that the penalty issued to a company is subject to 25% income tax.

What happens next?

So, what should you do after you realize that your company does not exist anymore? By law, deleting the company does not affect the legal rights and liabilities of the company. It means that the obligations of the company must still be fulfilled, and creditors of the deleted company may submit their claims against the directors of the deleted company.

Next steps depend on your business.

Do you want to continue business activities? Then you must apply for reinstatement of the company. State fee applies and you will be expected to correct your misconduct that caused the deleting.
Do you want to receive assets, including money in the company’s bank account? Then you should apply for liquidation. A liquidator will be appointed by the court who will take care of distribution of assets to the owners.

How does this affects e-residents?

Purpose of granting e-residency to a foreigner is to promote the development of Estonian economy. If this purpose is not fulfilled due to deleting e-resident company from the register, Estonian Police and Border Guard may revoke e-residency status. By losing e-residency status you will lose the benefit of using e-services of Estonia- one of the world’s most digitally advanced countries.

Contact us for further information at viire.murak@1office.co.