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On February 1st 2023, several changes will take place for companies in Estonia. The amendments to the Estonian Commercial Code and introduction of the new Business Register Act will change incorporation process, and rules for existing companies.
Most changes will significantly simplify company opening, however some rules regarding fines and penalties will be stricter than before. Let’s go over the main changes.
Share Capital Requirement of 1 Euro Cent
Prior to that, the minimum share capital of a private limited company (OÜ) was set at the 2,500 euro mark. The requirement was there since the 1995. According to the official e-residency website this minimum requirement created a situation where owners didn’t think about how much capital they actually needed. Instead, they just automatically set it at the minimum. Thus, the minimum share capital requirement generally had no relation to the company’s actual capital needs.
From February 1st 2023, shareholder of each company will decide on the share capital themselves. As the minimum nominal value of a share is 1 euro cent, the share capital of an OÜ can be 1 euro cent if it has a single founder and shareholder. Each additional shareholder would mean at least 1 more euro cent then. At the same time, if the contribution is below 50,000 Euro, a company doesn’t have to prove the share capital contribution via a certificate from a banking institution.
In case of bankruptcy, the liability of the owners is still up to 2,500 Euro for bankruptcy proceeding related costs. This rule applies even if the share capital of a company if less than 2,500 Euro.
If the share capital of the private limited company is less than 2,500 Euros and the trustee fails to satisfy the claim at the expense of the debtor's other assets, the trustee has the right to demand compensation of fees and expenses from the shareholder of the limited company to the extent that lies between the limited company's share capital and 2,500 euros.
Failure to Submit Annual Report Will Result in the Deletion from the Register
You probably know that each company in Estonia must submit annual report. Under the new rules, a fine can be now issued without warning. The amount of fine will be decided in each case with a minimum of 300 Euro.
But there is also a far more severe penalty now. If a company fails to submit a report in 3 months after deadline, it can be deleted from the register. The decision regarding each legal entity will be made by the regulator. As deletion from commercial register is the most extreme measure against a legal person, the possibility of re-registration within 3 years will be created to counterbalance the deletion.
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The legal address of a company with foreign founders was previously tied to their contact person, meaning the legal address has automatically been that of a contact person. New regulation separates the contact person address from a company’s legal address. What does it mean?
Basically, a company’s address entered on the registry card can now be either an Estonian or foreign address. If a company currently only has the address of the management board registered in the business register, then this is considered the address of the company in terms of the new law.
So, now while registering a company, shareholders must identify the address where the business is located physically. So, what changes for existing companies? If a company already has identified the address of a board member, then the register will use it as a company address in the future. However, if a company didn’t add contact person information, then it must be added to the register no later than 30.04.2023.
This new amendment does not mean that you will have to change a legal address of a company going forward. This measure will make it easier for a company’s founders to receive any procedural documents or letters of intent addressed to a business delivered on paper. Upon delivery of a procedural document or declaration of intent to a legal address, the document is considered to have been delivered to your business.
A company will remain an Estonian tax resident, but can now simply distinguish its legal address from that of a contact person. As the clarification of terminology in Estonian legislation has no effect on national or international tax law, this change will have no effect on how a company is taxed.
And there is also one more change regarding a contact person.Now, when appointing a company must also indicate the expiry date of the contact person’s appointment. The term of appointment can be extended, however if a company fails to do that, then the contact person will be removed from the register.
Reserve a Business Name (March 1, 2024)
In 2024 founders will be able to reserve a business name before registering a company. While the main rules for a business name will stay the same, a future shareholder will be able to reserve the business name for up to 6 months and extend the reservation once for three months. One person will be able to reserve only 1 company name. The state fee for that will be a total of 150 Euro.
Deletion From the Register if a Company Doesn’t Appoint a Contact Person (30.04.2023)
So, there is a new more severe penalty for a failure to appoint a contact person now. The main rule is the same as before: a contact person must be appointed if the legal person has no Estonian address.
If a legal person fails to provide information within 3 months, first a fine may be issued. However, later that can result in the deletion from the register.
Shareholders’ List Will be Kept in the Commercial Register (01.09.2023)
Right now the shareholders' information is publicly available in the commercial register, but it must be kept by the management board of a company and data is not considered to be an entry in the commercial register.
With the new regulation, shareholders’ data becomes a part of effective data of the commercial register. The shareholders’ list will be kept in the commercial register. Therefore, shareholders’ data will have the status of a commercial register entry.
That’s it for the main changes. Feel free to ask us any questions, if something seems unclear. We will be delighted to assist you!