The preparation and submission of an annual report is a common business requirement all over the world, and your e-resident Estonian business is no different. In fact, it’s a critical part of the transparent digital accounting infrastructure, of which all businesses (native Estonian and e-resident) form part. In Estonia, everything is there for anyone who needs to see it, accountable and accessible — no shadow directors, hidden assets, or shell companies, just fair and open documentation.
Understanding the information and format necessary for your annual report is therefore important, but don’t worry! Your business service provider will take care of all the important details for you. All you have to do is make sure you provide them with the data they need when they ask for it.
You will, however, need to review and digitally sign off the completed annual report, which is why — as a company owner and/or director — you should understand its various elements and requirements, as part of your own professional due diligence.
What is the Estonian business annual report?
The annual report is a structured overview of the business performance and management, through one year of activities. It follows a specified format and procedure and varies in complexity depending on the level of activity of your business. There are particular rules related to turnover and business size, the most significant of which is that the reports needed for small and micro-enterprises are quite simplified. In fact, if your accounts are up-to-date — you’ve been filing expenses receipts regularly for example — it won’t take long to do the work required.
However, you should not disregard it, as you must understand that the submission of an annual report is a non-optional part of the system and requirements. Filing the report is necessary to maintain your status in the Estonian business register, even if you had no income or expenses during a given period. Under the Commercial Code of Estonia it's a mandatory requirement for all legal entities. Furthermore, the code requires that the annual report must be prepared in Estonian and in the official currency (EUR).
The filed report then becomes a public document and provides an overview of how the business is being run, and what kind of financials it is experiencing, from the balance sheet and profit and loss report. It signals to the Estonian government, and the world, that you are fulfilling your duties as a company founder responsibly, and in good standing with the necessary financial institutions and regulators.
So, you can feel proud that your business, even if you are a solopreneur, is part of a bigger picture — taking its place in the record of the business environment in Estonia, and the profile of e-Residency activities as well. All this data is used to inform policy decisions, as well as being available publicly to anyone who wants to consult the register for any purpose.
How do I prepare and file the annual report for my e-resident business?
Whatever the size of your business, however, it is strongly recommended that your annual report is prepared by a qualified accountant, such as those working on your behalf at Xolo or your preferred business support supplier in Estonia. The only exception where you might be able to file it yourself is if you had zero income and outgoings, i.e. your business is totally dormant. A thorough knowledge of Estonian business accounting procedures is a prerequisite for ensuring a fully compliant annual report — and like all the rest of your business admin, it’s unlikely to be something you want to get bogged down in trying to do yourself.
Furthermore, if you make mistakes in your annual report, this is an offense under the Estonian Commercial Code. The intent behind the mistakes is irrelevant because the onus on you as a business owner is to either do it correctly or hire someone who can. The courts will not cut you any slack if you don’t know what you’re doing — so this is not a place for DIY or giving it a go.
Fortunately, your business service provider in Estonia is already appointed in the Estonian Business Register as the legal entity with permission to enter your data and file on your behalf — you’ll need to authorize them in the first instance, but then they can act for you going forward, and you just have to sign things off.
Once, that is, you have provided them with everything they need, to do this properly for you — see below!
When should my Estonian annual report be filed?
Unlike in some other countries, in Estonia the financial year matches the calendar year, which makes the accounting cycle predictable and straightforward. This will also be defined in the Articles of Association for your business.
If it is your first year of trading, and you started your Estonian business in the second half of the year, you may not need to submit at all! If the accounting period in question is less than 6 months long, you can submit an annual report the following year, which includes that period. Whether you choose to do this will depend on a number of factors, and you should particularly bear in mind the fact that you cannot pay out dividends, without the filing of an annual report for the relevant period.
Additionally, you and your accountant also have plenty of time to prepare the necessary documentation and data for each year, because the filing deadline is a full 6 months later, at the end of the following June. This is ample period in which to gather what is needed, (and to be externally audited, if your business is of a size to require that.) It also means that any missing cost documents, negative equity, or other business problems can be addressed in good time before publicly filing.
However, you can, of course, submit the annual report earlier, and while the actual submission process is extremely rapid and easy within the e-financials system, you can bet your accountant will appreciate not having to compile reports for every one of their clients in the last few days of June! So, don’t be that guy…
Also, it’s important to note that this is far from a punitive process, and while mandatory, there is much in place to support you. For example, in 2020, the Estonian government granted a filing extension to the annual report deadline, up to the end of October, in recognition of the turbulence and difficulties created by the global pandemic.
Just follow the rules, and you will be fine — your accountant is there to help you, and no one is trying to catch you out or trip you up.
Do I need an external audit, before I file my Estonian company annual report?
In Estonia, the obligation of an audit or audit inspection is established by articles 91 and 92 of the Estonian Auditing Act, but some good news here for many e-Resident business owners: In many cases, an audit is not required.
The system of monthly reporting is already so transparent that the overview of your business on record is adequate often until you reach certain thresholds. At this point, the oversight of an external professional is not only a legal requirement but a valuable enhancement of your company’s financial credibility for clients and investors.
An Audit Inspection is a simplified process, which applies to interim milestones. For example, if your business exceeds AT LEAST TWO of the following thresholds in the reporting period, you will need an Audit Inspection:
- Sales income greater than €1,600,000
- Company assets greater than €800,000
- More than 24 employees
However, because not every business grows in an identical way, the need for an auditing inspection can also be triggered by just ONE of these factors exceeding different limits, namely:
- Sales income greater than €4,800,000
- Assets greater than €2,400,000
- More than 72 employees
Thresholds for a full external audit are as follows (at least TWO of the following criteria must be met):
- Sales income more than €4,000,000
- Assets more than €2,000,000
- Staff more than 50
Or alternatively, ONE of the following:
- Sales income more than €12,000,000
- Assets more than €6,000,000
- Staff more than 180
In the event that you are approaching any of these thresholds, your accountant can advise you, on the appointment of a certified auditor. Their report will then be attached to your annual report, before that is filed in the Estonian Business register.
What information does my accountant need, to prepare the annual report for my Estonian company?
A lot of the information required for the report will be available already, but you may need to gather it up in new formats for this purpose.
Bank statements for your annual report
For example, your accountant may have linked access to your business bank accounts, but for the annual report, a specific accounting snapshot is required.
You will receive detailed instructions about what is needed, so it’s generally just a case of going in to each account, setting the date parameters (e.g. January 1st to December 31st of the applicable year), then running off the required report in the specified format.
You will need to do this for each account connected with your business, including separate ones for each currency you have interacted with. So yes, that one client who paid you in something you’d never heard of (but luckily Wise had!) — you’ll need to run a report on that currency, just for them. But imagine how long this would take, if we didn’t have such advanced digital tools on our side!
Any investments, including commodities, securities, and crypto-assets, will also have to be accounted for at this time, as part of the balance sheet, and losses/growth achieved over the accounting period.
In addition to bank accounts, your business may also have payment service provider accounts which must also be reconciled for the annual report — PayPal, Stripe, ecommerce tools of this nature. Again, they will all have the ability to generate reports your accountant needs, and it will simply be a case of following the guidance you are given, to dig into the settings in each app and run off the files required.
Expenses and receipts for your annual report
At this point, you will probably also need to gather some missing expense documentation too. What was that random small amount for, back in Spring nearly a year ago…? Time to find out!
This may involve a bit of detective work, but your infinitely patient accountant will keep flagging up the unresolved queries.
To help them out, you may need to:
- Perform searches by date and keyword in your email
- Log into all your different subscriptions and SaaS providers, and dig around in settings. Maybe you changed a monthly payment to an annual one or vice versa at some point?
- Reconcile things you accidentally bought on your business credit card or PayPal account, which were actually personal — that time you used the wrong Uber payment source to get home from a night out, for example!
- Likewise, surface any out-of-pocket expenses, which can be offset at this point (and if it’s a recurring expense, this may be a good moment to finally change the payment source anyway)
- Request/nag people to give you proper invoices for things — because not every solopreneur you deal with is as professional and organized as a Xolo client!
- Make a final attempt to chase up any bad debts you are unlucky enough to have on your account — we all get burned from time to time, but sometimes a creditor will be able to pay you now when they could not before, or just need to be reminded one more time, before you write them off. Tell them the Estonian government demands reconciliation!
What else is needed, to prepare for your Estonian business’ annual report filing?
Most of the annual report consists of those all-important numbers; however, there are some wordy parts too! Assuming you are not a large public company, or a high-growth startup pursuing investment, this will not take long to complete under the guidance of your accountant.
The management report which accompanies your Estonian company’s annual report
As a company director/owner, you will also need to provide a management report to accompany the financials — but this is very much a formality, for the typical small or micro-enterprise. Therefore your Xolo accountant will advise that you keep things very simple, with a form of words like this:
Yourcompany OÜ was established on date, as a one-person business. The main business is providing [awesome thing that you do].
The financial year of the company begins on 01.01 and ends on 31.12. The accounting of the company is in accordance with the requirements and basic principles provided for in the Accounting Act and with the Estonian financial reporting standard. In 2022, the company plans to continue within the existing business field.
Details of related parties, for your Estonian business annual report
In addition to this brief statement regarding core business, you will also need to identify any business transactions which relate to close family members. This includes people like your spouses, cohabitees, direct blood or collateral relatives — as such, those with whom you may have financial entanglements of a personal nature, outside any business relationship.
These transactions include any purchases, sales, loans etc., that you have made during the reporting period, to business partners (vendors, clients, contractors, etc) which either you or close family members are associated with, through ownership or direct controlling rights. For example, perhaps you hired a nephew to do some admin for you, or sold an asset to your partner for personal use, during the reporting period.
None of these things are illegal to do in any way. We all do business with people we know and like, and sometimes this includes our close relations! However, there is precedent for people using family connections to deliberately obscure business accounting matters, and the Estonian principle of ‘transparency first’ requires that this be reported according to the Accountancy Act. Such information is noted for informational purposes only.
How do I review, sign, and submit my Estonian e-resident’s business’ annual report?
Your accountant will ask you all the questions needed to compile and present your annual report (so pay attention to those emails, including all follow-up queries). They will then prepare the report for you to review, sign, and submit it.
This signature (digital, of course, like all your signatures in Estonia) is legally binding on you, so it is important that you understand what it includes, and your responsibilities — as a board member and/or owner of the company, on behalf of whom the report is filed.
If you're the kind of e-resident who normally uses SmartID for everything, then this may be the one time in the year you have to dig out your actual digital ID card, and remember that the two PINs associated with this are DIFFERENT from your SmartID PINs.
If you operate your business through the frictionless ease of the Xolo portal, this may be the only time you ever have to log in to the Estonian Company Registration Portal with your e-resident card — but fear not, your accountant will provide you with a detailed step-by-step procedure in order to do this. Furthermore, while the business code requires that the report itself is in Estonian, you will find everything in this portal available in English for you too.
If it is the first time you are filing, you may have an additional step within the registration portal, if, upon entering, you see a notice that says, “Beneficiary owners not appointed” — again, this is a straightforward once-only thing to update, and guidance will be provided.
After that, you will see in the e-Business register, a tab called ‘submission of a report’, followed by ‘incomplete reports’.
Inspecting your annual report
Here you can view your report before its submission, but there should be no unexpected surprises at this point! Before uploading it, your accountant will have reviewed the financials and commentary with you, and ensured there are no irregularities present.
In the portal you will be able to see an overview of the general data of the report, and on the next page, you can download and review it — in English.
Even though you may have replied to dozens of emails from your patient accountant about this matter by now and you are eager to get the project completed, DO download and read your annual report! This is an important part of your required due diligence as a company owner, and this is your moment to check everything finally. If there’s anything you don’t understand or have a question about, do not sign the report, and get back to your accountant immediately.
Everything should look very familiar by now, however, and once you are satisfied that the report is ready to go, you can simply click on ‘send the report to signing’ — which will take you to a form where you (or any other board member) can sign it off. You may also need to add a current date, and complete a resolution that the report is approved.
You do this by ‘adding a digital signature to the report’, for which you will require your Estonian ID card or smartID, and your PIN2.
Once this is completed, you will see the highly satisfactory green flash at the top of the screen, which tells you that the ‘document is successfully signed.’
What happens after I sign off my Estonian annual report?
The only big decision you need to make after that point is what to do with your profits!
Remember that any profits retained in the business, rather than paid out as dividends, will be free from tax. So, this is a good point to review any investments you might be considering, or expenses your business requires.
Sometimes you will want to pay a dividend, other times you may choose not to, and this may also depend on the level of activity since the close of the financial year, as well as your present cash position.
And the very best part, about your Estonian company’s annual report?
If you’ve read this far, it might sound like a lot of work, to get all that information together and submitted in a compliant and timely way.
However, not only does your accountant do all the heavy lifting on your behalf, for Xolo Leap customers, all the work related to your annual report is 100% included in your plan — there is no additional charge made, on top of your monthly fee.
So, once you have sent in all your missing information and then followed the instructions received to review and sign off your report, you just carry on about your business without missing a beat.
That’s what you love about operating your e-resident Estonian business, after all!
About Maya
Maya Middlemiss is a freelance journalist and author, excited about the future of work, business, money, and technology. She operates her e-resident business through Xolo Leap, so that she can work frictionlessly with brands and publications all over the world, and she is the host of the Future is Freelance podcast. Exploring the social impact of technology on our changing world, and bringing those stories to life in an accessible and inclusive way, is her passion — because all of this is far too exciting to leave it to the geeks. Maya is a 'digital slowmad', originally from London, presently living with her family in Eastern Spain.