Sanctions for Failure to Submit Annual Reports in Estonia

As of February 1, 2023, the Estonian Commercial Registry Act came into effect, introducing several changes and updates to the legislation that concern formal aspects of legal entities, reporting, and accountability. Previously, questions related to the commercial registry were regulated by the Commercial Code, which also underwent significant changes with the adoption of the Commercial Registry Act.

Sanctions for not submitting annual reports have been tightened

This article focuses on the provisions of the Commercial Registry Act that regulate changes regarding the failure to submit annual reports. The sanctions have become significantly stricter due to the common occurrence of failing to submit or submitting annual reports late within the Estonian business environment.

There are various reasons for not submitting annual reports. Some cases involve deliberate non-compliance to conceal the company's actual data, whether from other shareholders or business partners. There are also situations where the company has essentially been "abandoned" by its owners and management, meaning the company has practically ceased operations, but the shareholders do not wish to initiate the proper liquidation process. Such situations create a misleading image of the Estonian business landscape, which the legislature cannot accept, as it affects the reputation and credibility of our business environment.

Determining fines for failure to submit annual reports became simpler (Estonian Commercial Registry Act § 57)

Previously, the registrar had the right to impose a fine on a legal entity for not submitting an annual report by the deadline, if the legal entity had disregarded a warning notice. Under the new legal amendment, the registrar has the right to impose a fine on a legal entity for not submitting an annual report even without a warning notice.

When determining the amount of the fine, the registrar has significantly more discretion than before, and it depends on the following factors:
  • how many times the annual report has not been submitted by the deadline;
  • how much time has passed since the deadline for submitting the annual report;
  • other circumstances known to the registrar.
Fines can be imposed repeatedly until the annual report is submitted. In addition to the legal entity, fines can also be imposed personally on the members of the management board and the shareholders, as they have a legal obligation to submit the report.

Deletion from the registry due to failure to submit annual reports will occur within a shorter period (Estonian Commercial Registry Act § 61)

Under the new law, the registrar has the right to delete a legal entity from the registry if the deadline set by the registrar for submitting the report is not met, and at least three months have passed since the legal deadline for submitting the report.

While the Commercial Code previously allowed a minimum of six months for the preparation and submission of annual reports following a warning notice, the Commercial Registry Act requires the legal entity to submit the annual report within the deadline specified in the warning notice. The actual length of the new deadline will become evident as practice evolves.

Compared to the past, the registrar no longer needs to wait for six months to send out a warning notice to a legal entity for not submitting an annual report on time. This notice can now be issued immediately after the deadline has passed, which for many entrepreneurs is from July 1st onwards. Issuing a deletion warning does not preclude the imposition of fines simultaneously.

In Conclusion

In short, the legislature is committed to pressuring entrepreneurs to submit annual reports, in order to enhance the accuracy of data within the commercial registry. Accurate reporting has a significant impact on the health and credibility of the Estonian business environment. One function of the commercial registry is to provide entrepreneurs with information about existing and potential business partners, enabling better decision-making clarity and the establishment of business relationships. Therefore, it’s essential for the registry to contain all the necessary information about companies, including correct and timely submitted annual reports.

Our Recommendations:
  • Check the entrepreneur portal to ensure that your annual reports have been submitted. Sometimes, it's surprising to find that reports have been prepared but not submitted. Often, this is due to a missing signature from a shareholder, causing the report to remain unsubmitted, or all signatures are present, but the submission button was not pressed.
  • Do not rely on the assumption that the commercial registry may not get around to everyone at once and that your company might escape inspections and sanctions this time. Many activities within the commercial registry are automated, and their efficiency increases every day. We have noticed that the imposition of fines is already intensifying, and the registry is using its authority to impose fines more vigorously than before.
  • If you know that your annual reports are pending and unsubmitted, we recommend addressing the issue promptly. The longer you delay, the higher your potential costs and time expenditure will likely be. Wisecounter's consultants and accountants are always available to assist you with any accounting and tax-related questions. We can help you prepare and submit annual reports and organize your accounting if necessary.

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