Accounting requirements in Estonia

General overview

General

Accounting rules and taxation

‘Most foreign businesspeople operating an Estonian company consider Estonian accounting rules and taxation system straightforward. Accounting and bureaucracy-related costs are generally rather low in Estonia.

Estonian accounting rules are not significantly different from those applied in other EU countries; however, several details are important to be aware of.

Although the corporate income tax rate charged on corporate profits is 0% (22% tax is applied when profits are distributed, 24% starting from 01.01.2026), certain costs are not eligible as business expenses. All costs of the company must be substantiated (at least to some extent) as being related to the company’s business. If the corporate bank card is used to pay for any expenses, and no invoice is presented to prove that the expense is business-related, such expense is subject to the corporate income tax. All costs must be supported by source documents (e.g., invoices).

Accounting requirements

The Accounting Act (effective as of 1 January 2003) governs the basic accounting functions of all business entities registered in Estonia. It does not regulate accounting for taxes, which are regulated by other laws and acts. The essence of the law is framed in compliance with International Accounting Standards (IAS).

Almost all Estonian companies can choose whether to prepare their consolidated and annual accounts in accordance with International Financial Reporting Standards (IFRS) or in accordance with the Estonian accounting standards ("Estonian GAAP"). Listed companies and financial institutions are required to prepare their accounts in accordance with IFRS. The Estonian GAAP is written by the Estonian Accounting Standards Board.

The length of a financial year is 12 months. At the end of each financial year, an accounting entity is required to prepare an annual report that consists of the annual accounts and the management report. The auditor's report and, in the case of a company, the profit distribution proposal for the financial year should be annexed to the annual report. The auditor's report need not be annexed to the annual report if auditing is not compulsory.

Annual reports must be filed with the register even if the company has had no transactions in the financial year.

Annual reports must be filed within 6 months following the close of the financial year. A penalty can be charged if an annual report is filed late. Since 2024, officials have been issuing penalty notices very actively.

If the owners’ equity drops under 2500 EUR or is less than 50% of the registered share capital, the owners must either restore the equity capital or dissolve the company. To avoid unnecessary waste of time, it is advisable to ensure that your company’s share capital is covered enough before filing the annual report.

For practical reasons, if the company has salaried employees, it is better to pay the salary at the beginning of the month following the month when the salary was earned, which is a common practice in Estonia. Otherwise, too little time is left for tax accounting (payroll t

If the company has no VAT ID

It is important to understand that without a VAT ID the company is not eligible for VAT refunds. In practice, this means that whenever you buy something, you will lose VAT, equal to 24% of the price.

If the company pays no salary under the Estonian employment rules, no payroll taxes are payable in Estonia and the company need not file monthly tax returns. This means that the company can prepare the accounts once a year, i.e. to file the annual report, and keep accounting costs low.

If the company has a VAT ID

The company must file VAT and payroll-related tax returns, even if there have been no payments or transactions. Payroll returns must be filed and payroll taxes paid by the 10th day of the following month, while VAT returns must be submitted and VAT paid by the 20th day of the month following the month to which the return applies.

If a company has paid excess VAT, such excess amount is generally refunded within 30 days after the relevant application is filed. However, in most cases, tax authorities thoroughly review the company’s paperwork.

Assignment in abroad

Related expenses and daily allowance

Daily allowance

Daily allowance for an assignment abroad is payable for the day of departure, if the means of transport heading to a foreign destination leaves at the latest at 09.00 p.m. Daily allowance for an assignment abroad is payable for the day of arrival, if the means of transport arrives after 03.00 a.m.

Accommodation expenses

The employee has the right to charge the employer for travel and accommodation expenses and other reasonable expenses associated with an assignment abroad (such as expenses connected with purchasing of travel tickets, travel insurance premiums, visa fees, luggage carriage, costs stemming from exchange rate differences, etc), and to receive a daily allowance in the amount of 32 EUR.

Documentary evidence

Any expenses related to business travel shall be compensated based on documents that prove the expense.

Compensation for expenses

Compensation for expenses incurred in connection with business travel and a daily allowance is paid by the employer based on a written decision. The document constituting the basis for disbursement must state the business travel destination, the duration, the purpose of the assignment, the extent to which the expenses are compensated, and the daily allowance payable.

Audit requirements

The requirements when and on what level an Estonian company must be audited depend on several circumstances. Basic auditing requirements can be found below. For more details you can read here.

Since 01.01.2024 the full audit obligation applies to an accounting entity in whose annual financial statements at least two of the indicators listed on the right exceed the following values: 

  • sales revenue or income 5 000 000 euros;

  • total assets as of the balance sheet date 2 500 000 euros;

  • average number of employees 50.