Author: John Doe

OÜ or AS merger with the property of a natural person

To liquidate a private limited company or a public limited company by a simplified procedure by transferring the assets of the company to a natural person who is the sole shareholder or shareholder and the natural person becomes the legal successor of the legal person.

As the amendment to the Estonian Commercial Code provides for a merger procedure in which both the assets and liabilities of a company are transferred to a sole shareholder, it is not yet clear from the merger what the final profits of the company will be to its shareholder. Therefore, the provisions of the Income Tax Act (TuMS) were supplemented, which specify the calculation and taxation of profits distributed in a merger at the level of both the company and the shareholder.

Taxation at the company level

According to the wording valid until 31 December 2014, no tax liability arose if the assets of the company deleted from the register continued to be used in economic activities in Estonia.

The amendment valid from 1 January 2015 supplements the wording of § 50 (22) of the TuMS so that tax liability does not arise only if the assets of a deregistered company continue to be used in Estonia for economic activities in another company or a permanent establishment of a non-resident company.

As a result of the amendment, a tax liability also arises for a company which transfers its assets and liabilities to a natural person upon merger (on the basis of subsection 391 (7) of the Commercial Code). As before, the company incurs a tax liability on the part of equity that exceeds the financial and non-monetary contributions made to the company. The tax liability is calculated on the basis of the amount of equity reflected in the final balance sheet of the company being acquired.

Taxation at the shareholder level

As of 1 January 2015, § 15 (32) of the TuMS was supplemented, according to which the benefits received from the company due to the merger are taxed similarly to the equity payments and liquidation division provided for in § 15 (2) and (3) of the TuMS. Thus, the natural person with whose assets the company’s assets were merged must be aware of any tax liabilities that may arise.

§ 15 (32) of the TuMS provides that upon the merger of a company with the assets of a natural person the income received from the company in monetary or non-monetary form and the assumed liabilities exceeding the acquisition cost, except for the part of the said profit . If the obligation taken over from the company is subsequently extinguished due to waiver, expiration, coincidence of the debtor and creditor or for any other reason, the amount of the extinguished liability by which the income from the company was reduced upon merger is subject to income tax.

Thus, in a merger, a natural person incurs a tax liability between the assets and liabilities acquired from the company, which exceeds the acquisition cost of the shareholding. Income received in non-monetary form (acquired assets) is accounted for at market price. If the liabilities taken over from the company are subsequently reduced, the natural person will incur an additional tax liability.

Although in the case of a merger pursuant to § 391 (7) of the Commercial Code, the obligations of the company are transferred to a sole proprietor or shareholder who is a natural person, it may happen that the natural person does not have to perform all obligations. For example, after a merger, a creditor may waive a claim against a natural person or the natural person may refuse to perform an obligation due to lapse of time.

A claim may also terminate upon the coincidence of the debtor and the creditor (§ 186 (3) of the LPA) if the sole shareholder or shareholder who has taken over the obligation from the company is himself or herself a creditor of the company.

If, in calculating a company’s tax liability, taxable profits have been reduced by such a liability, the natural person must pay income tax if it becomes apparent that he is not required to comply with that liability.

A natural person becomes liable to tax in the tax period in which the obligation ceases to exist. In the case of limitation, the tax liability arises upon the expiry of the limitation period of the claim. At the level of a natural person, income tax is calculated only for the part of the obligation that the natural person does not have to fulfill. For example, if a natural person has fulfilled part of the obligation at the expense of his or her property and part of the obligation expires, then the natural person has to pay income tax only for the part that expired.

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What is an apostille?

Apostille

e-Apostille

The package of documents consisting of whether non-apostilled/apostilled documents with sworn translations in English will allow you to apply for opening an account with a foreign bank for your Estonian company or carry out transactions on behalf of the Estonian company in other countries.

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VAT number registration in Estonia?

Сompany registration process involves various legal aspects regulated by Estonian legislation. Among which is VAT registration being essential in some cases. In this article, we consider when you should register VAT for your company and how to do so.

The process

First and foremost, сompanies are obliged to register a VAT number in a case when sales in Estonia exceed 40,000 EUR from the beginning of the calendar year. If sales do not exceed 40,000 EUR in Estonia, VAT payers can be registered on a voluntary basis.

Numbers

The general VAT rate is 20% in case your OÜ provides services to clients. It also could be reduced in some particular cases. For example, if your company deals with providing accommodation services, book sales of books, or medical services/products. If you serve customers in third countries or another EU country, 0% VAT is applied.

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How to start your company with e-Residency in 4 steps

e-Residency allows aliens to set up a company in Estonia remotely by providing online access to government services


1. Get an e-Resident card

You can enjoy the benefits of e-Residency once you have obtained your Estonian digital ID — e-Residence card.

All you need to do at that stage is to submit your application. The process takes place online and is indeed straightforward.

The applications form is available on the e-Residency official website:

You need to prepare some documents beforehand:

  • copy of your verified ID
  • passport-style photo
  • motivation statement
  • Visa or Mastercard

While submitting the application, you will be asked to pay a state fee and choose a pick-up location for your e-Resident card kit. The state fee is 100–120 EUR depending on the pick-up location.

Once submitted, check your email for confirmation and wait for your application’s approval, which usually takes between 4 and 8 weeks.

After receiving positive news, first of all, we congratulate you and kindly remind you to take your ID and pick up the kit strictly by yourself.

2. Take care of legal address and a contact person based in Estonia

It is an absolute requirement to have both in order to set up your company with an e-Resident card.

It is well-known that Estonia is a good place for business as it welcomes every entrepreneur. Estonian legislation proves this fact. Whilst it may sound not very pleasant by its complexity, company registration in Estonia doesn’t take piles of documents. Just make sure to have a legal address and a contact person in Estonia — and bear in mind, we are here to help with both.

3. Choose the name, decide on Management Board, set up accountancy, and figure out the taxation — give it a good start, fill up this form:

4. Grow your business and enjoy multiple advantages of e-Residency!

e-Residency provides your company with freedom. Manage the process entirely online by submitting, signing, and securing all the documents remotely. Make your company global without a hard effort but by taking the proper advantage.

The favorable tax system, unlimited fintech opportunities, and business market full of talents and enthusiasm — go for it and join the community of successful people. We will help you at this very first and the most significant stage.

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From 03.05.2021, Estonian driving licenses can be used in 39 other countries around the world

From 3 May 2021, a new international driving license, recognized in an additional 39 countries, can be applied for at the Transport Service’s customer service offices. Estonia’s accession to the 1949 Geneva Convention on Road Traffic was approved by the Government of the Republic at the beginning of this year, which means that driving licenses issued in Estonia are now recognized in most countries of the world.

“The new driving license now offers our entrepreneurs significantly better conditions. This is a major victory, especially for the transit sector. It will also be much more convenient for ordinary citizens to travel in the future. When the global corona pandemic recedes, we definitely expect a large number of applicants for it, “said Joel Jesse, Director of the Transport Service of the Transport Board.

Which countries will be added?

Countries that will start recognizing Estonian driving licenses due to the 1949 Geneva Convention: Algeria, Argentina, Argentina, Australia, Bangladesh, Barbados, Benin, Botswana, Burkina Faso, Dominican Republic, Egypt, Fiji, Guatemala, Haiti, India, Jamaica, Jordan , Cambodia, Canada, Republic of the Congo, Laos, Lesotho, Lebanon, Madagascar, Malaysia, Malawi, Mali, Namibia, Papua New Guinea, Paraguay, Rwanda, Sierra Leone, Singapore, Sri Lanka, Syria, Togo, Trinidad and Tobago, Uganda and New Zealand. Also Hong Kong and Macau.

When traveling to a Contracting Party to the Geneva Convention, an international driving license in accordance with the Geneva Convention, valid for one year, must be applied for from the Transport Agency. An international driving license is issued on the basis of a valid Estonian national driving license, and in order to obtain it, an identity document and a color paper document with a size of at least 35 × 45 mm must be submitted to the service bureau and a state fee of 26 euros must be paid.

Estonia has previously acceded to the 1968 Vienna Convention on Road Traffic, which recognizes the driving license issued by Estonia and the other countries that have acceded to the convention. The countries of the European Economic Area also recognize the Estonian driving license.

Two different driving licenses

The international driving license model in the Geneva Convention differs from the international driving license model in the Vienna Convention, so there will be two different international driving licenses in the future, one corresponding to the Vienna Convention and one corresponding to the Geneva Convention.

This means that if you plan to visit countries that have acceded to different conventions, it may be necessary to apply for two international driving licenses. Although the Estonian driving license complies with the Vienna Convention, the practice has shown that it does not count for some states party to the Vienna Convention and an additional international driving license is still required.

Estonia itself recognizes:

  • a driving license issued by a Member State of the European Economic Area and the Swiss Confederation
  • a driving license issued in a Contracting State to the 1968 Vienna Convention on Road Traffic
  • a driving license issued in a Contracting State to the 1949 Geneva Convention on Road Traffic
  • a driving license of a foreign state which has entered into an international agreement on the mutual recognition of driving licenses with Estonia
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