To liquidate a private or public limited company by a simplified procedure, transfer the assets to the sole shareholder. The sole shareholder then becomes the legal successor.
In Estonia, business owners often look for simplified solutions when closing a company. One option—less known but legally available—is merging a private or public limited company (OÜ/AS) with the assets of its sole shareholder, provided the shareholder is a natural person.
This process serves as an alternative to classic liquidation and allows the shareholder to become the company’s universal legal successor.
Recent amendments to the Estonian Commercial Code and the Income Tax Act (TuMS) clarify how such mergers work and — most importantly — how profits and assets are taxed. Below is a modern overview for anyone considering this path.
1. Legal Basis: A Simplified Merger with a Natural Person
Under the Estonian Commercial Code (§ 391 (7) and § 427¹ (1)), a private limited company may merge with the assets of its sole shareholder. In this case:
- The company (acquired entity) transfers all assets and liabilities to the sole shareholder (acquiring natural person).
- The shareholder becomes the legal successor of the company.
- A notarial merger agreement is mandatory (§ 392 (4)).
- The merger is considered concluded once the notarial form has been completed (VÕS § 11 (5)).
This makes the process significantly faster than the standard 6–7 month liquidation procedure.
2. Taxation at the Company Level
Before 2015, the law was simple: no corporate-level tax liability arose if the company’s assets continued to be used for economic activity in Estonia.
However, since 1 January 2015, § 50 (2²) of the Income Tax Act introduced important changes:
When no tax liability arises
No tax is charged if the transferred assets continue to be used in Estonia for economic activities, either in:
- another Estonian company, or
- a permanent establishment of a non-resident company.
When tax liability does arise
If the company’s assets are transferred directly to a natural person, the company becomes liable to corporate income tax on:
- Equity exceeding monetary and non-monetary contributions,
- As shown in the final balance sheet before the merger.
In practice, this means that any accumulated profit (retained earnings) becomes taxable when transferred to the shareholder via merger.
3. Taxation at the Shareholder Level
Since 2015, § 15 (3²) of the Income Tax Act specifies how income received by a natural person during such a merger is taxed.
A natural person must pay tax on:
- income received in monetary or non-monetary form (assets),
- the excess of the company’s assets over liabilities,
- liabilities assumed that exceed the acquisition cost of the shareholding,
- and any liabilities that later expire, are waived, or become irrelevant.
Important rule
If the natural person does not ultimately have to fulfil an obligation taken over from the company—because the creditor waives it, the claim expires, or the shareholder was both debtor and creditor—the expired amount becomes taxable income.
When is the tax due?
- In the tax period when the obligation ceases (e.g., creditor waiver).
- In limitation cases: when the limitation period expires.
- Only the unperformed part of the obligation is taxed.
Example:
If €10,000 of liabilities were taken over and €4,000 were paid off using assets, only the remaining €6,000 that expires becomes taxable income.
4. Key Practical Takeaways for 2025
✔ A notarial merger agreement is mandatory
Even though the process is simplified, it cannot be completed without a notary.
✔ The shareholder becomes the universal legal successor
They take over assets, liabilities, rights, and obligations.
✔ Corporate tax is paid on accumulated profits
Company-level tax arises on equity exceeding contributions.
✔ Personal income tax may arise immediately — or later
Especially if the shareholder ultimately avoids performing assumed liabilities.
✔ This process can be an efficient alternative to long liquidation
But it requires careful tax planning before signing the merger agreement.
5. Who Should Consider This Option?
This merger structure may be suitable for:
- Sole shareholders wanting faster closure than standard liquidation
- Entrepreneurs transferring assets into personal ownership
- Individuals who wish to continue using company assets in their private economic activity
- Business owners with minimal liabilities and clean balance sheets
English 
Estonian