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Company obligations in Estonia in the absence of economic activity: what must be complied with even if the business is not actually operating

One of the most common misconceptions among Estonian company owners is that if a company is not carrying out any economic activity, it will somehow “fall out” of the state’s field of vision. The logic seems simple: no income, no expenses and no employees means no obligations. However, the Estonian legal system works differently. In Estonia, a company is considered a legal entity from registration until official liquidation, and not operating does not change this status.

In practice, it is precisely ‘dormant’ companies that most often find themselves in problematic situations. The reason is simple: active businesses usually have accountants and systems in place to monitor reporting and deadlines, while companies without activity gradually fall out of focus. As a result, formal obligations may not be fulfilled for months or even years, and the consequences may accumulate unnoticed until they become a serious problem.

In Estonia, what constitutes a lack of economic activity?

Absence of economic activity is usually understood as a situation in which a company is not actually conducting business: it is not selling goods or services, not issuing invoices, not receiving income, not incurring regular operating expenses, and not having employees. These are often companies ‘for the future’, structures for projects that never got off the ground, or businesses that have been temporarily suspended for personal or economic reasons.

It is important to understand that the absence of activity is a factual state, not a legal category. Estonian law does not recognise the status of a ‘frozen’, ‘suspended’ or ‘temporarily inactive’ company. If a company is registered in the Commercial Register, it is considered active and must comply with all legal requirements, regardless of whether it is conducting business.

Accounting is an obligation that does not disappear

Even in the complete absence of business transactions, a company is required to maintain accounting records. This may sound paradoxical, but legally, ‘zero’ activity is also a status that must be correctly reflected. In this case, accounting is carried out in a simplified format, but it must still be done.

In practice, this means that:

  • The financial period is closed correctly
  • The absence of transactions is confirmed; and the accounting structure is preserved.

The absence of accounting is a violation in itself, regardless of turnover. The tax authorities will not accept the argument ‘we had nothing’ without supporting data and correct reporting.

What to submit and what not to submit in tax returns in the absence of activity:

The topic of tax returns is one of the most confusing for inactive companies. It is important to understand that there is no universal rule in Estonia that states that a zero company does not submit anything. The obligation to file returns depends on the specific tax and the company’s status.

If a company does not pay salaries or provide special benefits, nor pay dividends or make other payments subject to declaration, then the TSD declaration is not submitted. However, this does not exempt the company from other obligations.

For example, if a company is registered as a VAT payer, it must file a KMD return every month, even if all figures are zero. Failure to file a ‘zero’ return is considered a violation and will almost always result in fines and inquiries from the tax authorities.

The annual report is an obligation without exceptions

Without exaggeration, the annual report is the most important document for an Estonian company. It is mandatory for all companies, whether they have been active or not. The absence of operations does not cancel the obligation to submit a report — only its content changes.

For a dormant company, the annual report is usually simplified, but still includes:

  •  financial statements with zero indicators;
  • an explanatory note;
  •  confirmation from the board of directors.

Failure to submit an annual report is one of the most strictly controlled violations. Consequences may include fines, restrictions on the board of directors and, in the long term, compulsory liquidation of the company via the Commercial Register.

Bank accounts and ‘invisible’ transactions

Even if a company is not actively doing business, having a bank account almost always means that business transactions are taking place. Bank commissions, service charges, payments for services or minimal expenses are all considered transactions that must be reflected in accounting records.

This is why, in practice, there are almost no completely ’empty’ companies. Owners often believe there is no activity, but upon inspection, it emerges that funds have been transferred, albeit in small amounts. Without proper accounting, such transactions automatically become problematic.

Responsibility of the board in the absence of activity

In Estonia, the company’s board of directors is responsible for complying with all formal requirements. This means that the absence of activity does not exempt directors from personal responsibility for:

  •  submitting reports;
  • meeting deadlines;
  • document storage;
  • communication with government agencies.

This is particularly important for foreign owners and directors, as they may miss notifications from registries and tax authorities, but their responsibility does not disappear.

Inactivity can signal the need for liquidation

If a company has not been active for a long time and does not intend to resume operations in the near future, voluntary liquidation is often the sensible option. This allows legal and tax obligations to be closed, the status of the company to be fixed, and the accumulation of risks to be avoided.

It is important to understand that liquidation is a comprehensive process involving stages, deadlines and documentation requirements. However, in the long term, it is often easier and safer than maintaining a ‘dormant’ company for many years.

Typical mistakes made by inactive companies

In practice, inactive companies most often face the same problems. These include failing to submit annual reports, ignoring mandatory declarations, not having an accountant ‘because there is nothing to count’, losing documents and ignoring official correspondence.

These mistakes have one thing in common: they rarely lead to immediate sanctions, but almost always accumulate and manifest themselves within a year or two in the form of fines, blockages and restrictions.

Even a ‘zero’ company needs support

Supporting a company without activity is not about numbers or optimisation. It is about control, compliance with formal requirements, and maintaining the company’s good legal standing. Having minimal support enables you to avoid mistakes, respond to requests promptly and maintain flexibility for future business launches.

In Estonia, the absence of economic activity does not mean the absence of obligations. As long as a company is registered, it must comply with legal requirements, regardless of its turnover, activity or the plans of its owners. Failure to comply with these requirements almost always leads to problems that are significantly more expensive than regular basic support.

For entrepreneurs, this means an important truth: a dormant company still needs to be monitored. This is where accounting plays a key role, even when it seems that there is ‘nothing to do’.