Estonian Law

General Overview

The legal system in Estonia is based on the Continental European civil law model and has been influenced by the German legal system. Unlike to common law countries Estonia has detailed codifications and issues are solved according to the codifications.

Estonian law is basically divided into private and public law. Generally private law consists of civil law and commercial law. Public law consists of international law, constitutional law, administrative law, criminal law, financial law and procedural law.

Foreign investors have equal rights and obligations with local entrepreneurs. All foreign investors may establish a company in Estonia in the same way as local investors, no special restrictions are made.
Foreign investments are protected by internal law and international agreements. Estonia has concluded treaties for the protection of investments with several countries including U.S.; Germany; France; Finland, Sweden; Norway; Switzerland. Also agreements on avoiding double taxation are made with more than 30 countries including EU countries.

Suggested links
Estonian legislative text in English:
Chamber of Notaries:
The Estonian Ministry of Justice:
Factsheets about Estonia:


Forms of Business Entities

The new Commercial Code was adopted on 15 February 1995 and has been effective since 1 September 1995. The law expresses the basic principles of Estonian entrepreneurship according to the best European traditions and standards and outlines the role of the Commercial Register. According to the Commercial Code there are five forms of business entities, which are created by entry into the Commercial Register:

(1) Sole Proprietorship (füüsilisest isikust ettevõtja or FIE)
Any natural person may be a sole proprietor. A sole proprietor may be entered in the Commercial Register at his/her request. A sole proprietor will be entered into the Commercial Register if he or she is registered with the Tax Board as a taxpayer under the Value Added Tax Act. The law may provide other cases in which a sole proprietor will be entered in the Commercial Register.

(2) General Partnership (täisühing or TÜ)
A general partnership is a commercial undertaking in which two or more partners operate under a common business name and are solitarily liable for the obligations of the partnership with all of their assets. A general partnership will operate on the basis of the partnership agreement concluded by the partners. There is no minimum capital requirement and partners shall make monetary or non-monetary contributions in the amount prescribed by the partnership agreement.
The partners shall agree on and enter to the Commercial Register: business name of the partnership, area of activity and the amount of the contributions of the partners.
Each partner will receive a portion of the distributed profit corresponding to the partner’s contribution (unless the partnership agreement prescribes otherwise).
Departing partner of the partnership shall also be solitarily liable with the other partners for an obligations of the partnership which arose before entry of the departure or exclusion of the partner in the commercial register if the due date for performance of the obligation has arrived or arises within five years after departure or exclusion.
The partnership shall be dissolved: by resolution of the partners, by court judgement, upon expiry of a term or achievement of an object. '

(3) Limited Partnership (usaldusühing or UÜ)
The provisions concerning general partnerships shall apply to limited partnerships unless otherwise provided in Commercial Code.

A limited partnership is a company in which two or more persons operate under a common business name, and at least one of the persons (general partner) is liable for the obligations of the limited partnership with all of the general partner’s assets, and at least one of the persons (limited partner) is liable for the obligations of the limited partnership to the extent of the limited partner’s contribution.

A limited partner shall not have the right to manage or represent the limited partnership unless the partnership agreement prescribes otherwise. A limited partner who has paid a contribution in full shall not be liable for the obligations of the limited partnership and he/she is entitled to the corresponding part of its profits.

(4) Private Limited Company (osaühing or OÜ)
A private limited company is a company that has share capital divided into private limited company shares. A shareholder will not be personally liable for the obligations of the company. A private limited company is liable for the performance of its obligations with all of its assets.

The share capital must be a minimum of 2,500 EUR. The minimum nominal value of a share is 1 EUR. A shareholder may freely transfer a share to another shareholder.

Upon transfer of a share to a third person, the other shareholders have the right of pre-emption.

A share of a private limited company can be pledged or encumbered or divided or transferred to successor if not fixed otherwise in the Articles of Association. The shareholder is required to make a contribution corresponding to the nominal value of the shareholders share. The Management Board organises the accounting of the private limited company. A private limited company must have an auditor if the share capital of the private limited company is greater than EUR 25,000 or if so stated in the Articles of Association.

(5) Public Limited Company (aktsiaselts or AS)
A public limited company is a company that has a share capital divided into public limited company shares. A shareholder is not personally liable for the obligations of the public limited company. A public limited company is liable for the performance of its obligations with all of its assets. One or more natural or legal persons without or with share subscription may found a public limited company.

Share capital must be a minimum of 25,000 EUR and the minimum nominal value of a share should be 10 cents. Shares shall be registered. Shares shall be entered in the Estonian Central Register of Securities. The rights attached to registered shares belong to the person who is entered as the shareholder in the share register maintained by the company. The management board shall ensure the timely submission of correct information. The number of shares a shareholder can own in a company is unlimited and shares can be freely transferred to third parties. A share cannot be divided.

The remuneration of auditors is obligatory and the general meeting, who specifies the procedure for the remuneration of auditors, will also specify the number of auditors.


Corporate Governance

The management of a public limited company operates through general meetings of shareholders, the Management Board and the Supervisory Board. A private limited company operates through the Management Board.

The general meeting of the shareholders has the highest authority in the corporation and is to be convened at least once a year. It approves the annual report, distributes profits, elects the Supervisory Board and the auditors of the corporation, amends the Article of Association, increases and decreases the share capital, decides on dissolution the public limited company and etc. according to law. Resolutions are usually passed by a simple majority vote. However, for a change in the Articles of Association or termination of its operations and for a resolution to decrease or increase share capital, a majority of 2/3 is required.

The Management Board is the executive body of the corporation, which represents and manages the corporation. The Management Board must report the corporation`s activities and economic situation to the Supervisory Board at least once every four months. The residence of at least one-half of the members of the management board must be in European Union, in ECC or Switzerland.

The Supervisory Board plans the strategic activities of the corporation, arranges its management, and controls the Management Board. A member of the Management Board cannot be a member of the Supervisory Board.



The Estoian tax system, incl. individual taxation is one of the most liberal tax regimes in the world. Moreover, the new Law on Income Tax provides that undistributed profits of the companies are not subject to income taxation, regardless whether invested or merely retained.

Principal Taxes
The system of taxation is described in the Law on Taxation. The existing state taxes are:

  • income tax: 20%
  • Reinvested profit is not subjected to Corporate Income Tax (dividends paid to resident legal persons are exempt from tax).
  • Companies are subjected to Corporate Income Tax 20/80 if the profit will be distributed.
  • Value added tax is a compulsory 20% supplement to nearly all goods and services sold in Estonia with a few exemptions 9% and 0% enumerated in Value Added Tax Act.
  • Social tax is 33% and contains the social security tax 20% and medical insurance 13%.
  • Excise tax is implied on production and import of tobacco, alcohol, motor vehicles, motor fuel etc.
  • Land tax is based on the market value of land and ranges between 0.1 to 2.5 percent of market value of land annually (0.1 to 2.0 for arable land and natural grassland).
  • Gambling tax is implied on companies that offer gambling services.

Estonia does not impose any gift, inheritance or estate taxes. Various transactions may be subject to payment of state fees (stamp duties).

Local governments have the authority to impose local taxes, but effectively only few municipalities have introduced local taxes.

Accounting Principles
The Law on Accounting (valid from 1 January 2003) regulates basic accounting functions in 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). With a few exceptions, the use of IAS was acceptable prior to 1 January 1995.

Compared with International Accounting Standards the major differences are: 1) no consolidation is required (equity method is used to account for subsidiaries); 2) notes to financial statements are usually fewer.

In addition to the Law on Accounting there are a number of regulations issued by the Estonian Accounting Committee which interpret and amend the law. Each business entity may also establish additional rules regulating some aspects of its own accounting and reporting.

A fiscal year is twelve months long. A business entity can choose a fiscal year ending on 31 March, 30 June, 30 September or 31 December. If a company wishes to use any other fiscal year, permission from the Ministry of Finance is required. The law also prescribes that a parent company and its subsidiary should have the same financial year, which may also be a fiscal year.

All accounting records should be maintained for seven years. Contracts, business plans and other documents, necessary for reconstructing business transactions should be maintained for ten years.


More Information on taxes
Estonian Tax and Customs Board:


Sources: Estonian Investment Agency; Law Office Hedman Osborne Clarke Alliance