But what if a company fails to submit an annual report?

As we know, companies must submit their annual reports within 6 months after the end of the financial year. But what happens if a private limited company, public limited company, non-profit or commercial association, foundation, general partnership, or a limited partnership with at least one legal owner fails to submit their annual report to the registrar within this period of time?

This question is responded by the county court registration department. In such cases, if the annual report is not submitted within the determined period of at least the following six months, a warning is filed to the company by the registrar regarding deletion of the company from the register.

Let’s use an example to examine the situation

Companies usually set the end of the year, i.e., December 31, as the end of their financial year. Thus, the annual report must be submitted to the registrar by June 30 at the latest. Even though a penalty can also be imposed if the annual report is not submitted on time, let us presume that, in our example, this has also not proven futile. After another 6 months, i.e., in January the year after, the registrar starts issuing deletion warnings and a regulation is issued to the company stating that the report must be submitted within the next 6 months. When this deadline has also passed and the annual report still has not been submitted, a respective announcement is published in the Official Announcements. The announcement calls the creditors of the company to report their claims against the company and apply for execution of a liquidation procedure within the following six months. The period of six months commences from the date of publishing the announcement. A warning is also published along with the announcement stating that the company may be deleted from the register even without no claims from the creditors being received – without a liquidation procedure. If claims are received from the creditors, the case is handed over by the registrar to a court, which appoints a person in charge of the compulsory liquidation procedure and makes a decision over the compulsory liquidation of the company. If no such claims are received, the registrar files an inquiry to the Tax and Customs Board regarding the compulsory liquidation. If no response is received from the Tax and Customs Board (the Board responds if they object to deletion of the company), the deletion entry is executed by the assistant judge and also delivered to the company. After delivery of this deletion entry to the company, the final deletion entry is executed by the company.

All of the above mentioned procedures may also not provide a solution

Thus, putting together all of the above mentioned deadlines, it appears that the liquidation procedure may take as much as 2 years. But even this may not be the end of the issue – if the company has not submitted an annual report, but the Tax and Customs Board does not consent to the liquidation procedure, such company may (and, in practice, often does) end up figuring in the register for years and years.

From now on, the annual report will be thinner, but contains more data

Pursuant to the recently amended Accounting Act, most Estonian companies can now draw up annual reports, which are significantly thinner that the ones filed so far. For large companies, the new Accounting Act includes new requirements for information, which is not disclosed in the management report. Still, there are quite a few grey areas in the new Act – while the same accounting requirements have been applied to all companies so far, the picture is a lot fuzzier now and the Act must be read quite carefully to find the right clues. On the other hand, however, the Act makes the lives of microenterprises considerably easier.

Companies lined up by size

Based on the new act, it appears as if there is only one requirement for microenterprises – the balance sheet total. Thereat, it must be kept in mind that a microenterprise cannot be a VAT payer – the name applies to the companies that are not yet VAT payers. If a company actually is a non-VAT payer microenterprise, the owners of such companies can take care of the accounting of the company themselves. A more important fact here is that, based on the new Act, only microenterprises are permitted to only submit their annual reports.

From the perspective of determining the size of a company, the restriction UP TO is applied here, which means that only one criterion may be violated. If more than one criterion is violated, the company is of the next size group.

If, however, a company discovers in the year following the year in which the annual report was drawn up that the limits for their size group were exceeded, the company will move to the next category. On the other hand, the Act also prescribes that a company may only move to the next category in the third year after meeting the requirements.

Thinner annual reports do not mean less data

The new Act comes with a risk of the annual reports of microenterprises not being particularly informative, but it is also permitted to draw up an annual report based on the rules of a category of larger companies or the IFRS. On the other hand, it is not perhaps reasonable to take advantage of all new exemptions – while the full reports have also been used by Statistics Estonia so far, the companies will now have to start submitting separate reports to Statistics Estonia in the case of drawing up thinner annual reports.