Estonian e-Residency enables anyone to set up a company in Estonia online. Registering a company is impossible without appointing board members (company directors). If you are the sole founder, you most probably serve as a sole board member of your company. Board members of an Estonian limited company (OÜ) have a lot of responsibilities to ensure the company operates legally and maintains good governance. Below is our comprehensive guide detailing these responsibilities, with links to relevant Unicount blog posts.
Fiduciary Duty and Compliance with laws and regulations
The easiest way to explain fiduciary duty is that board members must act in the company’s and its shareholders’ best interests. Imagine being a guardian of the treasure that belongs to shareholders. The fiduciary duty includes making transparent decisions and transactions and avoiding conflicts of interest. If you are a solopreneur, this concept is vague, as you are the only shareholder of the company and most probably have zero conflicts of interest when maximizing your profits in all transactions.
Compliance
Ensuring the company adheres to all Estonian laws and regulations can be pretty complicated for someone not from Estonia unless professional advisors or accountants are involved. Basic compliance includes submitting annual accounts on time, as failing to do so can lead to severe consequences, including the company being deleted from the Business Register.
Reporting Ultimate Beneficial Owners
The board must report the company’s ultimate beneficial owners (UBOs). This transparency measure is an EU-wide policy enforced differently in all member states. Ensuring accurate reporting of UBOs helps maintain transparency and meet legal obligations. Beneficial owners need to be reported with the company registration and within 30 days of changes in details.
Keeping Business Register Information Up to Date
Board members must ensure that the information in the Business Register is accurate and updated regularly to reflect changes in the company’s status or related persons. Keeping the Business Register information up to date includes having a valid registered office address or contact person if the company is registered to a foreign address.
Obtaining Necessary Licenses
If the company engages in licensed activities, board members must ensure that the necessary licenses are obtained and renewed. Obtaining and maintaining the required licenses is essential for legal operation in regulated fields of activity.
Ensuring Data Protection and Privacy
With increasing regulations around data protection, board members must ensure that the company complies with data privacy laws such as GDPR. This involves implementing appropriate data protection measures and policies.
Submitting Statistical Reports
Another legal responsibility is ensuring that statistical reports are submitted as Statistics Estonia requires. Timely submission of statistical reports is necessary to avoid penalties.
Accounting and Tax
As a board member, you are responsible for maintaining accurate financial records and overseeing the company’s financial health. Board members are also responsible for preparing and submitting annual accounts, which, if neglected, can lead to penalties and company deletion. Estonian Business Register recently deleted over 26,000 companies that failed to submit annual accounts.
Organizing Accounting and Maintaining Records
Board members must ensure that the company’s accounting practices comply with legal standards such as the Accounting Act. This means maintaining accurate and up-to-date financial records and keeping all the source documents for seven years. Our guide to e-resident founders explains how to organize proper accounting and record-keeping.
Filing Taxes
Board members must oversee the company’s tax obligations, ensuring timely and accurate VAT and income tax filings. While being late with tax payments is not a crime, it is a crime not to file or to submit false data. There are two important dates to remember for tax-liable companies trading in Estonia. These are the deadlines for Estonian tax reports on each calendar month’s 10th and 20th dates. The 10th is the deadline for the income and social tax return (TSD), and the 20th is for the VAT return (KMD).
Both tax returns are submitted for the transactions of the previous calendar month. You do not need to file zeros in Estonia if you are not registered for VAT and have had no dividends, director’s fees, salaries, or fringe benefits in the previous calendar month.
Paying taxes
Taxes must be paid by the deadline for the tax report submission. Unpaid taxes, whether declared or undeclared, accrue a late payment interest of 0.06% daily. You can negotiate payment in instalments, an entirely legal option available at the discretion of the tax agent reviewing your case. All tax debts and extensions are public in Estonia and can reflect your company’s reputation and creditworthiness. Contact your accountant to start the process immediately whenever you are unable to pay taxes on time.
Registering for Taxes in Other Jurisdictions
If the company operates in multiple jurisdictions, board members must ensure that the company is registered for taxes in those countries to comply with local tax laws. Registering for taxes in different jurisdictions may require hiring local tax consultants or accountants. Permanent Establishment and Dual Residence regulations are not affected by the Estonian e-Residency programme. They are designed to ensure that countries collect tax from substantial business activities on their soil, which is quite hard to do in the digital globalized world.
Ensuring Solvency
Board members must ensure that the company remains solvent and meets its financial obligations. Decisions regarding dividends to shareholders must be made without jeopardizing the company’s solvency. This is crucial as distributing dividends when the company is not profitable or lacks sufficient liquidity can lead to insolvency. Dividends should only be distributed when the company has enough liquidity to do so without risking insolvency.
Filing for Bankruptcy
In cases where the company becomes insolvent, board members are responsible for filing for bankruptcy promptly. Civil liability of board members includes an option for creditors to file claims directly against you. This “delictual liability” occurs when you fail to declare bankruptcy promptly or mismanage accounting records, directly affecting creditors’ ability to recover debts.
And more…
Board members can be personally liable for mismanagement that leads to financial losses or legal issues for the company. This includes making decisions not in the company’s best interest or failing to comply with legal requirements. The most straightforward sample would be late filing penalties enforced on the board members when a company fails to pay.
Board members can also face personal criminal liability. This applies to willful actions and, in some cases, gross negligence, such as violating workplace safety laws that result in death or severe harm.
Board members of large companies with more than 500 employees are increasingly expected to oversee the company’s environmental and social governance (ESG) practices. This includes ensuring the company’s operations are sustainable and socially responsible. Medium, small and micro enterprises can publish their voluntary reports for partners and investors.
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