Company Closure in Estonia: Tax Architecture and Rules of the Game
No tax until distribution; closure counts as distribution
Estonia does not tax corporate profits until they are distributed. When closing the company, if you transfer cash or assets to shareholders, this amount is considered “distributed profit” and corporate tax is applied. The general rule is a 20/80 ratio: you pay an effective tax of 22% on the total amount completed from net distribution to gross.
If you track the paid-in capital (the amount actually paid by shareholders) with the correct documentation, you can return this part tax-free. Document capital movements and past distributions thoroughly; otherwise, you will lose the tax advantage.
Closure Timeline: Commercial Register, Tax Authority, Creditors
In voluntary liquidation, shareholders make a dissolution decision, appoint a liquidator, and notify the Commercial Register. The creditor announcement period practically lasts at least four months. During this time, you call creditors, settle debts, liquidate assets, and complete tax obligations. In the final stage, you file the liquidation balance sheet and reports.
Estonia’s digital infrastructure facilitates the process. The e-Residency knowledge base explains the closure steps and documents clearly. You can review the official guide here: e-Residency: Dissolution of your OÜ.
Step-by-Step Closure Checklist for Tax Purposes
1) Initial Decisions and Planning
- Make a decision by the shareholders’ board; appoint and authorize the liquidator.
- Plan the liquidation timeline, creditor announcement period, and distribution dates.
- Define your tax strategy: Return of paid-in capital, history of regular profit distributions, order of asset sales.
2) Close Financial Records and Prepare Declarations
- Update the books until the last day of activity; prepare the opening and closing balance sheets for liquidation.
- Corporate tax: List transactions that will result in distribution; calculate tax impact according to the 22/84 rule.
- VAT: The standard rate is 22%. Prepare sales of goods and services, asset transfers, and the final VAT declaration.
- Payroll: Complete employee exits; pay the last TSD notifications and social contributions.
3) Asset and Liability Transactions
- Prioritize debts and public obligations; collect receivables.
- Evaluate inventory, fixed assets, and intellectual property at fair value; decide on sale or in-kind distribution.
- Complete the distribution plan and supporting documents (general assembly decisions, capital book, account summaries).
Taxation of Distributions: Basic Scenarios and Examples
Return of Paid-in Capital
You can return paid-in capital to shareholders who have not previously been taxed. This return occurs tax-free when supported by appropriate documentation. Keep a “capital book” that separately tracks capital increases, decreases, and past distributions; strengthen the file with bank statements and decision samples.
Distributable Profit and the 20/80 Rule
You apply corporate tax on retained earnings distribution. Example: You want to distribute 80,000 EUR net. According to the 20/80 method, the tax is 20,000 EUR; your total cash outflow will be 100,000 EUR. If you have a history of regular dividends, a discounted rate may apply for some distributions; you can evaluate this by planning before closure.
Closure with Loss
If the company ends liquidation with a loss, there is no distributable profit, and no corporate tax burden arises. However, you still need to settle VAT arising from asset sales, withholding taxes, payroll taxes, and late fees. Do not assume “no tax”; check each tax type separately.
VAT, Payroll, and Withholding: Critical Details in Closure
VAT and Asset Transfer
Closure does not, by itself, incur VAT; however, asset sales may incur VAT. You will apply 22% VAT for inventory sales. When distributing the asset in-kind, this transaction is considered a “delivery” in most cases; you may need to calculate VAT based on fair value. Complete the final VAT declaration and any refunds/set-offs if applicable.
Payroll and Employee Exits
Calculate and pay employees’ severance, notice, and unused leave rights. Report the final salary, social tax, and mandatory contributions on time. Settle withholding obligations for director fees and bonuses. If you need to transfer human resources to another country or an EOR structure, manage payroll seamlessly.
Withholding and Double Taxation Agreements
Estonia has numerous double taxation prevention agreements. Withholding tax on dividends varies according to the residency status of shareholders; apply the contract provisions and file the residency certificate. Plan considering the distribution timeline, individual tax year, and home country declarations.
Reducing Compliance Risks: Documents, Audit Trail, and Digital Process
Structure Documents Correctly
- General assembly decisions, liquidator appointments, creditor calls, and announcement proofs.
- Opening-closing balance sheets for liquidation, inventory lists, asset valuation notes.
- Schedule of capital movements, bank statements, distribution plan, and payment instructions.
- Final tax declarations, accrual slips, and payment receipts.
Common Mistakes
- Confusing paid-in capital with distributable profit.
- Overlooking VAT impact in in-kind distributions.
- Delaying employee exits and payroll closures.
- Applying for deletion without closing missing reports from previous years.
Digital Application Channels
Estonia largely conducts closure processes online. The e-Residency knowledge base and government portals explain procedures. You can review an overview of dissolution processes from the official portal here: eesti.ee – Dissolution Contents. Upload documents on time; test the electronic signature workflow in advance.
Strategic Options: Liquidation, Transfer, or Structural Change
Evaluate Alternatives
- Instead of asset sale, consider business unit transfer: Under suitable conditions, you may benefit from the VAT exemption for “transfer of business”.
- Mergers and divisions: You can maintain continuity by transferring the operation to another Estonian or EU company.
- Move the operation to a new market: You can close the commercial entity while continuing operations through payroll via EOR.
Time and Cost Planning
- Due to the creditor call period and distribution timeline, the process generally takes at least six months.
- Budget for notary, announcement, accounting, and audit costs; incorporate taxes arising from asset sales into cash flow.
- Clarify the international cash repatriation plan (banking controls, KYC, currency) in advance.
How Does Corpenza Support?
Corpenza offers mobility, incorporation, and workforce solutions in Europe and globally. When closing a company in Estonia, you plan not only the “deletion” steps but the entire lifecycle of your business:
- Tax optimization: We design a closure plan that optimizes the order of distributions, return of paid-in capital, and VAT impact.
- International accounting and payroll: We prepare the final TSD, VAT, and corporate tax declarations; manage employee exits and severance processes.
- Payroll and EOR: You can onboard your remote employees and contracted staff through us, ensuring cost and compliance advantages.
- Staff leasing and posted worker: We ensure compliance with posted worker rules in temporary employment and cross-border assignments.
- Residence permit and golden visa: We assist in moving your management and founding team with visa and residence strategies suitable for EU mobility.
- New company establishment: If you want to move your operation to another EU country or a global hub, we handle the incorporation, tax, and payroll setup.
Applicable Closure Plan: 90-Day Roadmap
Days 1–30: Preparation and Cleanup
- Make decisions; appoint a liquidator; set the announcement timeline.
- Update the books; complete missing annual reports; initiate tax settlements.
- List asset inventory, fair values, and sales/distribution options.
Days 31–60: Tax and Cash Flow
- Simulate VAT and corporate tax effects; lock in cash requirements.
- Manage employee exits; make final payroll and compensation payments.
- Accelerate receivable collections; close unnecessary subscriptions and contracts.
Days 61–90: Distribution and Closure
- Execute the return of paid-in capital and profit distribution as planned.
- Submit final declarations; pay accrued taxes; upload closure reports.
- Submit the deletion application; archive the file with a retention policy.
Verify the latest procedures through official channels as you take steps. For initial information, this official source provides a practical reference: e-Residency: Dissolution of your OÜ. Additionally, for dissolution contents and guidance on the government portal: eesti.ee.
Final word: Estonia’s distribution-based corporate tax turns closure into a “tax event”. Keep your documents strong, plan cash flow in advance, and address international impacts (withholding, VAT, payroll) at the same table. Corpenza sets this table on your behalf; reduces risks, accelerates the process, and securely closes or moves the business to a new market.
