Estonian Branch (filiaal)
A branch is one way for a company to set up a business in Estonia. Opening a branch has many disadvantages, mainly that the foreign parent carries full liability for the branches operations and that lengthy and complicated dealings with the tax authorities may be needed regarding the branches tax obligations.
The disadvantages of a branch office are:
- The parent company is fully liable for the liabilities of the branch
- The branches representatives may be held jointly and severally liable for tax debts
- The financial statements of the parent must be lodged at the Companies Registry
- The branches obligations are the same as the parent, including filing VAT returns, employees returns and corporation tax returns, so there are few savings in administering a branch
- Banks and clients may prefer dealing with a Estonia company rather than a foreign branch
- A branch is rarely ideal for substantial projects because the parent company runs the entire risk
- Upon registration of a branch, evidence has to be provided of the legal existence of the parent
- Any public act by the branch, is likely to need ratification by the board of the foreign parent. A company that signs contracts in front of a notary on a regular basis, should incorporate for administrative ease
The advantage of a branch office is:
- Less obligations to present accounts than with corporations
Features of a branch office in Estonia
If a foreign company wants to permanently sell in Estonia it should enter its branch in the Commercial Register. Companies must obtain a license in order to open a branch in Estonia.
It takes up to 1 month to register a branch, including the time allocated for making the translations and the appropriate entry in the commercial register.
A branch of a foreign company must be established in the presence of an Estonian Notary Public and the deed of establishment must be filed in the Companies Registry. The following documents are required:
- Incorporation Certificate of the parent company
- Memorandum and Articles of Association of the foreign company (a sworn translation into Estonian must be prepared)
- Certified minutes of the meeting of the general shareholders or of the management body, with details of the capital allocated to the branch, the objectives or purpose of the branch, and confirmation of the appointment of the legal and tax representatives of the branch
- A bank certificate must be included in the public deed establishing the branch, proving that the working capital assigned to the branch has been credited in the branch’s bank account
Simultaneously with the signature of the public deed, a form is filed at the General Directorate of Commerce and Investments to record the foreign investment for statistical purposes.
- A director must be appointed for the branch, they are accountable for losses that the branch may experience
- A foreign company may have only one branch in Estonia
- The company shall maintain separate bank accounts concerning its branch
- Branch bank accounts must be managed in line with the of the Estonian Accounting Act
- The branch will be deleted from the register if it does not send in the required reports or if the branch does not have a director
A branch is usually an adequate vehicle for low cost projects. However, it is not the ideal choice for substantial projects because the parent company and branch offices activities are not differentiated, the parent company is fully liable for the branches liabilities.
From a tax point of view, branches are permanent establishments of non-resident companies and a Estonia branch is not a separate legal company from its parent.
The branch must have the same name as the parent company.
A branch of a non-resident company must appoint a resident individual or a company to represent it in its dealings with the tax authorities. The representatives may be held jointly and severally liable for the tax debts of the permanent establishments of non-resident entities, which they represent.
To register a branch, evidence has to be provided of the existence of the parent, certified copies of the Articles or Statues, the names of the directors, the share capital, the registered office, and the names of the representatives who will act for you.
Various documents will need to be translated, the documents include:
- your parent's registration certificate
- your company's articles of association
- the names of the company's directors and secretary
After your branch is registered
All stationery, order forms and similar documents used by your branch are required to show:
- The place of registration of the parent
- The number with which it is registered
- The legal classification of the company
- The address of its registered office
- The place of registration of the branch, and its registration number
Also the following particulars must be shown at the branch office:
- The company name
- The name of the country in which the company is incorporated
- The parent of the branch has limited liability