Legal & Business Glossary

– A –

Accounting Period

The period for which a company records and reports its financial transactions and prepares financial statements.

Advance Tax Payment

A payment made toward a tax liability before the final amount for the relevant tax period is determined.

Annual Report

A financial and business report that an Estonian company must submit to the Commercial Register each year. It provides information about the company’s financial position and activities during the reporting period.

Articles of Association

The document that sets out the rules governing an Estonian company, including its management structure, share capital, representation, and other internal matters.

Asset

A resource a company controls that is expected to provide future economic benefits.

Audit

An independent examination of a company’s financial information and financial statements.

Authorized Representative

A person legally authorized to act on behalf of a company or another legal entity, for example when signing documents or communicating with government authorities.

– B –

Beneficial Owner

The individual who ultimately owns or controls a company, even when the company is held through other legal entities or arrangements. Estonian companies generally must disclose their beneficial owners.

Bankruptcy

A legal process used when a company or individual is unable to meet their financial obligations. For a company, bankruptcy can ultimately lead to the termination of the company’s activities and liquidation.

Bookkeeping

The process of recording a company’s financial transactions, including income, expenses, invoices, payments, and other accounting information.

Break-Even Point

The point at which total revenue equals total costs, resulting in neither a profit nor a loss.

Business Registry

The official register containing information about companies and other legal entities registered in Estonia. It is maintained by the Centre of Registers and Information Systems (RIK).

– C –

Capital Contribution

Money or other assets a shareholder contributes to a company in exchange for an ownership interest or shares.

Closing Balance

The balance of an account at the end of an accounting period.

Company Formation

The legal process of establishing a new company and registering it with the relevant authorities. In Estonia, an OÜ (private limited company) is one of the most common company forms.

Company Liquidation

The process of closing a company, settling its debts and obligations, dealing with its assets, and ultimately removing it from the Commercial Register.

Company Merger

A legal process in which two or more companies combine, with one company typically becoming the successor to another or a new company being established.

Commercial Register

Estonia’s official register of companies and other legal entities. It contains information such as company details, management board members, shareholders, and beneficial owners.

Corporate Income Tax

A tax applied to certain corporate distributions and payments. Estonia’s corporate tax system generally taxes profits when they are distributed rather than when they are earned and retained by the company.

Credit Note

A document issued to reduce or cancel all or part of a previously issued invoice.

– D –

Debit Note

A document used to notify a customer or supplier of an adjustment to an amount previously invoiced.

Depreciation

The allocation of the cost of a tangible asset over its estimated useful life.

Dividend

A distribution of a company’s profits to its shareholders. Dividends may be paid when the company meets the applicable legal and financial requirements.

Double-Entry Bookkeeping

An accounting system in which every financial transaction is recorded in at least two accounts.

Due Diligence

The process of examining a company, transaction, or business relationship before making a decision or entering into an agreement. It can include reviewing financial, legal, tax, and ownership information.

– E –

E-Residency

A digital identity issued by Estonia that allows eligible foreign individuals to access certain Estonian digital services and manage an Estonian company remotely. E-residency does not itself provide Estonian tax residency or the right to live in Estonia.

EBITDA

Earnings before interest, taxes, depreciation and amortisation, commonly used as a measure of operating performance.

Employment Contract

A legally binding agreement between an employer and an employee that establishes the terms and conditions of employment, including duties, remuneration, working time, and other rights and obligations.

Estonian OÜ

An Estonian private limited company (osaühing). It is one of the most common legal forms for businesses in Estonia and provides limited liability to its shareholders, subject to applicable law.

– F –

Financial Statement

A formal report showing a company’s financial position or financial performance for a specific period.

– G –

General Ledger

The central accounting record containing the company’s accounts and transactions.

General Meeting of Shareholders

A formal meeting or decision-making process through which shareholders exercise rights such as approving annual reports, distributing profits, or making certain decisions concerning the company.

Gross Profit

Revenue remaining after deducting the direct costs associated with providing goods or services.

Gross Salary

An employee’s salary before taxes and other legally required deductions are withheld.

– I –

Income Tax

A tax imposed on taxable income. In Estonia, individuals may be subject to personal income tax on employment income and other taxable income.

Insolvency

A situation in which a company or individual is unable to meet financial obligations when they become due. Insolvency can lead to restructuring, liquidation, or bankruptcy proceedings depending on the circumstances.

Input VAT

VAT paid by a VAT-registered business on purchases and business expenses. Subject to the applicable rules, eligible input VAT can generally be deducted from output VAT.

– L –

Legal Entity

An organization recognized by law as having its own legal rights and obligations, separate from the individuals who own or manage it. An Estonian OÜ is an example of a legal entity.

Legal Representative

A person who has legal authority to represent a company or other legal entity, such as a member of the management board.

Liquidator

A person appointed to manage the liquidation of a company. The liquidator generally handles the company’s remaining affairs, including settling obligations, dealing with assets, and completing the liquidation process.

– M –

Management Board

The executive body responsible for managing and representing an Estonian company. Members of the management board have specific legal duties and responsibilities under Estonian law.

Memorandum of Association

A document used when establishing a company that sets out information relating to the company’s establishment, founders, capital contribution, and other formation matters.

– N –

Net Profit

The amount remaining after a company deducts all applicable expenses and costs from its income.

Net Salary

The amount an employee receives after applicable taxes and deductions have been withheld.

– O –

Operating Expenses

The ongoing costs of running a business, such as salaries, rent, software and professional services.

OÜ

The abbreviation for osaühing, the Estonian term for a private limited company. An OÜ is a separate legal entity whose shareholders generally have limited liability.

Output VAT

VAT charged by a VAT-registered business on taxable sales of goods or services.

– P –

Payroll

The process of calculating employee salaries and handling the associated tax, reporting, and payment obligations.

Personal Income Tax

Tax imposed on an individual’s taxable income. Employment income is one common type of income subject to personal income tax.

Power of Attorney

A legal authorization allowing one person to act on behalf of another person or entity for specified purposes.

Private Limited Company

A company structure in which the owners generally have limited liability for the company’s obligations. In Estonia, the equivalent legal form is an OÜ (osaühing).

Profit Margin

A measure showing profit as a percentage of revenue.

– S –

Share Capital

The capital contributed to a company by its shareholders in exchange for shares or ownership interests. The amount and requirements depend on the company’s legal form and applicable legislation.

Shareholder

An individual or legal entity that owns shares or an ownership interest in a company.

Statutory Audit

An audit required by law for certain companies when specified legal thresholds or other conditions are met. The auditor examines the company’s financial statements and provides an audit opinion.

– T –

Tax Assessment

The process of determining the amount of tax payable based on applicable tax rules and reported information.

Tax Declaration

A formal filing submitted to the tax authority reporting taxable transactions, income, expenses or other relevant information.

Tax Deduction

An amount that may be deducted when determining taxable income or tax liability under applicable rules.

Tax Exemption

A provision under which certain income, transactions, or activities are excluded from a particular tax obligation.

Tax Identification Number

A number used by a tax authority to identify a taxpayer for tax administration purposes.

Tax Liability

The amount of tax that a taxpayer is legally required to pay.

Tax Period

The period for which taxable transactions or income are calculated and reported.

Tax Residency

The status determining which country or countries generally have the right to tax an individual or company under applicable domestic law and tax treaties.

Tax Return

A document submitted to a tax authority reporting taxable income, transactions, taxes due, or other required information for a specified period.

Tax Withholding

The process by which tax is deducted from a payment, such as an employee’s salary, before the recipient receives the net amount.

Turnover

The total value of sales or other operating revenue generated by a business during a specified period. Depending on the context, turnover may have a specific legal or tax definition.

– V –

VAT

Value Added Tax (VAT) is an indirect consumption tax applied to the supply of goods and services. Businesses registered for VAT generally charge VAT on taxable supplies and account for it to the tax authority.

VAT Invoice

An invoice containing the information required for a VAT transaction and, where applicable, VAT deduction.

VAT Number

A unique identification number assigned to a business registered for VAT.

VAT Registration

The process through which a business becomes registered as a VAT taxable person with the relevant tax authority and receives a VAT registration number.

VAT Return

A periodic report submitted by a VAT-registered business declaring its taxable transactions, output VAT, input VAT, and the resulting VAT liability or refund.

Voluntary Liquidation

A company liquidation initiated by a decision of the company’s shareholders rather than by a court or other compulsory procedure. The company must still follow the legally prescribed liquidation process.