NEW REQUIREMENTS FOR COMPANIES 2018
Beneficial owners must be entered in the Commercial Register as of 1 September 2018
All legal persons registered in Estonia must disclose information about their beneficial owners to the Commercial Register as of 1 September 2018. The beneficial owner of a company is a natural person who directly or indirectly owns the company or exercises control over it in another manner. Direct ownership implies that a natural person owns a shareholding that represents at least more than 25% of the issued share capital. It is indirect ownership when another legal person, which is controlled by a natural person, owns more than 25% of a company. In addition, a beneficial owner of a company is also a natural person who regardless of the size of shareholding exercises control in another manner (i.e. under a shareholders’ agreement or another agreement) over significant decisions of the company (primarily the appointment of directing bodies) and who can de facto exercise the right of majority vote.
The data on beneficial owners is disclosed in the information system of the Commercial Register.
It is not obligatory to identify beneficial owners of listed companies, apartment associations, building associations and certain foundations.
How is it done?
The management board of a company is obliged to collect information on beneficial owners and submit it to the Commercial Register; shareholders are obliged to submit the respective information to the management board. The following information about beneficial owners must be submitted to the Commercial Register:
- name, personal identification code of the person and country of the personal identification code, in the absence of a personal identification code, date and place of birth and country of residence;
- information about the manner the person exercises control.
In case of a simple ownership structure, performing this obligation probably requires only some time resources but for companies with a more complicated ownership structure, who also have foreign owners, the process of identifying the beneficial owner is more complicated and time-consuming.
Data about the beneficial owner must be submitted to the Commercial Register upon foundation of the company together with the application for registering the company with the Commercial Register. If the data does not change, the management board is obliged to confirm the accuracy of the data annually together with the submission of the annual report. If the beneficial owner changes or data concerning the beneficial owner is incorrect, new data must be submitted to the register within 30 days as of becoming aware of new data.
If it has been impossible to ascertain the beneficial owner and all options to do this have been exhausted, the company must note a member of the highest directing body as the beneficial owner. In addition, companies must record and store data about all the activities that they have conducted for the purpose of identifying the beneficial owner.
The management boards of existing legal persons must disclose to the Commercial Register data about the beneficial owner within 60 days as of the entry into force of the new rules.
Pursuant to the law, the sanction in case of failure to submit data on beneficial owners or submission of false data is up to 300 fine units for a natural person (at this time up to 1,200 euros) or up to 32,000 euros for a legal person. In case of a violation of the obligation to identify beneficial owners, the law provides a fine of up to 300 fine units or detention for a natural person and a fine of up to 400,000 euros for a legal person.
A company managed from abroad must appoint a contact person
As of 15 January 2018, an amendment to the Commercial Code entered into force, according to which all Estonian companies whose management boards are in a foreign country, i.e. the management board’s everyday business is outside of Estonia, must designate a contact person in Estonia. The branch of a foreign company must designate a contact person if the residence of at least one-half of the managers of the branch of a foreign company is not in Estonia, another European Economic Area state or Switzerland.
It must be possible to deliver procedural documents of the undertaking and the declarations of intent addressed to the undertaking to the contact person. Upon delivery of a procedural document or declaration of intent to the contact person, the respective procedural document or declaration of intent is deemed to have been delivered also to the undertaking.
According to the new regulation, only a notary, notary's office, attorney at law, law office, sworn auditor, audit firm, tax representative of a non-resident for the purposes of the Taxation Act or a trust and company service provider specified in § 8 of the Money Laundering and Terrorist Financing Prevention Act may be designated a contact person. As an exception, if a member of the management board or a body substituting therefor, the partner, shareholder or procurator of a company has a residence in Estonia, they may be designated a contact person. The address of the contact person is considered the address of the company.
The contact person is the passive representative of the company. This means that their only task is to receive documents sent to the company by third persons. They are not authorised or competent to make declarations of intent on behalf of the company. The contact person is not liable to the third person who have sent the documents.
If the company has not designated a contact person as required, the registrar shall determine an additional term for designating a contact person, which is 1–3 months. If the company fails to designate a contact person within the determined term, the registrar may decide on the compulsory dissolution of the company or deletion of the branch of a foreign company.
Should you require any advice on these matters, we have put together an expert group of Ellex Raidla corporate team practitioners who have thorough knowledge of these topics and are ready to assist you: