Estonia has amended its Commercial Code. Here’s how that affects e-residents
The rules help ensure Estonian companies can be trusted and location-independent at the same time.
Estonia’s amended Commercial Code comes into force from 15 January 2018. It confirms for the first time that the management board of an Estonian company does not have to reside inside Estonia.
Estonia’s Parliament, Riigikogu, approved these changes last year to support both our e-resident community and Estonians living around the world.
In contrast, many countries still have complex or vague rules that either prevent entrepreneurs from using their business environment abroad or burden them with added hassle.
In addition to being digitally advanced, Estonia is proud to have a very high level of transparency for its business environment, which is why the main benefit of the e-Residency programme (at present) is the ability to establish a company that is not just location-independent, but also trusted so it can more easily conduct business globally.
Estonian companies do still need an address in Estonia though and the changes also include new rules on the need to provide a local contact person too. Previously, only companies with boards outside the European Economic Area needed a contact person. As we’ll explain in more detail below though, this change is unlikely to affect you immediately if you have already established an Estonian company.
The requirement for a local contact person might seem counter-intuitive when supporting location-independence entrepreneurship, but it’s part of a range of measures that provide the enhanced trust that entrepreneurs need to operate effectively with greater freedom.
If all Estonian companies can be reached in person when needed, regardless of whether that company is run from inside Estonia or a beach cafe on the opposite side of the planet, then everyone has greater trust in our business environment.
Other examples of measures to increase trust include the use of our secure digital identities, minimum share capital requirements, and publicly available company data.
How the local contact person rule now works
All Estonian companies require an address in Estonia and this hasn’t changed.
However, you do not need to ever visit this address so it is still possible for e-residents to create a complete EU company with EU business banking from anywhere in the world.
Your company address can be easily provided by a business services provider, such as those that can also provide your accounting, virtual office or contact person services.
In addition, all Estonian companies now have to provide a contact person in Estonia too. Here’s the key text of the new rules and a quick explanation of what they mean:
(1) An undertaking, including a foreign company that has a branch in Estonia, may designate a person to whom the procedural documents of the undertaking and the declarations of intent addressed to the undertaking may be delivered in Estonia (hereinafter 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.
So your contact person is simply someone who will receive procedural documents on behalf of your company. You do not have to give them any powers to act on behalf of your company and they do not have to be a shareholder, a board member or an employee. E-residents remain 100% in control of their companies.
(2) If the management board of a company or a body substituting therefor is located in a foreign state, the company must designate a contact person specified in subsection (1) of this section. In such case, only a notary, notary’s office, advocate, 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. The address of the contact person shall be considered the address of the company in such case.
This means that your business services provider can provide your local contact person, in addition to your company’s address. Once again, a list of services providers used by other e-residents is available here.
(3) 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, one of the persons specified in the same section may be designated a contact person specified in subsection (2) of this section.
This clarifies that if someone running or owning your company is a resident of Estonia then they can simply be the local contact person. Many countries go further and insist that a company must have a local shareholder, but this is definitely not the case in Estonia, which supports location-independent entrepreneurship.
(5) The name or business name, personal identification code or registry code, residence or registered office, and address of the contact person, and the Estonian address for delivery of the procedural documents of the undertaking and the declarations of intent addressed to the undertaking shall be submitted to the commercial register. The digitally signed or notarised consent of the contact person for his or her entry in the commercial register as the contact person is also submitted to the registrar.
These rules affect your company’s Articles of Association because that’s where your company’s address and contact person are explained. Your company’s Articles of Association are first submitted when you establish your company and then resubmitted when you make changes to the structure of your company (such as by changing board members or the address).
If you are already running an Estonian company then these new rules give Estonia’s Business Registry the power to request that you appoint a local contact person. If so, you would be notified and be given enough time to comply.
At present though, these rules will now be applied when you establish your company or alter its Articles of Association. Existing company owners are unlikely to be affected in the near future.
Read more about e-Residency
We wrote this article in response to a comment from Tamas on our previous article so if you have more ideas about subjects you want us to cover then let us know below.
In addition, you can read lots more articles about e-Residency on our blog: