Proper accounting is the foundation of any successful business in Estonia. Whether you’re an e-resident entrepreneur managing your company remotely or a local business owner, understanding Estonian accounting standards and compliance requirements is essential for legal operation and financial success.
This comprehensive guide covers everything you need to know about maintaining compliant accounting records in Estonia, from legal frameworks to practical implementation.
Understanding Estonia’s Accounting Framework
Estonian GAAP and International Standards
All Estonian companies must maintain proper accounting records following Estonian Generally Accepted Accounting Principles (Estonian GAAP), which are largely harmonized with International Financial Reporting Standards (IFRS).
Key Features of Estonian GAAP:
- Alignment with EU directives: Estonia implements EU accounting directives, ensuring consistency across European markets
- IFRS compatibility: Large and publicly traded companies follow full IFRS standards
- Simplified rules for SMEs: Small and medium enterprises benefit from simplified accounting requirements
- Digital-first approach: Accounting standards are designed to work seamlessly with Estonia’s e-governance infrastructure
Who Must Follow Estonian Accounting Standards?
All Estonian entities are required to maintain accounting records, including:
- Private limited companies (OÜ)
- Public limited companies (AS)
- Branches of foreign companies
- General partnerships (TÜ)
- Limited partnerships (UÜ)
- Non-profit organizations and foundations
- Self-employed individuals (certain thresholds apply)
There are no exemptions. Even dormant companies with no business activity must maintain basic accounting records and file annual reports.
What Must Be Recorded in Your Accounting System
1. Sales and Revenue Documentation
- All sales invoices issued to customers
- Credit notes and refunds
- Service delivery confirmations
- Subscription and recurring payment records
- Digital sales records (e-commerce platforms)
- Cross-border transaction documentation
2. Purchase and Expense Records
- Purchase invoices from suppliers
- Receipt confirmations
- Utility bills and rent payments
- Professional services invoices
- Travel and entertainment expenses
- Software subscriptions and digital services
- Marketing and advertising costs
3. Banking and Cash Management
- Complete bank statements for all business accounts
- Cash register records (if handling physical cash)
- Payment processor statements (PayPal, Stripe, etc.)
- Foreign currency exchange records
- Bank fees and interest charges
- Loan agreements and repayment schedules
4. Asset Management
- Fixed asset purchase documentation
- Asset depreciation calculations and schedules
- Asset disposal records and sale documentation
- Leasing agreements
- Intangible asset valuations (patents, trademarks, software)
5. Inventory Tracking (if applicable)
- Stock receipt documentation
- Inventory valuation records
- Stock count reports
- Work-in-progress valuations
- Inventory write-offs or adjustments
6. Legal and Contractual Documents
- Service agreements with clients
- Supplier contracts
- Employment contracts
- Shareholder agreements
- Loan and financing agreements
- Lease agreements
7. Payroll and Employment Documentation
- Employee contracts and amendments
- Salary payment records
- Social tax calculations
- Income tax withholdings
- Unemployment insurance contributions
- Board member compensation records
- Expense reimbursement documentation
Accounting Principles You Must Follow
The Accrual Basis of Accounting
Estonian companies generally must use accrual accounting, which means:
- Revenue is recognized when earned, not when cash is received
- Expenses are recorded when incurred, not when paid
- Financial statements reflect economic reality, not just cash flows
Exception: Very small businesses may be eligible for simplified cash-basis accounting under certain conditions.
Core Accounting Principles
1. Going Concern Principle Financial statements assume the business will continue operating for the foreseeable future unless there’s evidence to the contrary.
2. Consistency Principle Accounting methods and policies should remain consistent from year to year to enable meaningful comparisons.
3. Prudence Principle Revenues and assets should not be overstated, while expenses and liabilities should not be understated.
4. Materiality Principle All significant financial information must be disclosed; immaterial details may be simplified.
5. Substance Over Form Transactions should be recorded based on their economic substance, not merely their legal form.
Get Professional Accounting Support
LKS Consult provides comprehensive accounting and bookkeeping services tailored to Estonian companies, with special expertise supporting international entrepreneurs and e-residents.
Our Accounting Services Include:
- Monthly bookkeeping: Complete transaction processing and financial management
- Digital accounting setup: Cloud system implementation and training
- Annual report preparation: Professional financial statement preparation and filing
- Tax compliance: VAT, social tax, and income tax management
- Payroll services: Employee and board member salary processing
- Financial advisory: Strategic planning and optimization consultation
- E-residency support: Specialized services for remote company management
Contact us today for a free consultation to discuss your accounting needs and ensure your Estonian company maintains professional, compliant financial records.
