The annual report is one of the most important legal, financial, and informational documents your company produces each year in Estonia. While it is a mandatory filing, its purpose goes far beyond compliance: it provides a complete, structured, and transparent overview of your company’s financial situation and performance.

Understanding how the annual report works, what information it contains, and how to interpret it will help you better understand your business, communicate clearly with stakeholders, and avoid legal or financial issues.

Why My Company Must File an Annual Report

Submitting the annual report is a legal obligation for most Estonian companies, unless the company was registered after July 1st of the previous fiscal year. The annual report is required under the Estonian Commercial Code and serves several essential functions:

• It ensures legal compliance and keeps your company in good standing with the authorities.
• It provides transparency to shareholders, partners, investors, banks, and public institutions.
• It is required if you want to distribute profits in the form of dividends.
• It creates a public financial record of your company’s activity and financial health.

Failing to submit the annual report on time can result in fines imposed on both the company and its board members. If the report continues to be missing after reminders from the authorities, the company may ultimately be removed from the e-Business Register.

What Is Included in the Annual Report

The annual report is a structured summary of your company’s financial activity during the fiscal year. It is prepared based on all accounting data recorded throughout the year, including:

• Sales and purchase invoices,
• Bank transactions and balances,
• Taxes and VAT paid,
• Supporting accounting documents.

Because of this, it is normal for accountants to request missing documents or clarifications when preparing the annual report at the beginning of the following year. The core financial statements included in the annual report are:

• The Statement of Financial Position.
• The Profit and Loss Statement.

Together, these statements provide a clear picture of both the company’s financial position at year-end and its performance over the year.

Understanding the Statement of Financial Position

The Statement of Financial Position (commonly referred to as the balance sheet) shows your company’s financial status at a specific point in time, usually the last day of the fiscal year. It is divided into three main sections:

• Assets: Everything the company owns or controls, such as cash, receivables, equipment, software, and investments.
• Liabilities: Everything the company owes, including loans, unpaid supplier invoices, taxes, and other obligations.
• Equity: The company’s net value, calculated as assets minus liabilities.

This statement helps assess whether the company is financially stable and solvent. Unlike the Profit and Loss statement, it does not show performance over time, but rather a snapshot of the company’s financial structure at year-end.

Because the annual report is public, banks and financial institutions often rely heavily on the Statement of Financial Position when evaluating a company.

Understanding the Profit and Loss Statement

The Profit and Loss statement explains how your company performed financially over the reporting period. It summarizes income, expenses, and the resulting profit or loss. It typically includes:

• Revenue from sales or services.
• Other income not related to core business activities.
• Operating expenses such as materials, subcontractors, office costs, and employee expenses.
• Depreciation and impairment of assets.
• Financial income and expenses.
• Profit or loss before and after income tax.

This statement allows you to understand whether your business model is sustainable. If revenue exceeds expenses, the company is profitable. If expenses exceed revenue, the statement helps identify which costs had the greatest impact on the losses.

What Happens If My Company Has Losses

Ending a fiscal year with losses is more common than many founders expect, especially for startups and early-stage companies. Losses alone do not mean that the company has failed or must be closed. What matters is the company’s financial situation at the time the annual report is prepared.

If the company has recovered

Sometimes a company ends the fiscal year with accounting losses but later receives new funds and returns to a positive cash position. In this case, the losses are declared in the annual report, but no corrective action is required, as the company is no longer in a risk situation.

If the company is still in negative equity

If the company still shows negative equity when the annual report is prepared, action is required to avoid a formal bankruptcy situation. There are three things that can be done:

1. Increasing Share Capital

One way to restore positive equity is for shareholders to inject additional funds into the company by increasing its share capital.

This means shareholders contribute new money in proportion to their ownership, strengthening the company’s financial position. The contribution is transferred to the company’s bank account and registered officially. This option is commonly used when shareholders are willing to continue investing in the business and want a clear, long-term solution. For more information on how to do this, please follow this tutorial.

2. Recognizing Intangible Assets

In many young companies, losses are caused by investments rather than operating failure. Certain startup-related expenses—such as development, design, software, or infrastructure costs—may be recognized as intangible assets instead of being treated as pure losses.

If properly documented, these expenses are considered investments in the company’s future. Shareholders must sign a declaration specifying which costs qualify and provide the relevant invoices or receipts. This can improve the company’s equity position without requiring new cash contributions.

We have a template you can use. You just need to add the description and cost of the elements that are considered intangible assets and sign it.

3. Waiving Shareholder Loans

If shareholders have previously financed the company through personal loans, they may choose to waive part or all of this debt.

By waiving the loan, the liability is removed from the balance sheet, helping restore positive equity. This option should generally be considered a last resort, as the waived funds cannot be recovered directly and may only be regained later through profits, such as dividends or salaries. A signed debt waiver document is required. We’ll be happy to share a template of that document ready for you to fill in and sign.

Each option has legal and financial implications, and the appropriate solution depends on the company’s structure and situation.

Final Notes

The annual report is not just a formality—it is a key document that reflects the financial reality of your company. Understanding its content helps you make informed decisions, communicate transparently with stakeholders, and ensure long-term compliance.

Whether your company is profitable or operating at a loss, submitting a complete and accurate annual report is essential for maintaining your company’s continuity in Estonia.

Are you interested in understanding the steps required for submitting your annual report? Companio offers a streamlined guide in just five steps in this tutorial. If you need guidance at any stage of the process, Companio’s team is here to support you and ensure everything is handled correctly.

Updated on: 18/12/2025