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Last year, only 56% of obligated entities submitted their annual reports on time, resulting in the removal of over 25,000 entities from the commercial register. Some may have factored this into their planning. However, it is important to note that failing to submit the annual report on time may result in fines, which can be imposed repeatedly until the annual report is submitted, writes Annika Vait, partner at RASK Attorneys-at-Law.

This is related to the Commercial Register Act, which came into force in 2023, granting the commercial register new powers, including the ability to impose fines if the legal entity fails to submit the annual report within the prescribed deadline. Looking at practices in other countries, the implementation of the fine system has yielded good results, for example in Belgium and the United Kingdom. Under the current Estonian law, a fine of up to 3,200 euros may be imposed. There are also several important aspects related to the imposition of fines.

No Warning Required for Fines

Firstly, according to current regulations, the registrar may impose a fine without prior warning. Therefore, before issuing a fine, the registrar is not legally required to warn about the fine in advance. The registrar may, if desired, send a fine notice immediately after the deadline for submitting the annual report has passed. The reasonableness of such an action is questionable. Ideally, this provision will remain a legal right, and in practice, the registrar will notify in advance of the intention to impose a fine, giving the entity the opportunity to avoid the fine by submitting the report.

Repeated Fines Possible Until Submission

Secondly, the current law allows for repeated fines until the annual report is submitted. This means that if the registrar deems it justified, they can impose fines repeatedly until the overdue annual report is finally submitted.

Discretion in Imposing Fines

Thirdly, the registrar cannot issue such fines automatically or always to the maximum extent possible but must exercise the discretion granted by law. When determining the fine, the registrar should consider, among other things, how many times the annual report has been overdue, how long has passed since the deadline, and other relevant circumstances known to the registrar. Therefore, it is necessary to consider each case individually to determine if imposing a fine is justified and, if so, in what amount. In practice, it is often unknown that both the entity and the person responsible for submitting the annual report may be fined. Therefore, in addition to the entity, the board member or, in the absence of a board, for example, a shareholder, may also receive the corresponding fine.

Report Must Be Submitted Even If Inactive

It is also important to note that the annual report must be submitted even if there was no economic activity during the reporting period. This year, entities whose financial year ended on December 31, 2023 have the deadline for submitting their annual report on Sunday (June 30, 2024), so reports submitted on July 1 will also be considered timely this year. However, the sooner the preparation and approval of the report begin the better. It is already the very last moment to start.