A branch is not a legal person, but an instrument of a foreign company to operate in Estonia without founding a subsidiary. By registering a branch in the commercial register, a foreign company can announce to third persons its existence, persons with the right to represent, and other important circumstances. The company is liable for the obligations arising from the activities of the branch.
According to the Commercial Code, a branch is dissolved by deleting it from the commercial register. A branch is deleted from the register if:
- the company is dissolved;
- the company applies to be deleted from the register;
- the branch does not have a director and a director is not appointed within three months after a caution by the registrar;
- the director of the branch does not submit the required annual report during the terms specified in the Commercial Code and also does not do so during an additional term specified by the registrar.
Dissolution resolution and submission of dissolution application
The dissolution of a branch can be decided by a competent body of the company (pursuant to the legislation of the company’s country of location), which is mainly the management board. To dissolve a branch, the management board must submit an application to the Commercial Register along with the dissolution resolution.
Liquidation
Before the deletion of a branch from the register, the branch shall be liquidated pursuant to applicable law, to which the provisions regarding public limited companies apply.
In general, the dissolution of a branch consists of three key stages:
- adopting the branch dissolution resolution and submission of dissolution application
- liquidation
- deletion of the branch from the Commercial Register
Liquidation consists of the following stages:
- Appointment of liquidators and entry of their names into the Commercial Register. The liquidators of the branch are the members of the company’s management board, unless provided otherwise in the articles of association, the resolution of the general meeting or judicial decision. You can submit the application for the dissolution entry into the Commercial Register electronically or through the Company Registration Portal.
- Publication of a notice regarding liquidation of the branch in the Ametlikud Teadaanded and notification of all known creditors. The liquidation notice must specify that the creditors must present their demands within four months of publication of the notice.
- Approval of the opening balance sheet prepared upon liquidation and annual report by resolution of the partners. After approval, the opening balance sheet prepared upon liquidation and the annual report shall be submitted promptly to the Commercial Register. A court may release a company of the obligation of auditing the branch opening balance sheet prepared upon liquidation and the annual report if the financial situation of the company is so unequivocal that an audit appears not to be necessary in the interests of the company’s owners or its creditors.
- Dissolving a branch, collection of debts, sale of assets and satisfying creditors’ demands, regardless of notification of demands. If the assets of the branch being liquidated are not sufficient to satisfy all of the requirements of the creditors, the liquidators must file a bankruptcy petition. If a creditor known to the branch has not presented a demand and the demand cannot be satisfied due to reasons independent of the branch, the funds belonging to the creditor shall be deposited in escrow. If it is not possible to discharge the obligation during the liquidation or if the demand is challenged, the branch’s assets may not be distributed among shareholders if the disputed sum of money has not been deposited or if the creditor has not been given sufficient security.
- Preparation of the final balance sheet of the branch and distribution of assets. Upon dissolution of a branch, transfer of assets from one structural unit of the company to another takes place – i.e. in general from the branch to the foreign parent company. As the parent company is responsible for the obligations arising from the branch’s activity, the foreign company will incur an income tax obligation with regard to gains earned from the transfer of assets. If the foreign company has not distributed the profit of its Estonian registered branch prior to dissolution of the branch, then the profits will be considered distributed upon dissolution of the branch and the foreign company will incur the obligation of paying income tax on the profit earned. Upon completion of liquidation, the final balance sheet shall be prepared.
- Submission of an application for the deletion of a branch from the commercial registry to the registrar.
Liquidation of a branch is a fairly time-consuming process that lasts at least six months.
Deletion of a branch from the Commercial Register
After the branch has been liquidated as required, the company’s management board will have to submit an application to the Commercial Register for the deletion of the branch from the Commercial Register. This can be done after a minimum of six months of the entry of the dissolution of the branch into the Commercial Register and providing notification thereof. You will have to attach the branch’s final balance sheet to the application for deletion from the Commercial Register. Deletion from the commercial register is free of charge.
If a branch is deleted from the register, the foreign company may continue its activities in Estonia as an undertaking only if it has a new branch entered in the register.
Upon the deletion of a branch from the commercial register on the application of a creditor, a new branch of a foreign company may only be entered in the register if the claim of the creditor is satisfied or if the written consent of the creditor for entry of the branch in the register is submitted.
A branch can only be deleted from the register provided that the branch is not a party to any court proceedings currently conducted in Estonia.
A branch deleted from the commercial register shall preserve its documents for ten years. The documents are generally deposited with a liquidator or with a person assigned by the liquidator. A notation is made to the register indicating the depositary of the documents.