If you plan to liquidate a company, ensure your chosen partner is competent. An unprofessional service may cause your company thousands, if not more, in losses.
This guest post on what a professional liquidation service entails is written by Margus Randma, CEO of Liquidation Helpway. As a trusted member of the e-Residency Marketplace, they help e-resident businesses close legally and efficiently
The e-Residency programme allows you to establish and manage a company from anywhere in the world. Both are technically very simple.
But is terminating a company’s operations (liquidation) just as simple? In principle, liquidation can be carried out relatively easily. Is liquidating a company the same as professional liquidation?
Many service providers claim they will get the job done, but then overlook the interests of the company’s owners and other stakeholders. Moreover, the initiators of the liquidation don’t know whether they received the best possible service.
Many websites explain the basic nature of the company liquidation process. This article will focus on what makes a liquidation service professional.
A professional liquidation service provider must understand your company’s tax history, including situations where your private limited company (OÜ) may be liable for taxes in Estonia and another European country.
For example, if your company has a permanent establishment in another EU country, through regular projects or client relationships, this may mean that part of the corporate income tax has already been paid abroad. This can be taken into account when calculating liquidation distributions.
This approach helps avoid double taxation and can reduce the income tax payable to Estonia during liquidation, resulting in saving thousands of euros.
However, this requires a deep understanding of both Estonian tax legislation and EU double taxation avoidance agreements, which not all service providers possess.
A professional liquidation service provider proactively draws the client’s attention to keeping documents correctly archived.
When a company is liquidated, all accounting records, shareholders’ and management meeting minutes, and other such documents must be retained in accordance with the law. They must be archived and retrievable by official authorities, including the Estonian Tax and Customs Board, the court registry department, and the Estonian Police and Border Guard Board.
Missing or inaccessible documents may lead to legal issues.
For example, when the Estonian Tax and Customs Board may request certain accounting explanations or evidence after the company has been removed from the commercial register.
After liquidation, it is difficult to attribute such shortcomings directly to the former members of the management board or to the shareholders. However, in the worst case, shortcomings may affect your e-Residency status or its renewal.
A professional liquidation provider sees the “big picture.” They ask the client additional questions instead of just fulfilling orders. For example, they help determine if a cross-border merger or cross-border conversion/transfer is a good option.
Cross-border mergers of companies are possible within the European Union. If the client has other companies, either in Estonia or elsewhere in Europe, a professional liquidation service provider will analyse whether it would be more beneficial to merge them.
Merging requires complex administrative procedures and is therefore more expensive than a liquidation. But it may have many advantages. Here are a few:
An alternative to liquidation is a conversion process, i.e., a cross-border transfer or cross-border conversion. With cross-border conversion, a company changes its registered legal form in its current Member State to that of another Member State without being liquidated.
After the conversion, the assets and liabilities of the converting company are transferred to the converted company. The owners of the previous company become the owners of the converted company. In a cross-border conversion, the company’s legal identity and its existing operations remain unchanged. The procedure is governed by Directive (EU) 2019/2121.
In the case of a cross-border conversion, a private limited company (OÜ) is subject to corporate income tax and its unrealised capital gains that form part of the transferred assets are taxed; however, a positive aspect is that payment of this tax liability can be deferred and paid over a period of up to five years.
The client should understand that price is not the primary criterion for choosing a liquidation service provider. You may save a few hundred euros in service fees, but lose tens of thousands in taxes or penalties without realising.
Liquidation Helpway offers e-resident business owners assistance with closing a company in Estonia. We specialise primarily in voluntary liquidation, but our professional team and partner companies can also advise the company's board and guide the company through bankruptcy proceedings.
The goal of Liquidation Helpway is to conduct all closure operations in accordance with the law while respecting the rights and obligations of all parties.
Contact us at estoniancompany@gmail.com to discuss your situation or check out Liquidation Helpway from the e-Residency Marketplace
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