Merging two Estonian companies: when it fits, the steps, the tax and the books

If you own two Estonian companies and want to close one of them, you can merge it into the other. The company you close (the merged company) ends without a liquidation, and everything it owns and owes passes to the company that stays (the survivor) (Commercial Code § 391). This guide is for the owner of two sister companies, for example two OÜs held by the same person or the same holding company. It covers when a merger fits, the steps, the timeline, the tax and the books.

In short

• A merger fits when the business, assets, contracts, staff or licences of one company should carry on in the other. It is not the simple route when there is no company to merge into, when the company to close carries risks, or when there are minority shareholders. Read more
• Plan on 3 to 6 months. The legal minimum is about two months. If an annual report is overdue, it can take up to a year. Read more
• You need a notary for the merger agreement, a final balance sheet (lõppbilanss) of the merged company, two waits (two weeks and one month) and a register entry. Read more
• Normally no income tax and no VAT arise. Read more
• The merged company's contribution balance passes only if it declares it on the TSD before the entry. Read more

Is a merger a good idea for you?

A merger is the right tool when one owner holds two companies and the business of one should carry on in the other. It needs no liquidator, no six-month wait before the end, and normally no tax. But it is not always the simple route. Compare it with the other ways to close a company:

Keeping the company dormant is not a way out: it only postpones the decision, and the company still files all its reports.

When a merger is not the simple route:

• There is no company to merge into. A merger needs two companies entered in the Estonian commercial register (Commercial Code § 391 (1) and (6)). Founding a new company only to absorb another rarely pays.
• The liabilities move to the survivor. Every debt, guarantee, pending claim and tax liability of the merged company becomes the survivor's (Commercial Code § 391 (4); Taxation Act § 35). So do claims nobody knows of yet, for example a later tax audit of the merged company's years. If the survivor holds the valuable assets and the other company carries the risk, a separate liquidation of the risky company can be wiser.
• There are minority shareholders. The decision then needs two thirds of the votes, the consent of a shareholder whose special management rights suffer, and the consent of all shareholders where contributions are unpaid (Commercial Code § 412). Without the consent of all shareholders the boards must write a merger report, and any shareholder of an OÜ can demand an auditor's review of the agreement within ten days of the documents being made available (§ 393, § 394, § 411). A shareholder can challenge the decision in court within one month, and the application must confirm that nobody did (§ 398 (1), § 400 (3)). That is work for a lawyer, not a template.
• Cost and time. You pay the notary, the accountant for the final balance sheet and the bookings, and the state fees. Realistically the process takes 3 to 6 months. An overdue annual report of either company blocks the register entry until it is filed (Commercial Register Act § 44), and with a report to catch up first, the whole process can take up to a year. After the entry, creditors can still ask the survivor for security for six months (Commercial Code § 399).
• Licences and some contracts. An activity licence passes only if the survivor applies for its transfer within 30 days (General Part of the Economic Activities Code Act § 46). Some contracts let the other party end them when the counterparty changes. Check each one.

When a merger is the right tool: the company to close has customers, staff, licences or assets to keep. Or it owes the survivor or the parent a loan that a liquidation could not repay without a waiver or a bankruptcy (see income tax and VAT). Or you simply want one company instead of two, with one annual report, one set of books and one address.

A merger cannot cure insolvency. If the combined company is insolvent and the insolvency is not temporary, the survivor's board must file for bankruptcy within 20 days (Commercial Code § 180 (5^1)). Check the merged company's books, open tax matters and contracts before you sign the agreement, not after.

How does a merger of two sister companies work?

The agreement. The boards of both companies sign a merger agreement before a notary (Commercial Code § 392 (1) and (4)). It states the names, the transfer of all assets, the share exchange ratio, the effect on employees and the merger balance sheet date. From that date, the merged company's transactions count as made by the survivor (§ 392 (1) clause 7). Pick the first day of a month, so the books close cleanly. The agreement binds only once both companies approve it (§ 397 (1)).

In a sister merger the survivor often issues no new shares, because the same owner holds both companies. The Commercial Code expects an exchange ratio and has no express rule for "no new shares" (§ 392 (1) clause 2). State it in the agreement, for example as a ratio with zero new shares, and confirm the wording with the notary.

The reports you can skip. A merger report and an auditor's review of the agreement are not needed if all shareholders of the company agree in writing (Commercial Code § 393 (2), § 394 (2)). These consents go to the registrar with the application (§ 400 (1) clauses 5 and 6). The notary's deed may only mention these exemptions. If so, give the consents in the shareholder decisions.

The approval. The shareholders must be able to read the agreement for at least two weeks before they approve it (Commercial Code § 397 (2)). The registrar applies this to a sole shareholder too, and you cannot waive it. The period is counted under General Part of the Civil Code Act § 136 and § 137: with an agreement signed on a Friday, the earliest decision is on the Saturday two weeks later. In a 2025 case the registrar refused an entry because the sole shareholders approved on the last day of the period. The court held that this broke the rule, but not so badly as to make the decision void, and sent the application back to the registrar (Tartu Circuit Court, 2-25-6560). Do not test it: wait the full two weeks.

Both companies must approve. Two exceptions exist for a parent that owns 90 or 100 percent of the company it absorbs (Commercial Code § 412 (3) and (4)). They do not apply when a third company owns both sisters. A sole shareholder approves with one signed decision for each company (see the merger decisions).

The final balance sheet. The merged company draws up a final balance sheet (lõppbilanss) as at the day before the merger balance sheet date. It uses the same accounting policies and presentation as the balance sheet of its last annual report (Commercial Code § 400 (2)). It is approved like an annual report: the board approves and signs it, and the shareholder then approves it (§ 179 (2) and (3)). An audit or a review is needed only if the company's annual report would need one. The final balance sheet may not be more than eight months old when the application is filed (§ 400 (2)). A merger of two OÜs needs no interim balance sheet: that rule is for a public limited company (AS) (§ 419 (3)).

The registration. The application is filed no earlier than one month after the approval, the period in which a decision can be challenged (Commercial Code § 398 (1), § 400 (1)). The survivor's board may also file for the merged company (§ 400 (4)). You sign the application digitally in the e-Business Register, or a notary certifies it and files it for you (Commercial Register Act § 40). The registrar decides within five working days, and may take up to three months where it needs special checks (§ 41). It will not enter the merger while an annual report of either company is overdue (§ 44).

The merger is entered on the merged company's registry card, then on the survivor's. With the entry on the survivor's card, the assets and debts pass, and the merged company is deleted without a liquidation (Commercial Code § 402, § 403). Until then, the merged company still exists: it keeps its VAT number, pays its own invoices and files its own returns.

What are the steps of a merger, and how long does it take?

The sources: Commercial Code § 392 to § 403, Commercial Register Act § 40, § 41, § 44, Employment Contracts Act § 113 and the instructions of TSD annex 7.

The minimum. Agreement on day 0, decisions on day 15, application one month later, about day 46, entry about a week after that: about two months. This works only if the final balance sheet is ready when you sign and no annual report is overdue. A sole shareholder cannot shorten the two waits, and the registrar refuses an early application (Commercial Register Act § 41).

Realistic: 3 to 6 months. The final balance sheet and the notary's appointment take weeks, and the registrar's questions add time. The eight-month limit often runs from a date that is already in the past when you sign. If it runs out before the application, a new merger balance sheet date means a new or amended notarised agreement. An overdue annual report stops the entry until it is filed, and that alone can push the whole process to about a year.

Costs.

• The notary. The fee for the agreement follows the Notary Fees Act and grows with the value of the transaction. Ask the notary for a quote, and how they compute the value, before you sign. Certifying the application is a second notarial act.
• State fees. 25 euros for the change entry (State Fees Act § 63 (2)); ask the notary whether the registrar charges it on both registry cards. Deleting the merged company is free (§ 23). The creditor notice costs 7 euros (§ 85). Transfer entries in other state registers caused by the merger are free, except in the industrial property registers (§ 20).
• The accountant, for the final balance sheet and the merger bookings.

How are the sole shareholder's merger decisions written?

Each company needs its own written decision, signed by the sole shareholder. It names the shareholder and its votes and states when the decision was made (Commercial Code § 173 (6), § 174 (4)). It needs no notary when no share capital is increased (§ 397 (1), § 413 (2)). You may sign it digitally or on paper. The registrar takes the original or a certified copy (Commercial Register Act § 34 (2)), so a decision signed on paper needs a certified copy, for example from the notary. When the shareholder is a company, its board members sign within their right of representation.

What each decision contains:

• The company, the shareholder (name, registry code), its votes, and that it holds all of them. The place and the real date.
• The approval of the merger agreement, identified by its date, the notary and the notarial register number, and the role of the company (merged company or survivor).
• That the survivor issues no new shares and does not increase its share capital, if the agreement says so.
• The consents that no merger report is made, that no auditor reviews the agreement, and that the board need not report material changes in the assets since the agreement (Commercial Code § 393 (2), § 394 (2), § 397 (5)).
• In the merged company's decision only: the approval of the final balance sheet (§ 400 (2) with § 179 (3)). The board's signature alone is not the shareholder's approval. The survivor's shareholder does not approve it.
• An authority for the board member to sign and file the application. This is a convenience, not a legal condition.

Date each decision the day it is signed. The one-month wait before the application and the one-month challenge period run from that date (Commercial Code § 398 (1), § 400 (1)). A decision that bears an earlier date than its signature states a false time. Filing it knowingly gives the registrar incorrect data, which can be an offence (Penal Code § 281).

The same person often signs as board member of both companies and of the parent. Make each document say in which capacity it is signed, and keep the decisions of the two companies as two separate documents.

What happens when the merger is entered in the register?

The creditor notice. Right after the entry, the survivor's board publishes a notice in the official publication Ametlikud Teadaanded. It tells the creditors of both companies that they may file their claims with the survivor for security within six months (Commercial Code § 399 (1)). The survivor must secure a filed claim if it is not yet due and the creditor shows that the merger endangers it (§ 399 (2)). The fee is 7 euros (State Fees Act § 85). The law asks for no letter to known creditors here, but tell the main ones anyway.

Employees. Employment contracts pass to the survivor unchanged, and neither company may give notice because of the merger (Employment Contracts Act § 112). Both employers inform the employees' trustee, or the employees, in writing at least one month before the transfer: the planned date, the reasons, the consequences and the planned measures (§ 113 (1)). In the employment register, the merged company moves the entries to the survivor in e-MTA, and the survivor accepts them. EMTA does not accept a transfer dated today or in the past (EMTA). If the entry comes first, EMTA says to start the transfer anyway with the earliest date it allows: even a written application cannot set an earlier date. Because you do not know the date of the entry in advance, ask EMTA early how to time it. For a good reason, you can also ask the registrar to make a change entry on a fixed date, at a double fee (Commercial Register Act § 38; State Fees Act § 63 (4)); confirm with the notary that the registrar does this for a merger entry. Payroll up to the entry stays with the merged company. See hiring employees for the employment register.

Contracts, assets and bank accounts. Contracts, claims and debts pass without the other party's consent (Commercial Code § 391 (4), § 403 (1)). Tell customers and suppliers the new invoicing details, and check any change-of-party clause. Real estate, vehicles and shares in other registers are re-registered on the survivor's application (§ 403 (1)). The merger rules say nothing about banks. Each bank has its own procedure and checks, and some close the merged company's accounts, so ask the banks early. Domain names, platform accounts and software licences follow their own terms.

Licences. For an activity that needs a licence, the survivor must apply for the transfer of the licence within 30 days after the merger takes effect, or the licence lapses (General Part of the Economic Activities Code Act § 40, § 46, § 49). For an activity that needs only a notice, the survivor sends a notice within five working days (§ 45).

VAT. The merged company stays VAT registered and files its own VAT return (KMD) every month until the entry. EMTA then removes it from the register, as of the date in its decision (VAT Act § 22 (4) and (5)). A return still due after the entry is the survivor's duty, as its legal successor (Taxation Act § 35). The Act does not say how EMTA wants that last return filed, so ask EMTA. If the survivor is not VAT registered, check whether the business it takes over brings it above the 40 000 euro threshold (VAT Act § 19). The Act has no express rule on counting the merged company's past turnover, so confirm with the Tax and Customs Board. See VAT registration.

The income tax return (TSD). The merged company files the TSD for the months in which it pays salaries or distributions, until the entry. Its contribution balance and its other tax rights pass only if it declares them on TSD annex 7 part III before the entry. Only rights it has already declared on annex 7 can be handed over. The survivor then declares them in part IV after the entry (instructions of TSD annex 7, points 70, 71, 75, 89 to 91; EMTA, part III; EMTA, part IV). This is a right, not a duty, but a right not declared in time is lost: the survivor cannot then fill in part IV. File part III before you file the application, because the entry can follow within days.

Does a merger trigger income tax or VAT?

Normally no.

Corporate income tax. An Estonian company pays income tax when it distributes profit, not when it earns it (see corporate income tax on distributions). A merger pays nothing out. The tax on a company deleted from the register does not apply when the company is deleted without a liquidation and its assets carry on in Estonian business in another company. The retained profit is taxed later, when the survivor distributes it (Income Tax Act § 50 (2^2)).

Contributions that one merging company made into the other do not count as contributions of the survivor (Income Tax Act § 50 (2)). Contributions the parent made into the merged company can pass to the survivor, but only through the TSD annex 7 declarations described above.

Loans between the companies. A loan the merged company owes the parent passes to the survivor, which can repay it later out of the combined cash. A loan the merged company owes the survivor ends with the merger, because debtor and creditor become the same company (Law of Obligations Act § 206 (1)). This is one reason a merger can beat a liquidation: in a liquidation, creditors are paid before anything is distributed (Commercial Code § 214, § 216 (1)). If the assets do not cover all claims, the parent's loan included, the liquidators must file for bankruptcy, unless the parent first waives the part that cannot be paid (Commercial Code § 210).

The parent. In a sister merger with no new shares, the parent receives nothing and has no income. Where shares are exchanged, the gain on the exchange is exempt, and the new shares keep the old acquisition cost (Income Tax Act § 15 (4) clause 9, § 38 (5)).

VAT. Handing over assets to another company in a merger is not a supply (VAT Act § 4 (2) clause 4). The survivor takes over the merged company's tax rights and duties, VAT balances included (Taxation Act § 35). Invoices between the two companies before the entry are ordinary supplies between two taxable persons and stay declared as they were.

Keep a business reason on file. A merger designed mainly to get a tax advantage can be disregarded under the anti-abuse rule of the Income Tax Act or recharacterised under the substance-over-form rule (Income Tax Act § 5^1; Taxation Act § 84).

How is a sister merger booked?

The survivor. A merger of two sister companies is a business combination under common control. The survivor takes over the merged company's assets and liabilities line by line, at their carrying amounts, with no revaluation and no goodwill (RTJ 11, points 16, 50, 54 and 58). With no new shares, the merged company's whole equity goes to an equity line of the survivor's choice, for example its retained earnings to retained earnings and its share capital to another reserve. RTJ 11 does not prescribe the line, so state your choice in the accounting policies. These points read the same in the wording for 2026 periods. For periods from 01.01.2027, costs directly tied to an acquisition, such as the notary and the state fees, are expenses of the period (RTJ 11, point 30). The 2026 wording counts them in the cost of an acquisition and says nothing on a merger with no new shares, so for a 2026 merger agree the treatment with your accountant.

A merged company with negative equity reduces the survivor's equity. Check the survivor's net assets against the share capital rule afterwards (Commercial Code § 176).

Which date. From the merger balance sheet date, the merged company's transactions count as the survivor's (Commercial Code § 392 (1) clause 7). In Estonian practice the survivor books the merger at that date once the entry is made: it takes over the opening balances of the final balance sheet and the transactions after that date. RTJ 11 does not state the date itself, so agree it with your accountant. The survivor's comparative figures show the survivor alone. Until the entry, the merged company keeps its own books, returns and VAT.

Balances between the two. A receivable and a payable between the two companies end at the merger, so eliminate both. A mismatch shows an error in one of the two ledgers. Sales and purchases between the two after the merger balance sheet date are internal to the survivor and are eliminated from its income statement.

The merged company. Its last document is the final balance sheet (Commercial Code § 400 (2); RTJ 13, point 7). When the entry comes before the end of its financial year, it files no annual report for that last period. If the entry slips past its year end, ask the registrar whether it still expects an annual report: the law does not settle this. All its earlier annual reports must be filed (Commercial Register Act § 44). See annual report and audit.

The parent. In its own accounts the parent usually carries both holdings at cost (RTJ 11, points 63 and 86). After the merger it holds one company instead of two. It removes the investment in the merged company and adds its carrying amount to the investment in the survivor, with no gain or loss, then checks the combined investment for impairment. RTJ 11 states this only for the merger of a parent with its own subsidiary, so agree the treatment with your accountant. In consolidated accounts the merger has no effect.

The notes. The survivor describes the merger in the notes of its next annual report: the merged company, the merger balance sheet date and the date of the entry, the method (carrying amounts, common control), the net assets taken over, the equity line used, and that the comparative figures exclude the merged company. Keep a reconciliation of the final balance sheet, the transactions after the merger balance sheet date and the eliminations, so the opening bookings can be checked.

Who keeps the records of the merged company?

The survivor does. The merged company's assets and obligations pass to the survivor with the entry, and so do its tax rights and duties (Commercial Code § 391 (4), § 403 (1); Taxation Act § 35). Unlike in a liquidation, no separate keeper of the documents is named.

Keep, with the survivor's own records:

• the merged company's final balance sheet and the books of its last period;
• the source documents of the transactions it made from the merger balance sheet date until the entry;
• its VAT and TSD records.

A tax audit of the merged company's last periods is addressed to the survivor. Keep accounting records for seven years from the end of the financial year, in machine-readable form (Accounting Act § 12). See bookkeeping and source documents.

Can a one-person OÜ merge into its owner's own assets?

Yes. Since 01.01.2015, an OÜ whose only shareholder is a natural person can merge into that person's own assets, without a liquidation (Commercial Code § 391 (7)). Since 01.01.2024 this also works where the shares are in the joint property of spouses or registered partners. It is not allowed if the owner is insolvent (§ 427^1). The owner takes over all assets and debts.

How it differs from a merger of two companies:

• No two-week wait. The agreement (before a notary) and the owner's decision can be signed on the same day (Commercial Code § 427^2). The one-month wait before the application still runs from the decision (§ 400 (1)). The same decision can approve the final balance sheet.
• Creditors first. At least one month before the application, the board sends known creditors a notice and publishes one in Ametlikud Teadaanded (§ 427^3).
• The application carries the owner's personal code, the board's confirmation that creditors were secured, the owner's written confirmation that they are not insolvent, and the notarised consent of a spouse or pledgee where needed (§ 427^4).
• The Tax and Customs Board must consent. Its consent is deemed given after ten working days. It may refuse if it has claims against the company or the owner, or if a tax audit is under way (§ 427^5; Commercial Register Act § 60 (4)).

The tax is the same as in a liquidation. The assets do not carry on in another company, so the company pays 22/78 on the market value of the net assets it hands over above the unreturned contributions (Income Tax Act § 50 (2^2); EMTA). The owner is then taxed only on what exceeds the acquisition cost of the shares and was not already taxed in the company (§ 15 (3^2)). For VAT, the merger exemption covers only a transfer to another company, so it does not help here (VAT Act § 4 (2)). Unless the owner takes over the business as a going concern, VAT can be due on goods held and on fixed assets when the company leaves the VAT register (VAT Act § 29 (10)). Confirm with the Tax and Customs Board in writing before you sign, in particular the market value of assets handed over in kind and the month of the TSD.

This route saves time compared with a liquidation, not tax. It suits a solo owner whose OÜ holds few assets, or whose business will carry on as a sole proprietor.

General information, not advice for your situation. The law as in force on 30.09.2026.