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Mergers & Acquisitions (M&A) in Estonia


The possibility of mergers offered by the Estonian system, allows reorganization operations inside international groups on a domestic or cross-border basis to be carried out more easily, reducing aspects of legislative uncertainty. From a fiscal point of view, the advantage certainly lies in the fiscal neutrality that intra-EU mergers would benefit from, in addition to the possibility of carrying forward tax loss previously recorded in the presence of certain conditions and observing certain limits.


The mergers and cross-border merger chapters in the Estonian Commercial Code (transposing the EU directive 2005/56/EC into Estonian law) are regulating all the most important procedural steps of a merger transaction: (i) the contents of the merger plan; (ii) the directors’ report; (iii) the independent experts’ report; (iv) the final decision on the merger by the shareholders’ meeting; (v) the pre-merger and post-merger certificates; (vi) the publicity of the merger; (vii) the effects and effectiveness of the transaction; and (viii) the employees’ participation in said transaction.


The Procedure

Firstly, the  Merger Plan shall be made. The contents of the merger plan in a cross-border merger remain substantially the same as those contemplated in the case of an Estonian ‘domestic’ merger, but a transnational merger plan (and the directors’ report) will also detail the methodologies used to evaluate assets and liabilities of the merging companies and contain certain indications on the effects of the transaction for the company’s creditors and workers.

Decision to reorganize the company (including merger) can be taken by the participants of legal entity (i.e. owners, shareholders) by majority set out in the articles of association but no less than 2/3 of all participants in shareholders meeting. In a merger when one legal entity is added to another (addition), the decision to reorganize the company can also be taken by the governing bodies of the entity to which the other entity is added.


The employees have the right to receive the directors’ report at least 30 days before the general meeting of the shareholders that will resolve upon the merger. The comments raised by the representatives of the employees shall be presented to such a general meeting. 

A specificity of the cross-border merger process consists of the necessary publication of a note in the Official Gazette at least 30 days prior to the shareholders’ general meeting. Such note shall indicate, inter alia, the modalities to exercise the legal rights of creditors and minority shareholders.

Is necessary to note that independent experts shall verify the fairness of the exchange ratio. The appointment of a common expert, who will provide such verification for all the merging companies, is permitted.

The limits to the possible cash balance applicable in the case of a pure Estonian domestic merger (no more than 10 percent of the shares of the surviving or incorporating company) may be exceeded if so permitted by the laws applicable to the surviving or incorporating company or by the domestic laws of one of the EU merging companies.

Particular attention is given to the dissenting shareholders of the Estonian company involved in the cross-border merger. Such shareholders, in fact, may withdraw from their company and obtain the redemption of their shares.

Moreover, if the surviving company is a foreign company, the final control of legality of the cross-border merger shall be carried out by the relevant national authority having jurisdiction over said surviving company. Should the surviving company be Estonian, the Estonian Commercial Register shall have the task of scrutinizing the legality of the relevant cross-border merger and issue the relevant certification.

Finally, the procedure will necessarily be completed by a Merger Deed. The deed shall be notarized if the surviving company is an Estonian company or legalized by the competent foreign authority if the surviving company is an EU foreign company. The legalized merger deed will be filed with the competent companies’ registers with the certificates attesting the legality of the procedure.


Merger Control in Estonia

Mergers are subject to competition control in Estonia, since the Competition Act defines mergers, when at least one of the merged companies ceases to exist, as concentration. This law further outlines procedures for concentration control to which mergers are subject.


The Estonian Competition Authority is the body responsible for merger control in Estonia. According to the Competition Act, the Council must be informed of a merger if aggregate turnover of the merged companies exceeds 6.4 million EUR or if all of the merged companies or at least one of the companies has more than 40% of the certain market concentration. The Competition Authority might request merger filing even for companies below those thresholds during the 12 months following the merger, if it deems that such a merger might limit competition.


If notification is required, all parties participating in merger should submit notification to the Competition Council and receive approval. Notification document should include registration information of the merged companies, reasons for and description of the method of concentration, financial accounts of the companies, their sales and evaluation of market shares in certain markets, information on competitors, and other descriptive information.


Receipt of notification must be announced by Competition Authority in Official Gazette of the State (Ametlikud Teadaanded) including type of concentration and parties involved.


After evaluating the merger filling, the Competition council must issue one of the following decisions:

  • Approve the merger as described in the notification;
  • Approve the merger with certain conditions and obligations imposed on the companies or their controlling bodies;

To refuse to grant permission for the merger


Merger and Taxation in Estonia

The Mergers Tax Directive (90/434/EEC of 23 July 1990) reflects the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States has been implemented in Estonian tax laws.


The Estonian Income Tax Act regulates mergers in Articles 15 and 50. It is important to note that the Estonian taxation system is applicable only in cases in where, after the merger, the permanent establishment is created in Estonia.


According to the tax treaties, concluding rights and duties between Estonia and a particular country, the permanent establishment means a fixed place of business through which the business of an enterprise is wholly or partly carried on. The term ”permanent establishment” includes especially: a place of management; a branch, an office; a factory; a workshop and a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.


However, many issues regulated by the Mergers Tax Directive are already dealt with by Estonia’s unique and uncommon Income Tax System for legal persons. If an Estonian company participates in a cross-border merger as the surviving company, the arising permanent establishment is regulated according to Article 53 in the Income Tax Act.


Estonian income tax system principles are applied to mergers:

They are taxed with corporate income tax on the profit which was incurred prior to the merger or after the merger. Taxation (27% from the companies’ level) arises when the profit is distributed.

After the merger the taxation declaration and payments will going further, because before the merger in Estonia, the newly established company (maybe branch instead of OÜ) is the total successor of previous entity and the tax officer will transfer the tax accounts further in the same day the change is made in Commercial Register.

With regard to value added tax, if the companies are merged and the acquirer overtakes all obligations of the acquired company, the value added tax for the transfer of the property is not calculated. However the property itself must be shown in the accounting or in the transfer of assets where in both situations zero-VAT is applicable.


For questions, please, contact Valters Gencs, attorney at law at

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The material contained here is not to be construed as legal advice or opinion.

© Gencs Valters Law Firm, 2015
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