Laws for Entrepreneurs – Which Laws Must an Entrepreneur Know and Why?
As an entrepreneur, it is necessary to know several laws for entrepreneurs that regulate the business activities of a company operating in Estonia. That also helps the entrepreneur to conduct their activities lawfully to prevent legal disputes instead of resolving their consequences. Lepmets & Nõges, a law firm in Estonia, brings out some of the most important laws that every entrepreneur should know at least briefly:
The Commercial Code
You can find the current Commercial Code here. The Commercial Code is the main legal act which regulates entrepreneurship, defines the concept of an undertaking, and regulates the activities of both natural persons as sole proprietors and companies operating through various forms of business associations in Estonia. The law includes requirements for registration of a company, choosing a business name, and communicating with the commercial register, along with setting mandatory deadlines for the entrepreneur to follow. Additionally, the law contains various capital requirements and rules for mergers and subdivisions of companies.
Any natural person can become a sole proprietor by submitting a corresponding application to the commercial register. The business name of a sole proprietor must contain the first and last name of the proprietor and may not include any indication or abbreviation referring to a company. The sole proprietor is personally liable for all obligations and is obligated to organize their accounting in accordance with the Accounting Act.
Company as a form of business
If an entrepreneur wishes to engage in business with others, a company is created for this purpose. The Commercial Code provides for several forms of companies - general partnership, limited partnership, private limited company, public limited company, and commercial association. The company is also entered in the commercial register, and its legal capacity arises from registration and ends with deletion from the commercial register. The entrepreneur must choose the company name in such a way that it is not misleading in terms of the legal form, business area, or scope of activity of the entrepreneur. Entrepreneurs operating under a company must also organize accounting in accordance with the Accounting Act, similar to a sole proprietor. However, the difference is the limited liability of an entrepreneur operating under a company.
You can read more about creating a company and different forms of business on the state portal eesti.ee. If you want to learn even more about different forms of companies and their specifics as an entrepreneur, contact Lepmets & Nõges law firm's lawyers for professional legal assistance.
The Accounting Act obliges all entrepreneurs registered in Estonia to organize accounting and financial reporting in such a way that current, relevant, objective, and comparable information about the financial position, financial performance, and cash flows of the entrepreneur is provided. In fulfilling this obligation, the entrepreneur must document all their economic transactions and keep accounting documents for the purpose of possible later control.
As the violation of the accounting obligation is punishable as a criminal offense (Penal Code § 381) in Estonia, it is especially important that all entrepreneurs thoroughly familiarize themselves with the Act. In addition to criminal liability, failure to comply with the requirements set out in the Accounting Act may bring administrative tax liability or civil liability for the entrepreneur before the company's owners or contract partners.
Once again, the professional team of attorneys at Lepmets & Nõges law firm is ready to guide any entrepreneur in this regard. We will respond to your inquiry within three business days.
The Employment Contracts Act
The current version of the Employment Contracts Act can be found here. Often, an entrepreneur's own efforts are not enough, and with the growth of workload, there is a need for labor. If an entrepreneur wants to use labor, they must enter into employment contracts. Under the employment contract, a physical person (employee) works for another person (entrepreneur), subject to their management and control. The employment relationship is a well-known contractual relationship and therefore regulated in detail. In order for the entrepreneur not to get into disputes with the labor dispute committee or civil court, they must always be aware of the current regulations regarding employment contracts.
As an entrepreneur with employees, you must follow the Employment Contracts Act, which regulates employment relationships and establishes requirements for entering into and fulfilling employment contracts. It also includes requirements for paying employees and protecting their rights.
Protection against unfavorable treatment
An entrepreneur may not treat an employee unfavourably because the employee relies on their rights, draws attention to their violation, or supports another employee in protecting their rights.
Principle of equal treatment
The entrepreneur must ensure protection for employees against discrimination, follow the principle of equal treatment, and promote equality in accordance with the Equal Treatment Act and the Gender Equality Act.
The entrepreneur must know that an employment contract must be concluded in writing. The Employment Contracts Act sets out the requirements for entering into an employment contract, outlines the obligations of the entrepreneur as an employer, and also specifies the possible responsibility of the entrepreneur for possible violations. Entrepreneurs who use employees in their business are welcome to seek guidance and legal assistance from lawyers at Lepmets & Nõges law firm!
Tax and customs laws which are necessary for entrepreneurs
Entrepreneurs must comply with various tax and customs laws that regulate the payment of taxes and customs duties. This includes the payment of value added tax, income tax, social tax, and other taxes. The current version of the Value Added Tax Act can be found here. The current version of the Income Tax Act can be found here. The current version of the Social Tax Act can be found here. The current version of the Customs Act can be found here. Since tax and customs laws are considerably more extensive and complex than the Commercial Code, Accounting Act, and Employment Contracts Act, entrepreneurs should also consult the Estonian Tax and Customs Board website, where the board explains in plain language and sometimes with videos what an entrepreneur needs to know about taxes.
Income tax and social tax
Natural persons pay income tax on their income. Wages, gains from the sale of property, business income, and other income are subject to a tax rate of 20%. In addition to income tax, wages and business income are subject to social tax, unemployment insurance contributions, and, for obligated individuals, pension contributions. Entrepreneurs pay income tax on fringe benefits, gifts and donations, reception expenses, distributed profits (dividends), and equity payments. All payments are taxed at a uniform rate of 20/80. Fringe benefits are also subject to social tax.
Value-added tax (VAT)
VAT is a nationally established tax that is paid by entrepreneurs who have registered as taxable persons whether at the time when the VAT obligation arises or voluntarily before that. Persons who have mistakenly added VAT to their invoices are also obliged to pay value-added tax. You can read more about VAT in our legal blog, where our lawyers explain what VAT means to an entrepreneur.
Customs laws and regulations
If you operate as an entrepreneur in a field that involves the supply of goods to Estonia from foreign countries, it is important to be familiar with customs law. In this case, the entrepreneur needs to know both European Union customs law and Estonian customs law.
Consumer Protection Act - The A to Z of Entrepreneurs
An entrepreneur who sells goods to consumers must also be familiar with the Consumer Protection Act. This law is established to protect consumer rights. This law also applies when an entrepreneur only mediates the transfer of goods or the provision of services to a consumer. According to this law, a consumer is a natural person who acts for a purpose unrelated to his or her economic or professional activity. Failure to consider consumer rights may lead to a dispute in the Consumer Disputes Committee or civil court.
General Part of the Civil Code
The General Part of the Civil Code provides the general principles and sources of civil law. From this law, the entrepreneur can learn who has legal capacity and the right to enter into transactions. This law also defines the concept of a transaction and how the parties can reach a transaction. In addition, it is important for the entrepreneur to know the formal requirements for various transactions and under what circumstances a transaction is void or invalid.
Law of Obligations Act
The Law of Obligations Act regulates the formation of debt relationships in Estonian law. This law applies to all contracts entered into by entrepreneurs, including employment contracts. In addition, the entrepreneur must consider this law in conjunction with the Consumer Protection Act, as provisions related to consumers are also represented in the Law of Obligations Act.
Asking from a law firm in Estonia: Why is it important for entrepreneurs to know these laws?
The above-mentioned laws help entrepreneurs to conduct their business properly and prevent any possible time and resource-consuming disputes. As lawyers, we understand that learning about all these laws and their application together can be too time-consuming. In order for the entrepreneur to focus on their business, we are ready to guide and provide relevant legal assistance. Lawyers at Lepmets & Nõges law firm are competent in all of the above-mentioned laws. A wise entrepreneur doesn’t resolve problems, but rather prevents them. Be a wise entrepreneur and contact our lawyers before any problem arises!