Dividends and Their Taxation in Estonia

Have you heard the term dividend but are unsure what it means? On this page, we will learn more about dividends and the taxation of received dividends.

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Simply put, a dividend is the shareholder’s portion of a company’s profit. The basis for receiving a dividend is participation in the company. A dividend is a form of passive income, meaning that regardless of whether the owner participates in generating the profit, they are entitled to receive a dividend. A dividend is a benefit received from the investment placed in the company. It is a payment made based on the decision of the company’s legal body, from net profit or undistributed profit of previous financial years. Dividends are usually paid once a year, but some companies split the dividend into two or more parts and pay it in smaller portions on agreed dates.

• Share capital must be paid in. You can check it HERE.
• The annual report must be approved.
• Dividends can be paid out within the scope of undistributed profits reflected in the annual report.
• Dividend payment must not result in a poor financial condition for the company.
• Equity capital must not fall below the allowed limit.

The determination of dividend size depends on the company’s profit, financial situation, and shareholder agreement. Usually, a company follows a specific dividend policy, but decisions may vary from year to year. It is important to evaluate the company’s cash flow and financial position to ensure that dividend payment is sustainable and allows the company to continue its operations and investments. The final decision is made by the company’s management or the general meeting of shareholders, considering the aforementioned factors. It is recommended to consult an accountant or financial advisor to ensure the decision is legal and, in the company’s, best interest.

Read more form Estonian Tax and Customs Board.

A resident company pays income tax at a rate of 20/80 when distributing profit or paying dividends.

A resident company can tax dividends at a lower rate of 14/86 in the fourth year to the extent of the average taxed dividends and equity capital distribution from the previous three years.

You can find the calculator HERE.

There is no limit to the number of times dividends can be paid. It is assumed that dividends are paid in full at once. If the company lacks sufficient funds, payment can be made multiple times. It doesn’t matter in what form dividends are paid, whether in cash or non-cash. Generally, according to the law, all shareholders who entered the company’s shareholder registry on the day of the general meeting are entitled to dividends. In other words, they must have bought the shares no later than the day of the general meeting.

If the company has accumulated profits and the board has submitted the proposal for dividend distribution to the general meeting, dividends must also be recorded in accounting. Dividend-related accounting entries are made at the stage when the general meeting has approved the annual report and made the decision based on the board’s recommendation to pay dividends. For example, the minutes of the general meeting, which is the written document of this event, can be added as evidence of the decision to pay dividends.

The lower tax rate of 14/86 will be abolished, as well as the 7% income tax withheld on dividends paid to individuals. Thus, from 2025, dividends will only be taxed at the rate of 22/78.