The main goal of any company is to generate income and, accordingly, profit. All entrepreneurs strive for this, since the amount of dividends received by the owners of the company depends on the efficiency of the enterprise.

What are dividends?

Dividends are a portion of the company's profits that is distributed among the owners of the company according to the share they own in the company.

Having registered a company in Estonia (you can find out how to do it quickly and easily from our previous article "Company in Estonia in 24 hours", you should know what taxes arise when distributing the profits of an Estonian company in the form of dividends.

What is the tax rate for dividends in Estonia?

• 20% (20/80 formula applies) is the general tax rate on dividends.
• 14% (formula 14/86 applies) - income tax rate for regular distributions (annual distribution). This principle can be applied starting from 2019.

Let's give an example:

If an Estonian company paid 9,000 euros in dividends to its owners in 2018, then when distributing the same amount in 2019, 3,000 euros will be taxed using the 14/86 formula, and the remaining 6,000 euros will be taxed at 20/80.

When distributing dividends, it is important to know:

• The share capital of the company must be formed. Dividends cannot be paid until the data on the established share capital is entered in the Commercial Register (minimum EUR 2,500);

• Dividends are paid out of the net profit for the financial year after the submission of the annual report;

• The decision on the distribution of profits is made by the general meeting of the owners of the company. If there are several owners, the decision of the meeting must clearly indicate the share of participation of each and the amount of dividends due to be paid to him.

• The amount of dividends paid must be declared by the 10th day of the month.

When distributing dividends, a very important factor is whether Estonia has entered into a Double Taxation Avoidance Agreement with the country of which the owner of the company is a tax resident. You can read more about this in our article "Estonia and Double Taxation Treaties".

For more information, send us an inquiry.