In Estonia, dividends can only be paid out from the previous financial year’s profit, not from the current year’s income. The company must first complete and submit its annual report to confirm the available distributable profit.

Before any dividends can be paid:

1. The share capital must be paid in — Estonia allows companies to be founded without immediate capital contribution, but dividends can’t be distributed until this requirement is fulfilled.

2. The payment must be registered in the Business Register and declared to the Estonian Tax and Customs Board (ETCB).

3. Once registered, the capital can be used freely for business activities (e.g., expenses, salaries); it doesn’t need to sit idle in the account.

Declaring the minimum share capital (€2,500) to the ETCB also gives a future tax advantage: if the company is liquidated, this amount can be withdrawn tax-free, reducing your tax liability.

Taxation of Dividends in Estonia

• The standard corporate income tax is 24% on the gross amount of dividends (calculated as 20/80 on the net payout).

• If dividends are received from a subsidiary or a foreign permanent establishment, they may be exempt from Estonian tax—especially if a double taxation treaty applies.

Reduced 14% Corporate Income Tax Rate

Estonia also offers a 14% reduced corporate tax rate, but it comes with specific conditions and applies only to regular profit distributions over time:

• You can start using the 14% rate from the third financial year of the company’s operations—only if dividends were paid in the second year.

• In the third year, 1/3 of the previous year’s dividends can be taxed at 14%, the rest at 20%.

• In the fourth year, 2/3 of previously distributed dividends (from years 2 and 3) may qualify for the reduced rate.

• The remaining portion continues to be taxed at the standard 20%.

If a company uses the 14% rate, and the recipient of dividends is a private person, then an additional 7% personal income tax is withheld. This tax can usually be credited in your home country, assuming a valid tax treaty is in place and proof of payment is obtained from the ETCB.

Summary:

• ✅ Dividends can only be paid from previous-year profit, after the annual report is filed.

• ✅ Share capital must be paid in and registered before paying dividends.

• ✅ Standard tax: 24% corporate income tax.

• ✅ Optional reduced tax: 14% + 7% personal tax (with conditions).

• ✅ Always declare share capital to ETCB for tax benefits during liquidation.

Lead-in:
Paying dividends in Estonia is tax-efficient, but subject to strict timing and compliance rules. If you’re considering using the reduced tax rate, we strongly recommend consulting with an accountant to ensure you meet all conditions.