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share capital (€2,500) to the ETCB also gives a future tax advantage: if the company is liquidated, this amount can be withdrawn tax-free, reducing your tax liability.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

MOSS (Mini One Stop Shop) is a simplified EU VAT reporting scheme designed for companies selling digital goods and services to private individuals in other EU countries.

Instead of registering for VAT in every member state where your customers are located, MOSS allows you to report and pay all cross-border VAT through the Estonian Tax and Customs Board. This applies to services such as:

• Website hosting

• Software downloads

• Streaming or downloaded media (music, apps, videos)

• Online gaming

• Access to digital databases

• Distance learning or digital teaching services

If your Estonian company uses MOSS, you issue invoices with your Estonian VAT number, but apply the VAT rate of the customer’s country. The Estonian tax office then redistributes the VAT to the appropriate member states on your behalf.

Key conditions and obligations:

• MOSS is only available to VAT-registered companies.

• You must submit a special quarterly MOSS declaration (in addition to your regular monthly VAT returns).

• You are still required to file monthly VAT declarations for domestic transactions.

• To stay compliant, you must have a reliable system to track your customers’ locations and apply the correct country-specific VAT rates.

Lead-in:
MOSS helps VAT-registered companies save time and avoid multiple VAT registrations across the EU—but only applies to digital B2C services.

According to Estonian tax law, e-residents are considered non-residents for tax purposes. This means that only income earned in Estonia is taxed in Estonia. If there is no Estonian-sourced income or activity, you must pay taxes in the country where the service is provided or the income is earned. E-Residency alone does not create tax residency—neither in Estonia nor elsewhere.

An Estonian company established by an e-resident is automatically considered an Estonian tax resident company, and subject to Estonian corporate tax rules. However, the personal tax residency of the e-resident does not change simply because they hold an e-Residency card.

It’s a common misconception that e-Residency provides residency or tax residency status—it does not. E-Residency is a digital identity, not a visa, residence permit, or travel document. It allows you to manage a company remotely, but it has no impact on where you pay personal taxes.

Keep in mind:

• Your personal tax residency is determined by factors such as physical presence (e.g. more than 183 days in a country) and centre of economic or personal interests.

• Your personal tax residency may also trigger permanent establishment rules, which could lead to tax obligations for your Estonian company in your country of residence.

Lead-in:
E-Residency gives you access to Estonia’s digital business environment—but it has no effect on your personal or corporate tax residency, which are determined by entirely separate legal criteria.