Taxes

What you need to know before paying dividends in Estonia

Feb 23, 2020

The annual report must be approved

Dividends are not allowed at the expense of the current year. That means that, before dividends become payable, the financial year must be completed and the report approved. Therefore, dividends can not be paid in the first year of operation, unless the first annual report has been prepared.
The share capital has to be paid

Since 2011, it is possible to establish private limited liability companies without paying a share capital, it must be taken into account that the shareholders must make a contribution to the share capital before submitting the dividends and submit an application for the amendment to the Commercial Register. After that, dividends may be distributed in the usual way.
Dividends are paid out at the expense of retained earnings

Dividends are paid out of retained earnings, which is the sum of the profit or loss for the financial year and the profit or loss for the preceding years. This means that if in the previous financial year the company had a loss of EUR 500 and, in that financial year, a profit of EUR 1750, then retained earnings would be 1750-500=1250 EUR
Income tax on dividends

In Estonia, the income tax rate is 20%. In calculating dividend income tax, it is assumed that the amount disbursed is the so-called net amount withholding tax. Therefore, a tax on dividends of EUR 1,000 is calculated as follows:

1000 * 20% / 80% = 250 euros

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