How foreign tax residents are taxed by receiving dividends from Estonia

1. Dividends from an Estonian company to a foreign private person

In most countries, dividends are not tax-free. This means that, in addition to corporate income tax, most foreign shareholders of an Estonian company will be taxed on a personal level. Typically, the taxation rate for such dividends is 15%, and this tax must be paid to the local tax authorities where the recipient of the dividends is currently taxed.

For example, if the sole shareholder of an Estonian company is a foreign individual and decides to distribute 80,000 EUR in dividends, the company will need to pay 20,000 EUR in corporate tax. Additionally, the shareholder will need to pay 15% (the rate may vary by country) of the 80,000 EUR, which amounts to 12,000 EUR. This results in an effective taxation rate of 32%. In other words, out of a gross profit of 100,000 EUR, a total of 32,000 EUR is paid in taxes, leaving the shareholder with 68,000 EUR after taxation, which is 68% of the original amount.

The actual amount of taxation depends on the dividend receiver's tax residency and its regulation under mutual tax treaties in each case.

2. Dividends from an Estonian company to a foreign company

Foreign companies that are shareholders of an Estonian company are generally not taxed when they receive dividends from Estonia, especially if there is a double taxation avoidance agreement in place.

This exemption also applies when dividends are paid from an Estonian company to companies in low tax rate territories.