Taxation of Dividends in Estonia
As a rule, payment of dividends are not taxed in Estonia.
At the moment of profit distribution, corporate income tax corresponding to the distributed sum must be paid.
How Estonian Tax Residents are Taxed When Receiving Dividends
1. Dividends from an Estonian company to an Estonian private person:
If an Estonian tax resident receives dividends from an Estonian company, they do not need to pay any additional tax. The company distributing the dividends is responsible for paying corporate income tax (20% of the gross profit) by the 10th of the month after profit distribution.
As dividends from an Estonian company are not considered taxable income for the recipient, they do not need to be added to the recipient's annual tax return. However, the dividend payments are declared on the company level, providing tax authorities with an overview of the individual's official income.
2. Dividends from a foreign company to an Estonian private person:
The same taxation rule applies when an Estonian tax resident receives dividends from foreign companies. If the foreign company has paid corporate income tax on the profits, there is no taxation on the individual receiving the dividends. However, these dividends must be declared on the annual tax return, and proof of payment of corporate income tax by the foreign company must be provided. If the profit was not taxed at the company level or proof of payment is not presented, the individual must pay a 20% income tax.
For example, if an individual who is a tax resident of Estonia receives dividends from a Finnish company, the profits of the Finnish company are generally taxed at the Finnish corporate income tax rate of 20%. The dividends received by the Estonian tax resident are typically tax-free.
3. Dividends from a foreign company to an Estonian company:
If an Estonian company receives dividends from a foreign company, the corporate income tax is usually paid at the first appearance of profit. Once taxed and documented, this money will not be taxed when distributed from the Estonian company. However, if the Estonian company's share of the subsidiary is less than 10%, the earned profit will be taxed at the moment of distribution of dividends regardless of previous taxation.
How Foreign Tax Residents are Taxed by Receiving Dividends
1. Dividends from an Estonian company to a foreign private person:
In most countries, dividends are not tax-free, so foreign shareholders of an Estonian company will be taxed on a private level in addition to corporate income tax. The tax rate for such dividends is often around 15%, and this tax must be paid to the local tax authorities where the recipient's tax residence is located.
2. Dividends from an Estonian company to a foreign company:
Foreign companies who are shareholders of an Estonian company are usually not taxed when they receive dividends from Estonia, especially if a double taxation avoidance agreement is in place. This is also valid if dividends are paid from an Estonian company to companies in low-tax-rate territories.