Taxation of profits in Estonia - Samples and Detailed Overview
How Corporate Income Tax is applied in Estonia
The main idea behind corporate income tax in Estonia is that companies are only taxed when they distribute their profits, rather than when they earn them. This means that if a company doesn't distribute its profits, it won't have to pay corporate income tax (unless there are other taxable costs). In essence, no matter how successful a company is, it's possible to operate without paying any taxes, and many entrepreneurs are already taking advantage of this system.
Corporate profit without distribution sample (until 30.06.2026)
Gross profit of the company
Corporate income tax applicable
Real taxation
Profit available for the company
100 000 EUR
0 EUR
0%
100 000 EUR
Corporate profit without distribution sample (from 01.07.2026)
Gross profit of the company
Corporate income tax applicable
Real taxation
Profit available for the company
100 000 EUR
2000 EUR
2%
98 000 EUR
Implicit and explicit methods of profit distribution
There are two possible ways of profit distribution – implicit and explicit.The explicit method refers to dividends and other forms of profit distribution (except for bonus issues, which are taxable for resident natural persons when assets received through the bonus issue are sold).
Dividends or explicit way of distributing profits sample
Gross profit of the company
Gross profit decided to distribute
Corporate income tax rate
Corporate income tax to pay
Dividend paid to shareholders
Real taxation of gross distributed profit
Withholding tax
Will remain on company account
Shareholders receive
200 000 EUR
100 000 EUR
20%
20 000 EUR
80 000 EUR
20%
0%
100 000 EUR
80 000 EUR
In other words - the tax implications are as follows:
if an Estonian company pays 80,000 EUR in dividends to a natural person, the company must pay a 20,000 EUR tax (100,000 x 20/80), making the total cost 100,000 EUR.
Payments from liquidations, capital reductions, or the return of company shares are generally subject to corporate income tax when distributed by an Estonian company.
Profits can be distributed implicitly through fringe benefits, gifts, donations, and business-unrelated expenses and payments.
Implicit way of distributing profits sample
Fringe benefits or without document costs
Corporate income tax rate
Corporate income tax to pay
8 000 EUR
20%
2 000 EUR
It might seem that taxation here is 25% (2 000 from 8 000 = 25%), but actually the taxation is always calculated from gross (distributed) profit, which in this case is 8 000 + 2 000 = 10 000 EUR. 2 000 out of 10 000 is 20%.
When a legal entity resident in Estonia and a non-resident legal entity with a permanent establishment registered in Estonia distribute profits, they must pay 20/80 of the distributed amount as tax. Recipients of dividends do not need to pay tax on this income, and no additional income tax will be withheld on the dividends received.
Some more examples of company profit taxation:
When a resident legal entity pays 80,000 EUR of dividends to a non-resident legal entity owning less than 10% of the profit-distributing entity, a tax of 20,000 EUR (80,000 x 20/80) must be paid by the resident legal entity.
Similarly, when a resident legal entity pays 80,000 EUR of dividends to another resident legal entity owning less than 10% share in the profit-distributing entity, a tax of 20,000 EUR (80,000 x 20/80) must also be paid. If the receiving entity further distributes dividends to other individuals, the tax of 20/80 of the amount paid out must be paid again.
However, if a resident legal entity pays 80,000 EUR of dividends to another resident legal entity who owns more than 10% share in the profit-distributing entity, a tax of 20,000 EUR (80,000 x 20/80) must be paid. In this case, if the receiving entity pays out dividends further to other individuals, the tax of 20/80 of the amount paid out shall not be paid.
Please be aware that this guideline is for informational purposes only and should not be treated as a final law.