The distribution of dividends is subject to 20% corporate tax (CIT) in Estonia (paid by a company) and the receiver also has to declare the dividends in the country of their tax residency according to the local tax rate. This means that the total tax is 20% in Estonia + ~15-20% in the country of tax residency. But if a company distributes dividends to Estonian citizens, only 20% CIT is applicable.
Fortunately, if you are paying out the dividends regularly, the tax rate may be reduced to 14% starting from the third year of constant payments.There are some rules for dividend payments:
- Dividends can be paid once a year
- Dividends should be paid after the end of the first financial year, after the full contribution of the share capital, and when the annual report is submitted and signed by all board members
- The amount of dividends you want to distribute shouldn’t exceed the retained profits shown in the annual report
- The decision about the dividend payments should be described as a resolution accepted by the majority of votes during the General meeting