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Taxation of Dividends in Estonia

Updated on Wednesday 27th April 2016

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Taxation of dividends in Estonia applies for resident and non-residents that act through their permanent establishment registered in the country. Dividends are subject to income tax as well as other profit distributions received by an Estonian citizen from a foreign legal person in either monetary or non-monetary form.
 
If a resident company or a non-resident legal entity receives payment from outside Estonia, the income tax that has to be paid abroad can be deducted from the amount of profit taxable in Estonia. However, if a tax is paid in a foreign state on an income that has no tax applied in Estonia, a deduction will not be taken into consideration.
 
Undistributed profits are not subject to tax in Estonia, but there is a 21% charge rate on Estonian gross dividends. This tax is calculated as 21/79 of the net dividend, as well as corporate income tax in Estonia, according to the corporate tax system applied in here.
 
If certain conditions are respected, the retribution of dividends is not taxed in Estonia. Dividends received from a subsidiary that is part of the EEA Member State or Switzerland are not taxable if at least 10% of the shares or votes are held by an Estonian company, and if tax has been paid or withheld. In addition, this exemption method can be applied to paid dividend generated by the profit that is attributed to a resident’s company. If Estonian dividends are received from companies in low tax jurisdictions, the exemption is not applied.
 
If an Estonian company receives the income and dividends are paid from profit that has been earned until the year 2000, than the company does not qualify for the exemption.
 
Resident companies, as well as branches in Estonia or permanent establishments of foreign entities have to pay income tax on all distributed profits, including corporate profits distributed in the tax period, gifts, donations and representation expenses, as well as expenses and payments that are not related to the business. 
 
The Estonian taxation system of the corporate earning is a unique system, which shifts the moment of corporate taxation in Estonia from the earning of profits to their distribution. In regards to distribution, there are two possible types of profit distribution, an implicit type and an explicit type. The explicit type refers to Estonian dividends and other profit distributions, while the implicit type handles the way profits are distributed through fringe benefits, gifts and donations, adding expenses and payments not related to the business activity.
 
A resident legal person as well as the non-resident legal person that acts through a company registered in Estonia, carrying out profit distribution, must pay 21/79 of the profits distributed.  
 
 
Our company formation agents can provide qualified assistance with all legal aspects involved in the process of opening a company in Estonia. Also, please contact our Estonian specialists for isuses concerning dividend taxation matters.

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