Dividends taxation in Estonia takes place only after corporate profits have been distributed. Retained and reinvested profits are not subject to taxation. Additionally, the distributed profits and payments are not subject to personal income tax on the level of the recipient.
All Estonian companies are Estonian tax residents. Hence the corporate tax is applicable for registered resident companies registered as well as permanent establishments of non-resident companies (including branches) within Estonian jurisdiction.
Dividends, share buy-backs, capital reductions, liquidation proceeds, profit distributions are taxable under the corporate income tax in Estonia. Furthermore the law stipulates that a company cannot distribute its profits if it has losses from previous years and, therefore, they are not subject to tax.
Generally the dividends taxation in Estonia is implemented at 20% rate (at 20/80) of the net amount after profit distribution.
From year 2019 Estonian resident companies making regular profit distributions can take advantage of the lower 14% tax rate instead of 20%, but only in cases where dividends are paid to legal persons. In this case the corporate income tax will be calculated according to the average of the payout of the previous 3 years – this means that the income tax percentage for the average dividends over the previous 3 years is 14% and for anything exceeding the average is 20%. 2018 has considered to be the first year when the calculation starts.
Simultaneously there is no separate dividend withholding tax (WHT) on dividend payments in Estonia to legal entities. In cases where either a resident or non-resident individual is subject to taxation at lower 14% rate, a 7% WHT rate will apply in addition. It is particular true unless a tax treaty provides for a lower WHT rate (5% or 0%). There are more than 60 tax treaties in force.
The employer pays income tax and social tax on fringe benefits at the rate of 33%. Salaries for non-residents are not taxed in Estonia. Moreover no municipal or local income taxes are applied.
The corporate income tax in Estonia is imposed for resident companies on all their benefits, while non-resident legal entities permanently established within its jurisdiction pay corporate tax on profits distributed from income derived from Estonian sources (limited tax liability). Dividends paid to non-residents are no longer subject to WHT, irrespective of participation in the share capital of the distributing Estonian company.
As a rule, the dividends taxation in Estonia is assessed monthly by the 10th day of the following month. The companies should submit their declarations on time to the Tax and Customs Board. It is possible also to submit tax declarations online.