Corporate income tax in Estonia: tax on distributed profit

An Estonian company pays no income tax on the profit it earns and keeps. It pays income tax only when it distributes profit, for example as a dividend. This page explains how that tax works, how to compute it, and how it affects you as the owner, in Estonia or abroad.

In short

• Retained profit is not taxed. The company pays income tax when it pays out profit, for the month of the payment.
• In 2026 the rate is 22/78 of the net dividend: 2,200 euros of tax on a net dividend of 7,800 euros.
• Estonia withholds nothing from the shareholder, resident or not, except a transitional 7% in one narrow case.
• Losses of earlier years do not reduce the tax. They only reduce the profit you may pay out.
• Your home country may still tax the dividend, and may give an individual no credit for the Estonian tax.

How does Estonian corporate income tax work?

The company pays income tax only when it distributes profit, in cash or in kind. The Income Tax Act § 1(3) taxes the profit of a resident company "upon distribution thereof, irrespective of the manner and form". The same tax also applies to gifts and donations, entertainment costs, and expenses not related to the business. The tax period is the calendar month (Income Tax Act § 3(2)). There is no annual tax return on the accounting profit.

For a dividend, the tax falls due when the dividend is paid, in money or in other assets (Income Tax Act § 50(1)). A bonus issue (a capital increase from retained profit) is not taxed. A payment from equity on a capital reduction, a buyback or a liquidation is taxed only on the part above the contributions made to equity (Income Tax Act § 50(2) and (2^2)).

The company declares the tax on the monthly TSD return, annex 7, with each recipient on form INF 1 (regulation on the return forms). It files and pays by the 10th day of the next month (Income Tax Act § 54(2) and (4)).

A holding company can pass profit up without a second tax. A dividend that the company pays out of a dividend it received is not taxed again when it held at least 10% of the paying company at that time, and the paying company is a company liable to income tax in the European Economic Area or Switzerland, or a company elsewhere whose profit or dividend was taxed, and in either case not in a non-cooperative jurisdiction for tax purposes (Income Tax Act § 50(1^1)). An Estonian subsidiary qualifies. The exemption does not apply if the subsidiary could deduct the dividend from its own taxable profit (Income Tax Act § 50(1^3)).

Retained profit is not tax-free for ever. The tax falls due on any later distribution, including on liquidation (Income Tax Act § 50(2^2)). For how to resolve and pay a dividend, see dividends: the mechanics.

How is the tax on a dividend calculated?

The tax is 22/78 of the net dividend, which is about 28.2% of the amount the shareholder receives. The rate is 22% (Income Tax Act § 4(1)), but the net amount is first divided by 0.78 (Income Tax Act § 4(1^1)). The shareholder receives the full net dividend, and the company pays the tax on top.

The common error is to compute 22% of the net dividend (1,716 euros in the example) instead of 22/78 (2,200 euros). The difference becomes a tax arrear with interest. The dividend tax calculator does the computation for you.

The tax also counts in the company law tests. A dividend may come only from the net profit or the retained profit of the approved annual report, less uncovered losses (Commercial Code § 157(1)). No payment is allowed if the net assets would fall below the share capital plus the reserves that may not be paid out (Commercial Code § 157(3)). A dividend in other assets needs the shareholder's consent (Commercial Code § 157(5)), and the tax is then computed on its value in the same way.

Which rate applies to a dividend paid in 2026?

A dividend paid in 2026 is taxed at 22/78. On 30.09.2026 the Income Tax Act § 4 sets 22% and the divisor 0.78. The Tax and Customs Board lists the same rate for 2026 on its tax rates page. Several announced changes never took effect:

The Tax and Customs Board confirms that no 2% security tax was imposed on company profit (tax changes 2026). Plan on the text published in Riigi Teataja with an entry into force date, not on announcements. All rates by year are on Estonian tax rates.

What happened to the reduced rate for regular dividends?

The reduced 14/86 rate and the 7% withholding from individuals ended for distributions from 01.01.2025. Every dividend is now taxed only at 22/78 in the company (Act of 20.06.2023).

One transitional rule remains. A company withholds 7% when it pays an individual a tax-exempt dividend whose underlying profit was taxed at 14/86 up to 31.12.2024 (Income Tax Act § 61(68)). The usual case: a subsidiary paid a 14/86 dividend to its holding company in 2024, and the holding passes it on to its owner later. The balance does not expire. The rule applies only to a payment to a natural person, not to a company.

Does the payment date or the resolution date decide the rate?

The payment date decides. The tax arises on payment (Income Tax Act § 50(1)), and the rate in force applies to the tax of that monthly period (Income Tax Act § 61(19)). A dividend resolved in December 2024 and paid in January 2025 was taxed at 22/78, not 20/80. The year the profit was earned and the date of the resolution do not change the rate.

A payout made only on paper, with the cash returned at once through a circular arrangement, may be disregarded for tax (Income Tax Act § 5^1, Taxation Act § 84).

Do past losses reduce the tax on a dividend?

No. The tax base is the amount distributed, not the profit, so there is no loss carry-forward (Income Tax Act § 50(1)). A company that lost money for three years and then pays a net dividend of 7,800 euros pays 2,200 euros of tax, like any other company.

Losses matter in company law. They must first be covered by later profit, because a dividend may come only from profit less uncovered losses (Commercial Code § 157(1)). A shareholder must return an unlawful dividend; a shareholder in good faith only when the creditors need it. The board members who caused the payment are liable with the shareholder for its return (Commercial Code § 158).

An owner can get back the money he put into equity tax-free. A payment from equity is taxed only on the part above the contributions to equity (Income Tax Act § 50(2)). The contributions, including the share capital paid at founding, are tracked on TSD annex 7 (regulation on the return forms).

Does a resident shareholder owe more tax on the dividend?

No. A dividend taxed in the company is not taxable income of an individual (Income Tax Act § 12(2)). Nothing is withheld, and you do not declare it in your annual return. The only exception is the transitional 7% described above. There is no social tax on a dividend: the Social Tax Act § 2 does not list it.

A dividend from a foreign company that you receive directly is different. It is taxable at 22% unless the underlying profit was taxed or tax was withheld abroad (Income Tax Act § 18), and you must still declare it (Income Tax Act § 44(1) and (1^3)).

Does Estonia withhold tax on dividends to non-residents?

No. Dividends are not on the list of payments from which tax is withheld (Income Tax Act § 41). A non-resident shareholder, individual or company, receives the full net dividend. The only Estonian tax is the company's 22/78. For an EU parent company this also meets the Parent-Subsidiary Directive: Article 5 forbids withholding, and Article 7(1) says a prepayment of corporation tax on a distribution is not a withholding tax.

The company must list a non-resident on INF 1 with an Estonian personal identification code or a registry code issued by the Tax and Customs Board (regulation on the return forms). Register the shareholder before the TSD of the payment month is due (Tax and Customs Board: taxation of dividends).

A treaty can reduce the transitional 7% when the shareholder gives the company a residence certificate (Tax and Customs Board: tax agreements). Otherwise the treaty matters mainly for how your home country taxes the dividend. See founder residency and permanent establishment.

Can a foreign shareholder credit the Estonian tax at home?

Often not, if you are an individual. The company pays the 22/78, not the shareholder (Income Tax Act § 50(1)), and apart from the transitional 7% Estonia withholds nothing from the dividend (Income Tax Act § 41). Whether your home country gives relief for the company's tax depends on its own law and its treaty with Estonia (Tax and Customs Board: tax agreements). The total burden can therefore be 22/78 in Estonia plus the full dividend tax at home.

A company shareholder in another EU state with at least 10% is in a better position. Its state must either exempt the dividend or credit the subsidiary's corporation tax (Parent-Subsidiary Directive, Articles 3 and 4).

Salary, board member fee or dividend: which costs less?

A dividend leaves the most cash, but pay buys social security. For every 10,000 euros the company spends in 2026, a resident owner keeps about 7,800 euros as a dividend, 5,747 euros as a board member fee, and 5,620 euros as a salary. The table assumes the default 2% funded pension contribution and no basic exemption.

The rules behind the table:

• Pay and board member fees are income of the individual (Income Tax Act § 13). The company withholds 22% (Income Tax Act § 41) after it deducts the unemployment and pension contributions (§ 42(5) and (6)).
• Social tax is 33% (Social Tax Act § 7(1)) on pay and on board member fees (Social Tax Act § 2).
• Unemployment insurance is 1.6% withheld from the employee and 0.8% paid by the employer in 2026 (Tax and Customs Board: tax rates).
• A board member who is not an employee is not insured against unemployment (Unemployment Insurance Act § 3(2)).
• The funded pension contribution is 2% by default, 4% or 6% by choice, and zero for a person outside the scheme (Funded Pensions Act §§ 7 and 9).
• The basic exemption of 8,400 euros a year (700 euros a month) applies to pay, not to dividends (Income Tax Act § 23(1)). From the year of pension age it is replaced by 9,312 euros a year (Income Tax Act § 23^5(1)).

What pay buys: a board member who lives in Estonia gets state health insurance only if social tax is paid on at least the monthly base, 886 euros in 2026 (Health Insurance Act § 5, Tax and Customs Board: tax rates). A non-resident e-resident does not get Estonian health insurance this way. A common mix for an owner in Estonia: a monthly fee at or just above that base, and the rest as dividends. More on this in founder remuneration and the salary calculator.

Can the Tax Board treat a dividend as pay?

It can, but not only because the owner takes no salary. No rule says a board member must be paid, and a dividend in proportion to the shares is a lawful choice. The Tax and Customs Board can tax a transaction by its real economic content when it was made to avoid tax (Taxation Act § 84). It can disregard a sham transaction (Taxation Act § 83). For income tax it can also ignore an arrangement that is not genuine (Income Tax Act § 5^1, which transposes Article 6 of the Anti-Tax Avoidance Directive). If a payment is reclassified as pay, the company owes social tax, withheld income tax and interest.

Signs that point to pay:

• The "dividend" is split by work done or sales brought in, not by shares. A dividend follows the nominal value of the shares unless the articles say otherwise (Commercial Code § 157(2)).
• Fixed monthly "dividends" paid before an approved annual report. In an OÜ they are unlawful (Commercial Code § 157(1)).
• Small stakes given to employees mainly to pay them through dividends.

To protect yourself, record the board member's pay decision (paid or unpaid) in a shareholder resolution, and pay dividends only on an approved annual report and in proportion to the shares.

General information, not advice for your situation. The law as in force on 30.09.2026.