Dividend Tax in Estonia

Taxation in Estonia

The Estonian taxation system is unique in terms of corporate taxation which is why foreign investors will be very interested in setting up companies.  Taxation in Estonia is applied at national and local level and it is comprised of: income tax on personal earnings, the value-added tax, taxation of corporations, land value tax and social and insurance taxes.

Taxation of dividends in Estonia

The corporate tax in Estonia has a flat rate of 21% and its uniqueness comes from the fact that profits, including dividends are not taxed until they are distributed. Dividends earned outside the country and distributed by an Estonian company to its shareholders are not taxed, which is the main reason Estonia is an appealing destination for foreign investors. Another important aspect of dividend taxation in Estonia is that the flat rate of 21% applies to gross payments and a rate of 21/79 (in percent it means almost 26,6%) applies to net payments. Starting 2009, dividends paid to foreign shareholders will be exempt from the additional 21% rate.

Tax exemptions in Estonia

Residents and foreign legal representatives from Estonian companies benefit from dividend tax exemptions. Dividends are not taxed in Estonia if the share capital or contributions are reduced, if the company’s representative liquidates or redeemed according to the Estonian Income Tax Act. The limit for participation exemption is set at 10%. If Estonian companies and foreign legal entities receive dividends from abroad, the tax paid outside the country can be deducted from the tax on dividends paid in Estonia.

Exceptions in the taxation of dividends in Estonia

Estonian companies are not required to pay taxes on dividends if one of following conditions are met:

• -          The company in Estonia received dividends from a company established in an European Economic Area (EEA) country or from a Swiss company paying the corporate tax in Switzerland;
• -          The Estonian company has obtained the dividends from a company established in a foreign country that is not a tax haven; the Estonian company must hold at least 10% of the shares or voting rights in the foreign company and paid the corporate or dividend tax for those shares;
• -          The dividend tax is not withheld from the Estonian company’s earnings made in an EEA state, Switzerland or another country if the tax has been paid in that country.

If you want to set up a company and need details about the dividend taxes you can contact our Estonian law firm.