--- title: Profit distribution and dividend taxation date: 2023-05-24T09:01:35Z modified: 2026-09-14T17:02:19Z permalink: "https://grow.ee/kasumi-jaotamine-ja-dividendide-maksutamine/" type: post status: publish excerpt: Profit distribution and dividend payment are an important part of a company's financial management. wpid: 8013 featured_image: "https://grow.ee/wp-content/uploads/2023/05/how-to-issue-dividends-in-a-company-limited-by-shares.jpg" featured_image_alt: accounting timestamp: 2026-09-14T17:02:19Z tags: - Taxes - Accounting - accounting service --- ![Dividends](https://grow.ee/wp-content/uploads/2023/05/how-to-issue-dividends-in-a-company-limited-by-shares.jpg) There are many goals of entrepreneurship: profitability, growth, competitiveness, customer satisfaction, innovation, social responsibility, etc. Profits can be distributed in different ways, but paying dividends is one of the most common ways. The purpose of this blog post is to give you an overview of the ways in which profits are distributed and how dividends are taxed in Estonia. Companies usually have a calendar year as their financial year. The annual report must be submitted to the Commercial Register within 6 months of the end of the financial year. In the case of a calendar year, the deadline is generally 30 June. **Profits can be distributed in different ways** - **Payment of dividends:** A dividend is money that a company pays to its shareholders (partners). Dividends can be distributed to shareholders (partners) in a single payment or in several payments - **Reinvestment:** A company may decide to invest its profits, i.e. not distribute them, in order to increase its value in the future. Retained earnings can also be used to increase share capital (share capital) - **Buybacks:** A company can buy back its shares to reduce their number on the market and thereby increase the value of each share or change the circle of shareholders - **Debt reduction:** A company can use its profits to pay off debts, which improves its creditworthiness and reduces financial costs ## What you need to know about dividends Dividends can be paid out of retained earnings from previous periods after the annual report has been approved. Therefore, dividends cannot be paid in the first year of operation. In addition, you must ensure that the share capital has been properly paid in and that the payment of dividends does not harm the company's solvency or lead to a decrease in equity below the limit permitted by law. ### Dividends paid The shareholders make a decision to pay dividends, but the decision itself does not yet give rise to an income tax liability. Income tax is paid on dividends after the payment has been made. The payment is declared in Appendix 7 of the TSD and the data of the dividend recipients are provided in form INF 1. Income tax must be declared and paid by the 10th of the month following the payment. Therefore, it is important to forward the information to the accountant on time. ### Dividends received Please note that dividends received must also be declared on an ongoing basis. If your company has received dividends from someone else, then they must be declared. Generally, income tax has been withheld from them and the declaration remains rather informative. Therefore, if dividends are paid out from a company, they are generally already fully or partially tax-free if the shareholding in the dividend payer is at least 10%. If the dividend received from an Estonian company has come from less than 10% of the shareholding, it cannot be distributed tax-free and additional income tax may arise when paid out to the owners. **How to decide how much dividend to pay?** Deciding on the amount of the dividend depends on the company's profit, financial situation and the agreement of the shareholders (partners). Companies often have a pre-agreed dividend policy, but the decision is usually made each year by assessing the company's situation. It is important to assess the company's cash flows and financial position. The payment of dividends should be sustainable and the company should be able to continue its operations and investments even after the dividends are paid. The final decision on the payment of dividends should be made by the company's management board or the general meeting of shareholders (depending on what is agreed in the articles of association), taking into account the previously mentioned factors. It is important to conduct a thorough analysis and, if necessary, consult an accountant or financial advisor to ensure that the decision is correct and in compliance with applicable laws and the interests of the company. **Taxation of profits** If you have decided to distribute profits through the payment of dividends, it is also important to consider taxation. As of January 1, 2025, dividends in Estonia will be taxed at the company level at a uniform income tax rate of 22/78 of the net payment. This means that if a net dividend of 1,000 euros is paid to the owner, the company must pay income tax of 282.05 euros and the company's total cost is 1,282.05 euros. The preferential rate for regular dividends no longer applies to new payments. **Does a natural person pay income tax on dividends?** As a general rule, a natural person does not pay income tax on the dividends received. As an exception, the transitional provision must still be observed: if a dividend taxed at the lower tax rate of 14/86 is paid out until 31.12.2024, 7% income tax must be withheld when the dividend is paid out to the natural person. **Shareholdings through multiple companies** In the case of holdings acquired through multiple companies, the main question is whether the dividend being paid out is income that can be distributed tax-free (for example, a dividend received based on a holding of at least 10%) or whether the payment to the owners must be re-taxed at the company level. Upon request, the Estonian company issues a certificate form TD to the recipient of the dividend, which certifies the taxed portion of the dividends. In the case of dividends received from an Estonian company with a holding of less than 10%, double taxation may arise when paid to the owners. **Decision to distribute dividends** The decision to distribute dividends is made in the net amount, i.e. the amount that is intended to be paid to the shareholder. Income tax at the company level of 22/78 is added to this. If the 14/86 taxation right that was in force before 2025 has been used, income tax at the rate of 7% must be withheld in the case of a natural person recipient. [Approval of the annual report and sample of dividend distribution can be found here.](https://grow.ee/wp-content/uploads/2019/04/Aastaaruande-kinnitamine-dividendid.doc) **How to ensure that shareholders are treated equally** If a company has several shareholders, the decision to distribute dividends should be clearly documented and understandable to everyone. As a general rule, dividends are distributed in proportion to the shares, but the articles of association or an agreement between all shareholders may also provide for a different distribution. In the case of different payment times, sources and tax treatments, it is worth considering before making a decision whether all shareholders will be treated equally both in terms of amount and taxation. **Summary** If you decide to distribute profits by paying dividends, this must be done in accordance with the relevant law and your company's articles of association. You must also consider the financial position of your company. The distribution of profits and the payment of dividends are an important part of a company's financial management. The payment of dividends allows shareholders (partners) to share in the company's success and can also be an attractive way to earn income from investments. However, it is important to remember that profit distribution and dividend taxation is a complex topic and it is therefore advisable to consult an accountant or [tax advisor](https://grow.ee/wp-content/uploads/wp-mfa-exports/page/maksunoustamine.md) to ensure legal and tax compliance. _The blog is written by Grow Finance tax specialist Malle Liivat, malle.liivat@grow.ee_ ## Talk to our financial expert [ CONTACT US ](https://grow.ee/wp-content/uploads/wp-mfa-exports/page/vota-meiega-uhendust.md) [ ![](https://grow.ee/wp-content/uploads/2026/07/Praktika-Blogi_Mathias-300x169.jpg) ](https://grow.ee/wp-content/uploads/wp-mfa-exports/post/mathias-valtsovi-raamatupidamispraktika-grow-financeis.md) ##### [Mathias Valtsovi's accounting practice Grow Finance](https://grow.ee/wp-content/uploads/wp-mfa-exports/post/mathias-valtsovi-raamatupidamispraktika-grow-financeis.md) July 21, 2026 Experience story from the Grow internship: How did the internship become a solid step in an accountant's career? 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