Dividends are the part of a company's profits that is paid out to the shareholders. If you are a shareholder of your company, you may also have the right to this passive proprietary income.
There is no obligation to distribute dividends, even if your company has an opportunity to do it (i.e. all the pre-conditions are met – see below). It's acceptable to keep all the money in the company and reinvest to boost your business.
If you own and run an Estonian company while operating in Estonia on a permanent basis and being a tax resident there, the following principles apply regarding dividend payments.
Pre-conditions
If you’d like to pay out dividends from your company, it’s only possible if all the following pre-conditions are met:
You (as the shareholder of the company) have paid in the initial share capital of the company (by default €2500), and it has been registered properly in the Estonian Business Register. Xolo will assist here.
The company has earned profit during the last financial year(s) and has not paid it all out as dividends in the previous years.
The company has submitted an annual report to Estonian authorities about its financials for the previous year.
The shareholders of the company (i.e. you) have made an official decision to distribute x EUR as dividends.
If the company decides to pay dividends, it's strongly recommended to also pay yourself an average salary (as a board member), if you haven’t done before.
The payment of dividends must not impair the company's solvency, this is the responsibility of the board.
It is important to ensure that after the dividends have been paid, the equity does not fall below the permitted limit (half of the share capital), taking into account the additional income tax expense.