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.
Xolo assumes your company is an Estonian tax resident without a foreign permanent establishment. If correct, please follow the principles below. If it is not correct (anymore), Xolo cannot provide support for your company and you need to find an alternative service provider.
There is no obligation to distribute dividends, even if your company has the option 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. Then the company is not obliged to pay corporate income tax.
If you own and run an Estonian company while operating outside Estonia and you are not a tax resident in Estonia, the following principles apply regarding dividend payments.
If you’d like to pay out dividends from your company, it is 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.
In order to avoid disputes with Estonian tax authorities, it may be reasonable to distribute only passive income in the form of dividends (this means that you have received average salary for your employment duties).
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, but not less than 2,500 euros), taking into account the additional income tax expense.