Dividends and dividend payment in Estonia in 2020
Dividend is a payment made out of net profit or retained profit of previous financial years. A prerequisite for receiving a dividend is a shareholding in a company (the shareholder can be a private individual or a company). For this, the annual report must be approved and submitted to the Commercial Register. The company must have paid into the share capital the amount required by the articles of association, for example in case of a limited liability company 2 500 euros.
When paying dividends, it’s important to know the following:
- Share capital must be paid in full. No dividend may be paid until the share capital has been paid in full.
- The annual report must be submitted and approved if dividends are paid from the net profit for the financial year.
- The decision on distribution of profits is made by the general meeting of shareholders. In the case of multiple shareholders, it is also necessary to record the dividend distribution proportions.
- Dividend income tax is the expense of the year in which the dividend payment decision is made. The planning should be such that the cost of income tax does not negate the results of this year.
- The normal tax rate on dividends is 20/80.
- As of 2019, regular dividends will be taxed at 14/86, plus a 7% income tax on distributions to individuals. The portion of the dividend payable that is subject to a lower tax rate depends on the amount of the dividend paid in previous years. The application of a lower rate is mandatory and will be used first and foremost.
- In the case of lower tax dividends, it must be borne in mind that the decision to distribute profits records the amount paid to individuals together with income tax (7%). To avoid future confusion, calculate or have the accountant calculate the amount of income tax before paying out the dividends.
- The amount of dividends paid must be declared in the month following the payment in Schedule 7 to the TSD and on Form INF 1 (by the 10th date).
- An entry in the accounting program is made on the basis of the profit distribution decision.