Not Tax Advice
This content is for informational purposes only and does not constitute tax advice. Tax laws and rates vary by jurisdiction and change frequently. Always consult a qualified tax professional for advice specific to your situation. Information current as of January 2025.
The Core Concept
0% until you distribute
Estonia's unique tax system currently doesn't tax retained profits. Your company pays 0% corporate tax on profits kept in the company (as of 2025). Tax only applies when you take money out — either as dividends or salary. Tax rates may change; verify with your accountant.
Keep money in company, pay no tax
Tax applies on dividends or salary
Dividends vs Salary Comparison
Dividends
Tax Rate
20/80 rule = currently 20% effective on distributed amount (2025)
Social Contributions
None — no pension, no health insurance
Flexibility
Distribute when you want, any amount
Best For
E-residents, maximizing take-home, flexibility
€10,000 dividend → €8,000 net (20% tax)
Salary
Tax Rate
Currently ~20% income tax + ~33% social contributions (2025)
Social Contributions
Yes — pension, health insurance (for Estonian residents)
Flexibility
Regular monthly payments, fixed
Best For
Estonian residents needing social benefits
€10,000 gross salary → ~€6,000-6,500 net
The 20/80 Rule Explained
How Dividend Tax Works in Estonia
Estonia's "20/80 rule" means the 20% corporate income tax is calculated on the gross-up amount, not the net distribution. In practice:
Effective rate: €2,500 tax on €10,000 received = 25% effective rate. Or viewed differently: €2,500 tax on €12,500 total = 20% rate.
Reduced Rate for Regular Dividends
Reduced Rate for Recurring Distributions (2025)
Estonia currently offers a reduced 14% rate (instead of the standard 20%) for "regular" dividend distributions, encouraging consistent payouts. This reduced rate is subject to specific conditions and may change:
How to qualify:
- • Distribute dividends in at least 3 consecutive years
- • Current year's distribution can't exceed average of last 3 years
- • Amount up to the average qualifies for 14% rate
Example: If you distributed €10k, €12k, €14k over 3 years (avg €12k), your 4th year can distribute up to €12k at 14% rate.
Note: This requires consistent dividend history. New companies start at 20%.
What E-Residents Typically Do
Most Common: Dividends Only
Most e-residents don't live in Estonia and don't need Estonian social benefits. They take dividends (20% tax) and handle personal taxes in their country of residence.
Alternative: Minimal Salary + Dividends
Some pay a small salary (approximately €584/month minimum wage as of 2025, subject to change) to establish income record, then supplement with dividends. Only useful if you need proof of regular income.
Keep Profits in Company
The best "tax optimization": don't distribute at all. Keep money in company at 0% tax. Invest in growth, equipment, or hold as reserves. Only take out what you need.
Important: Your Personal Tax Obligations
⚠ Dividends May Be Taxed Again
The 20% Estonian tax is corporate tax. Depending on your country of residence, you may also owe personal income tax on dividends received.
Action: Consult a tax advisor in your country of residence before distributing significant dividends.
Practical Example
Scenario: €100,000 Annual Profit
Option A: Keep in Company
Company keeps: €100,000
Use for: Growth, reserves, investments
Option B: Distribute €50,000 as Dividends
Corporate tax (20%): €12,500
You receive: €50,000
Company keeps: €37,500 (€100k - €62,500)
Option C: Pay Yourself €5,000/month Salary
Employer costs (~33%): ~€20,000
Total cost to company: ~€80,000
You receive (after personal tax): ~€40,000
Company keeps: €20,000
Conclusion: For most e-residents, Option B (dividends) or A (keep in company) is most efficient. Salary only makes sense if you need Estonian social benefits.
Frequently Asked Questions
Everything you need to know before getting started
All information verified as of December 2025. Prices and features subject to change. Always verify current pricing with providers.
