The company can pay dividends to shareholders in the extent of the profits of the last financial year and the profits brought forward from previous years. 1Office recommends paying attention to the following points.

Compliance with the requirements of the Commercial Code

Before payment of dividends, the company’s compliance with the requirements described in the Commercial Code should be checked. We foremost direct your attention to the following:

• Check that the authorisations of the members of the board are valid.
• From 2011 the formation of a reserve is no longer mandatory for limited companies. The payment of dividends from the existing reserve requires an amendment in the articles of association.
• For a company founded without share capital the payment of dividends is possible after paying in the share capital and registering in the Commercial register.
• If the share capital of the limited company is still in kroons, it has to be converted into euros. According to the Commercial Code the amendments of a limited company’s articles of association are not registered before capital conversion.

Payment of dividends

The distributed profit of the ended financial years can be distributed as dividends. For this the annual accounts with the necessary annex need to be approved. A decision of the shareholders is necessary for the distribution of profit. Dividends may be paid out in a single payment or in parts depending on the decision of the shareholders. The approval of the limited company’s annual accounts and distribution of profit are regulated by sections 157-158 and 179 of the Commercial Code.

The taxation and declaration of dividends

The payment of dividends brings a tax obligation, the limited company pays income tax 20% from the distributed dividends. For a limited company the income tax obligation arises at the time of paying out the dividends to the shareholders, the income tax payable on dividends is recorded as an expense for the period in accounting. A natural person who is an Estonian resident does not have to declare dividends received from a legal person in the income tax return of the natural person submitted for the taxation period.

To receive more information contact the accountants of 1Office Estonia on the phone number +372 631 1118 or contact@1office.ee.