Dividends

Estonia famously charges 0% corporate income tax on profits you keep in the company. The tax arrives when profit leaves: distribute a dividend and the company pays corporate income tax (CIT) of 22/78 on the net amount handed to shareholders.

Arvello calculates the tax, checks you have profits to distribute, produces the shareholders' resolution document, and puts the distribution on the right month's TSD return.

What's available to distribute

Under Estonian law, dividends can only be paid from profits approved by the shareholders as part of an annual report. The Available for Distribution section at the top of the Dividends page (Payroll & Dividends → Dividends) therefore counts:

• Retained earnings from prior years, plus
• the profit from your last approved annual report, plus
• the profit of any financial year you have kept in Arvello and already filed — Arvello never posts a year-end closing entry, so that profit stays on your revenue and expense accounts rather than moving to retained earnings, but it is approved and it counts.

Profit that is not yet distributable is listed underneath in grey: your current year's running result, and any closed financial year whose annual report you have not filed yet. Arvello reminds you to file the report to unlock it. Every figure comes from your accounts, so the card adds up to the equity section of the balance sheet. Draft dividends awaiting approval are flagged too, since they'll eat into the same pot.

Distributions you have already made are subtracted automatically, so the card never offers you the same profit twice. The net dividend reduces retained earnings, and its corporate income tax is booked as an expense of the year you declare it (see How a dividend is booked). Until that year's annual report is filed, the tax is its own line on the card, Tax on dividends declared since your last filed report, because the year's profit it sits in isn't distributable yet. Two decisions from a filed annual report come off as well: profit allocated to reserves, and any dividend the resolution allocated that you have not declared yet, shown as Resolved, not yet declared. That money is spoken for, even though nothing has been paid or taxed.

From the annual report to a declared dividend

Filing your annual report records the shareholders' decision to pay a dividend. It does not pay one. Declaring it is a separate step, because a declaration needs things the report does not hold: who is paid, in what shares, and when — and it is the declaration that posts the journal entry. The corporate income tax goes on your TSD once you record the payment (see Recording the payment).

Arvello keeps the two joined, so a resolution cannot quietly go unpaid. While a filed resolution still has a dividend to declare, you will see it:

• on the annual report itself, as Declare the dividend;
• at the top of Payroll & Dividends → Dividends;
• on the Available for Distribution card, as Resolved, not yet declared.

Following any of them opens the dividend form with the resolved amount already filled in and tied to that resolution, so declaring it releases the amount the card was holding back. Declare only part of it now and Arvello keeps prompting for the rest.

The tax

CIT is 22/78 of the net distribution, paid by the company on top of what shareholders receive. You can enter either side and Arvello derives the other:

No social tax applies, and since 2025 no further income tax is withheld on regularly taxed dividends paid to resident individuals — the 7% withholding disappeared along with the old reduced rate. (Non-resident shareholders can involve tax treaties; that's one for an advisor.)

A dividend paid out of a dividend your company received from a company it holds at least 10% of carries no CIT at all, and the form fills that part in when the company has received one. 7% is withheld only when a dividend taxed at the former 14/86 rate is passed to a natural person. See Passing on dividends from a subsidiary.

Arvello declares dividends paid from 1 January 2025; a dividend paid in 2024 or earlier is declared in e-MTA.

Declaring a dividend

Until it is approved, a distribution is a draft. If something is wrong, open it and click Delete draft: the draft and its recipient allocations are deleted, nothing else changes because nothing was posted, and you can declare it again. Approved distributions can't be edited or deleted.

After approval you can Download Decision: a shareholders' resolution PDF in Estonian or English. Every distribution stays in the Dividends list with its resolution date, net, CIT and status. Once you record its payment it appears on that month's TSD as Annex 7 and form INF 1. See TSD returns.

Recording the payment

The corporate income tax on a dividend is due when the dividend is paid, not when it is declared or approved. It goes on the TSD for the month the money leaves the company's account, due by the 10th of the following month, and form INF 1 lists the dividends paid in that month. So an approved dividend is on no TSD yet. The dividend's page and TSD Returns both remind you, and a dividend that's never paid is never declared. Once the transfer goes out, record the day it went out, in either of two ways:

• Mark as Paid on the distribution's page asks for the payment date. It can't be before the resolution date or later than today.
• Reconciling the bank transfer as a Dividend Payment under Banking offers the approved dividends whose payout matches the transfer: the whole net amount, less any income tax withheld (see Passing on dividends from a subsidiary). Linking one marks it paid on the transaction's date.

Recording the payment puts the dividend on the TSD for the month it was paid in, whatever date was planned. Arvello prepares that month's return, as it does when you approve a payroll run, unless your TSD filing is handed to someone else. If that month's return is already filed, Arvello doesn't change it: it says the month needs a corrected TSD, which you file in e-MTA.

Entered the wrong date, or undid the bank match that recorded it? Change payment date on the dividend's page corrects it. If the month changes, the dividend moves to the corrected month's TSD, and the earlier month's draft is rebuilt without it (or removed if nothing else is on it); a filed earlier month is flagged for a corrected TSD in the same way. Undoing a bank match leaves the dividend paid with the old date until you change it.

Arvello records one payment date per dividend and declares the whole dividend in that month. If you'll pay a dividend in instalments in different months, each instalment is declared in its own month, so declare each instalment as its own dividend before approving. If an approved dividend has already gone out in instalments across months, don't mark it paid in Arvello: declare the instalments in e-MTA yourself. A bank transfer of only part of a dividend can't be linked to it. That includes a dividend split between shareholders, which goes out as one transfer each: once they've all gone out in the same month, record the date with Mark as Paid instead.

The tax rate itself was fixed when you approved the dividend, at the planned date's rate. If the actual payment date falls under a different rate (only possible across 1 January 2025, when 20/80 became 22/78), Arvello refuses the date instead of filing a figure that doesn't match the books.

How a dividend is booked

Approving a dividend posts one journal entry on the resolution date:

The CIT is on the part not paid out of received dividends, and income tax is withheld only from a natural person's share of a dividend taxed at the former 14/86 rate (see Passing on dividends from a subsidiary). Without either, 2280 takes the whole net dividend and there is no 2230 line.

The corporate income tax is an expense of the year the dividend is declared in, whichever year's profit it is paid from and whenever it is paid. That is how Estonian accounting guidance (RTJ 8) treats it, so the tax shows on the Profit & Loss report and as income tax on the annual report's income statement. Paying the dividend and the tax from the bank then clears 2280 and 2240.

Dividends versus salary or board fee

The trade-off cuts both ways, so here it is in full: