Passing on dividends from a subsidiary

Many founders own their operating company through a holding OÜ. When the operating company pays a dividend to the holding, it has already paid corporate income tax (CIT) on it. Estonian law doesn't tax it a second time: the holding can pay the same amount on to its own shareholders with no CIT, as long as the conditions below are met (Income Tax Act, TuMS § 50 lg 1¹ p 1).

Arvello records the dividends your company receives, keeps the balance it can pass on, and takes the CIT off the part of a dividend paid out of that balance.

When a received dividend can be passed on without CIT

All of these must hold when the dividend arrives:

• The paying company is resident in the EEA or Switzerland. The EEA is the EU plus Iceland, Liechtenstein and Norway, and Estonia counts. Dividends from companies anywhere else follow other rules, which Arvello doesn't model.
• Your company held at least 10% of its shares, stakes or votes when the dividend was received.
• The paying company is liable to income tax where it is resident, and isn't in a non-cooperative jurisdiction.
• The paying company couldn't deduct the dividend from its own taxable profit (TuMS § 50 lg 1³). An Estonian company never can; for a foreign one, check how its country treats the payment.

You confirm the last two when you record the dividend. Arvello doesn't check the payer.

Recording a dividend you received

Arvello books the dividend as income: Dr bank / Cr dividend income, on account 4410 for a subsidiary (more than 50% held), 4420 for an associate (20–50%) or 4430 for another investment (under 20%). The annual report files each on its own income-statement line. A dividend that doesn't qualify is booked the same way; it just adds nothing to the balance.

The received dividends and the balance appear on Payroll & Dividends → Dividends, under Dividends received.

Passing it on

When you declare a dividend and the company has a balance on the planned payment date, the form shows how much can be paid out of received dividends and fills it in for you, ordinary dividends first. You can change the split. CIT is due only on the rest.

• Paid out of the received dividend: €50,000
• CIT: €0 (22/78 on the whole €50,000 would have been €14,102.56)
• The founder receives €50,000, with nothing withheld.

The exemption only takes the CIT off. The April payout still needs approved retained earnings from the previous year's annual report to cover it (ÄS § 157); the dividend received in March adds to distributable profit only once this year's report is approved.

Each shareholder gets the same mix of exempt and taxed dividend, in proportion to their share.

A dividend uses the balance on its payment date. It can only be paid out of dividends received by that day, and Arvello keeps back whatever a later dividend already relies on, so one €50,000 receipt can't make two €30,000 dividends tax-free. If another dividend uses the balance between drafting and approving, approval stops and asks you to declare again.

Dividends taxed at the former 14/86 rate

Until the end of 2024, part of a company's profit could be taxed at 14/86. A dividend paid out of that profit, received from an Estonian company and passed on, still carries no CIT, but when it goes to a natural person the company withholds 7% income tax (TuMS § 61 lg 68). Passed to a company, nothing is withheld.

Arvello keeps these dividends in their own balance, withholds the 7% from each natural person's share and books it as income tax payable. The bank transfer to the shareholder is then the dividend less the tax withheld, and the tax goes to EMTA with the month's TSD. Arvello doesn't apply a basic-exemption application to dividends, so the full 7% is withheld; a resident settles any unused basic exemption in their annual income tax return. A non-resident's treaty may lower the rate, which Arvello doesn't model. The dividend form flags a recipient who has applied for the basic exemption or isn't resident, so you know the full 7% is withheld from them.

On the TSD

TSD Annex 7 has no import file, so the return's page shows the figures to type into e-MTA:

• Part I, code 7008: dividends paid with CIT, the exempt part left out.
• Part II: one block per dividend received that month (codes 7201–7250: payer, income type, date, holding, net amount), declared in the month it arrived, even if nothing else happened that month.
• Codes 7290, 7310 and 7330 for ordinary received dividends: the balance brought forward plus the month's receipts, what was paid out, and what carries to next month. 7301, 7311 and 7331 do the same for 14/86-taxed ones.

e-MTA fills in 7290 and 7301 from your previous return. If its figure differs from Arvello's, check an earlier month or the opening balance.

Form INF 1 lists each recipient as type DK for an ordinary or exempt dividend, and MDK for the part paid out of 14/86-taxed dividends, with the 7% withheld from a natural person.

Switching to Arvello with a balance

If your company filed Annex 7 with a balance before using Arvello, enter it under Dividends received → Set opening balance: the 7330 and 7331 figures from the last Annex 7 you filed, and that return's month. The figures are the balance at the end of that month, so any dividend received or paid out up to then that you also have in Arvello's books is already in them, and Arvello leaves it out of the balance.

Without an opening balance, the balance starts in the first month Arvello files your TSD for: dividends received before then were declared by whoever filed those returns. If their last Annex 7 carried a balance, enter it here.

Tax and company law are separate

The exempt balance is a tax figure. What your company may distribute still comes from its approved annual report (Commercial Code, ÄS § 157). A dividend received this year adds to distributable profit only once this year's annual report is approved, so the form shows both figures.

Dividends paid before 2025

Arvello declares dividends paid from 1 January 2025. In 2024 and earlier a company's regular dividends could be taxed at 14/86 with 7% withheld, which Arvello doesn't model, so declare those in e-MTA.