"Can I just pay myself all the cash in the company account as dividends?" It's one of the most common questions from new OÜ owners, and the answer is no. The amount of cash in your bank account and the amount you can legally distribute as dividends are two very different numbers. Dividends can only come from retained earnings — prior-year profits that have been confirmed in an approved annual report. This post walks through the rules, shows you how to read the relevant part of your balance sheet, and calculates the actual cost of a dividend distribution at the current 22/78 CIT rate.
The Retained Earnings Rule
Estonian law is clear: dividends can only be paid from retained earnings (jaotamata kasum). This is profit that your company earned in previous financial years and that has been confirmed through an approved annual report.
Three conditions must be met before you can distribute anything:
- The annual report must be filed and approved. Profits from the current year are not distributable. Only profits reflected in the most recent approved annual report count.
- Retained earnings must be positive. If previous years' losses have eaten into your retained earnings, you need to cover those losses before distributing.
- The net assets test must pass. After the distribution, your company's net assets must remain at least equal to the sum of share capital and any required reserves.
The First-Year Trap
This catches many new founders: if your company was registered in 2025 and your first financial year ends on 31 December 2025, you cannot pay dividends until you file and approve the 2025 annual report. For calendar-year companies, that deadline is 30 June 2026. Until then, even if the company has plenty of cash, dividends are off the table.
If you need income before that first annual report, a board member fee is the standard approach. See Paying Yourself from Your Estonian OÜ for how that works.
Reading Your Balance Sheet: The Equity Section
The number that matters lives in the equity section (omakapital) of your balance sheet. Here's what a typical small OÜ balance sheet equity section looks like:
| Line | Example Amount |
|---|---|
| Share capital (osakapital) | EUR 2,500 |
| Legal reserve (kohustuslik reservkapital) | EUR 250 |
| Retained earnings (jaotamata kasum) | EUR 20,000 |
| Total equity | EUR 22,750 |
In this example, the maximum distributable amount is governed by two constraints:
Constraint 1 — Retained earnings: The company has EUR 20,000 in retained earnings. You cannot distribute more than this.
Constraint 2 — Net assets test: After the distribution, net assets (total assets minus total liabilities) must remain at least equal to share capital plus required reserves. In this case, that's EUR 2,500 + EUR 250 = EUR 2,750. If total equity is EUR 22,750, then the maximum gross distribution (before CIT) that satisfies this test is EUR 22,750 - EUR 2,750 = EUR 20,000.
Both constraints point to the same number here, but they won't always align — especially if the company has unrealised gains, revaluation reserves, or accumulated losses from earlier years.
The CIT Cost: 22/78
When your company distributes dividends, it pays corporate income tax at the 22/78 rate (from 1 January 2025). The tax is calculated on the grossed-up amount, not on the net payment.
Here's the formula:
- Gross distribution = net dividend / 0.78
- CIT = gross distribution x 0.22
The effective tax rate on the net amount is approximately 28.21%. This is the only tax — there is no additional personal income tax on dividends within Estonia. (Your country of residence may tax dividend income separately — check local rules and any applicable double tax treaty.)
Worked Example: EUR 15,000 Net Dividend
Your company has EUR 20,000 in retained earnings (per the approved annual report). You want to distribute EUR 15,000 net to shareholders.
| Step | Calculation | Amount |
|---|---|---|
| Net dividend (what shareholders receive) | — | EUR 15,000.00 |
| Gross distribution | 15,000 / 0.78 | EUR 19,230.77 |
| CIT (22%) | 19,230.77 x 0.22 | EUR 4,230.77 |
| Total company outflow | Gross distribution | EUR 19,230.77 |
| Remaining retained earnings | 20,000 - 19,230.77 | EUR 769.23 |
The company pays EUR 19,230.77 in total — EUR 15,000 to the shareholder and EUR 4,230.77 to EMTA as CIT.
Notice that the gross distribution (EUR 19,230.77) must not exceed the retained earnings (EUR 20,000). In this example it doesn't, but if you tried to distribute EUR 16,000 net, the gross would be 16,000 / 0.78 = EUR 20,512.82 — which exceeds the available EUR 20,000 and would not be permitted.
What's the Maximum Net Dividend?
Working backwards from EUR 20,000 retained earnings:
- Maximum gross distribution = EUR 20,000
- Maximum net dividend = 20,000 x 0.78 = EUR 15,600
- CIT = 20,000 x 0.22 = EUR 4,400
So with EUR 20,000 in retained earnings, the most you can pay out net is EUR 15,600, with EUR 4,400 going to CIT. The retained earnings balance goes to zero.
The Distribution Process
Paying a dividend is not just a bank transfer. There is a specific process to follow:
1. Shareholders' Resolution
The shareholders (or sole shareholder) must pass a general meeting resolution (uldkoosoleku otsus) approving the distribution. The resolution should specify:
- The total amount to be distributed
- The payment date or period
- The source (retained earnings from which financial year)
For a single-shareholder OÜ, this is a written decision by the sole shareholder — no formal meeting is needed, but the document must exist.
2. Verify the Net Assets Test
Before making the payment, confirm that after the gross distribution (not just the net), the company's net assets still meet the share capital + reserves threshold. Your accountant or accounting software handles this, but it's the board's legal responsibility.
3. Make the Payment
Transfer the net dividend to the shareholder's bank account on or after the date specified in the resolution.
4. File TSD Annex 7
The distribution is declared on TSD Annex 7 via e-MTA. The filing deadline is the 10th of the month following the payment. The CIT is due on the same date.
For example, if you pay the dividend on 15 March, the TSD Annex 7 filing and CIT payment are both due by 10 April.
Cash-Based Timing
The CIT rate that applies is the rate in force when you make the payment, not when the profits were earned. Profits earned in 2024 (when the CIT rate was 20/80) but distributed in 2026 are taxed at the current 22/78 rate.
This is a one-way street — you cannot time payments to get an older, lower rate. But it does mean the rate on future distributions may change if legislation changes.
The Reduced Rate Is Gone
Before 2025, companies that had distributed dividends regularly (in at least 3 of the previous years) could use a reduced 14/86 rate. This was abolished from 1 January 2025. There is now a single rate: 22/78.
A transitional rule exists for companies that received dividends taxed at the 14/86 rate before 31 December 2024 and held at least a 10% stake at the time of receipt. These companies may still apply a tax exemption when further distributing those specific dividends. For most small OÜ companies, this transitional rule does not apply.
For more context on the CIT rate history, see Understanding Estonian Corporate Tax. For a full overview of current rates, see Estonian Tax Rates 2026.
EMTA Scrutiny: Dividends Without Payroll
EMTA pays attention to companies that distribute dividends but never pay any board member fees or salary. If a company has an active board member who handles management duties but receives no compensation for that work, EMTA may question whether the arrangement reflects economic reality.
This does not mean dividend-only companies are illegal. But it does mean that a company with active operations and zero payroll is more likely to face scrutiny. The most common pattern for solo OÜ owners is to pay at least a modest board member fee alongside dividends. See Salary vs Dividends vs Board Fees for a side-by-side cost comparison.
Dividends Do Not Build Social Security
One important trade-off: dividend payments do not generate social tax contributions. No social tax means no Estonian health insurance coverage and no pension credits from those payments.
For Estonian residents who depend on the public healthcare system, this matters — it's one reason why combining a board member fee (which does generate social tax) with dividends is the structure most solo founders use.
For e-residents covered by their home country's social insurance system, this is less of a concern.
Quick Reference: Dividend Rules at a Glance
| Rule | Detail |
|---|---|
| Source | Retained earnings only (prior-year profits) |
| Annual report | Must be filed and approved before distribution |
| First-year companies | No dividends until first annual report is approved |
| Net assets test | Net assets must remain >= share capital + reserves after distribution |
| CIT rate (from 1 Jan 2025) | 22/78 (~28.21% of net) |
| Gross-up formula | Net / 0.78 = gross; gross x 0.22 = CIT |
| Declaration | TSD Annex 7 via e-MTA |
| Deadline | 10th of the month following payment |
| Personal income tax (Estonia) | None — CIT at company level is the only tax |
| Reduced 14/86 rate | Abolished from 1 Jan 2025 |
Track Your Dividend Allowance with Arvello
Arvello's Dividend Allowance Tracker pulls your retained earnings balance directly from your accounting data and calculates the maximum net dividend you can distribute — including the CIT cost and the post-distribution equity position. No spreadsheet required. When you're ready to distribute, Arvello generates the TSD Annex 7 data for filing with EMTA.
