TL;DR: When an Estonian OÜ pays a dividend, the company pays the tax, not you. The rate is 22/78, which works out to an effective 22% on the gross distribution: to put 78 euros in a shareholder's pocket the company pays 22 euros of corporate income tax. From 1 January 2025 the old 14/86 reduced rate and the 7% personal withholding on dividends were abolished, so there is one rate now. There is no separate Estonian personal income tax or social tax on the dividend at the shareholder level. The catch is your country of tax residence, which may tax the same dividend again.
The company pays, you receive net
Estonia does not tax dividends in the shareholder's hands the way most countries do. It taxes the distribution at the company level when the profit leaves the company. The OÜ calculates and pays the tax, files it on the monthly TSD return, and the shareholder receives the net amount with no further Estonian tax due on it.
The rate is written as 22/78. That fraction is not a 28% rate in disguise. It is the multiplier you apply to the net dividend to find the tax: tax equals net dividend times 22/78. The result is an effective 22% on the gross (pre-tax) profit being distributed. The fraction notation exists because the law taxes the net payout, and 22/78 of the net equals 22% of the gross.
That single design choice is why Estonia is interesting for founders who reinvest. Undistributed profit is taxed at 0%. The 22% only triggers on distribution. If you never pay a dividend, the company never pays dividend tax. Compare that with most jurisdictions that tax corporate profit annually whether or not you take money out.
The worked example everyone gets wrong
The mistake is applying 22% to the amount the shareholder receives. It is applied to the gross.
Say the OÜ has 10,000 euros of distributable profit and wants to pay it all out. Run it forward from the gross:
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Gross profit available for distribution: 10,000 euros
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Distribution tax (22% of gross): 2,200 euros
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Net dividend to shareholder: 7,800 euros
Now run it backward, which is how people actually think about it. You decide the shareholder should net a round 10,000 euros:
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Net dividend target: 10,000 euros
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Tax = 10,000 times 22/78 = 2,820.51 euros
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Total cash leaving the company: 12,820.51 euros
So netting 10,000 euros costs the company 12,820.51 euros. The effective tax on the distributed amount is about 22%, but on the net figure the markup is roughly 28.2%. Both numbers are correct; they describe the same transaction from different ends. Decide upfront whether your target is "profit to distribute" or "cash in hand," because the two produce different tax bills.
The reason this matters for planning: dividend tax is paid by the 10th of the month following the distribution, on the same TSD return used for payroll taxes. It is not deferred to an annual filing. Distribute in March, pay the tax in April.
What changed in 2025 (and why old guides are wrong)
A lot of dividend content online still describes a two-tier system. Ignore it.
Until the end of 2024, Estonia ran a reduced 14/86 rate on "regularly distributed" dividends, paired with a 7% personal income tax withheld from individual shareholders on those reduced-rate payouts. The idea was to reward steady, predictable distributions. From 1 January 2025 the Estonian Tax and Customs Board confirms the 14/86 reduced rate was abolished, and with it the 7% withholding on dividends paid to natural persons. One rate now applies: 22/78.
This simplified the math and removed the 7% personal-level tax that used to sit on top of the reduced rate. For a non-resident shareholder of a fresh OÜ, the practical effect in 2026 is clean: the company pays 22% on distribution, and there is no Estonian personal income tax or withholding on the dividend on top of that.
The one transitional wrinkle
If a company received dividends from another company before 31 December 2024 that were taxed at the old 14/86 rate, a transitional rule still governs the unused balance. When that balance is redistributed to a corporate shareholder holding at least 10%, it can pass through exempt; when it is redistributed to an individual shareholder, a 7% withholding obligation can still apply to that specific old-rate portion. This is an edge case for companies with pre-2025 history, not something a 2024-or-later OÜ encounters. If your company was formed recently and has no pre-2025 retained earnings taxed at 14/86, this paragraph does not apply to you.
Salary vs dividend, at a high level
The instinct of many e-residents is to take everything as dividends because 22% sounds lower than salary tax. It is not that simple, and the right split depends on where you are tax resident, not on Estonian rules alone.
Three things to weigh:
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A dividend is not a deductible expense. It comes out of after-profit money, so the company has already earned it. Salary and board-member fees, by contrast, reduce the company's profit, but they pull in Estonian payroll obligations when the work or the recipient has an Estonian nexus. For a genuinely non-resident founder doing the work abroad, the payroll picture differs from a resident's; this is exactly where a local accountant earns their fee.
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Dividends require actual profit and an approved annual report. You cannot distribute money you have not earned and reported. Salary can be paid in a loss-making month; a dividend cannot.
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Your home country decides how each is treated. A dividend taxed at 22% in Estonia might still be taxable income where you live, while salary might be taxed differently or be subject to social contributions there. The "cheaper" option in Estonia can be the more expensive one after your residence country has its say.
There is no universal winner. The honest version is: model both against your actual tax residence before deciding, and revisit it whenever your residence changes.
The home-country caveat you cannot ignore
Estonia taxing the distribution at the company level does not mean the dividend is tax-free to you. It means Estonia has taxed it once, at the company. Your country of personal tax residence has its own rules, and many of them tax foreign dividends received by their residents.
What typically softens the double hit is a tax treaty between Estonia and your country, plus foreign tax credit mechanisms that let you offset tax paid in one country against tax owed in the other. Whether and how much relief you get depends entirely on your specific residence, the treaty in force, and how that country classifies an Estonian distribution-tax dividend. We are not going to quote a foreign rate here, because there isn't a single one and guessing it would be worse than useless.
The practical rule: the Estonian side of your dividend tax is knowable and fixed at 22/78. The other side is personal and local. Get advice in your country of residence before you assume the 22% is the whole bill. Founders who skip this step are the ones who get a surprise assessment a year later.
A practical takeaway
For a non-resident running a lean Estonian OÜ in 2026, the model is genuinely simple at the Estonian end: keep profit inside the company tax-free, and accept a flat 22% when you decide to take it out. The deferral is the real benefit, not a magically low rate. If you are distributing everything every year, you are paying 22% every year and getting little advantage from the structure; if you are reinvesting and distributing selectively, the 0% on retained profit is where Estonia pays off.
Two companion reads worth your time: the broader Estonian corporate tax picture for non-residents covers how the distribution tax fits with everything else the company owes, and the real all-in cost of running an OÜ puts the tax in context with formation, accounting, and the recurring line items founders forget.
If you want a second set of eyes on the salary-vs-dividend split for your specific residence before you file anything, that is a conversation worth having early rather than after the first distribution.
FAQ
What is the dividend tax rate for an Estonian OÜ in 2026?
22/78, which is an effective 22% on the gross amount of profit distributed. The company pays it; the shareholder receives the net amount with no further Estonian personal income tax on the dividend.
Does the shareholder pay personal income tax on the dividend in Estonia?
No. From 2025 there is no Estonian personal income tax or withholding on dividends paid to natural persons (the old 7% withholding on reduced-rate dividends was abolished). The 22/78 distribution tax is paid by the company and that settles the Estonian side. Your country of residence may still tax the dividend.
How do I calculate the net dividend from the gross profit?
Tax equals gross profit times 22%. On 10,000 euros of distributable profit, the company pays 2,200 euros and the shareholder nets 7,800 euros. To net a specific amount instead, multiply the net by 22/78 to get the tax: netting 10,000 euros costs 2,820.51 euros in tax, so 12,820.51 euros leaves the company.
Was the 14/86 reduced dividend rate abolished?
Yes. The Estonian Tax and Customs Board confirms the 14/86 reduced rate for regularly distributed dividends, and the 7% personal withholding tied to it, were abolished from 1 January 2025. Only the 22/78 rate applies now. A transitional rule still governs unused balances of dividends taxed at 14/86 before 31 December 2024.
When does the company pay the dividend tax?
By the 10th of the month following the distribution, declared on the monthly TSD return. It is not an annual payment. Distribute the dividend one month and the tax is due the next.
Will I be taxed again in my home country?
Possibly. Estonia taxes the distribution at the company level, but your country of tax residence has its own rules and often taxes foreign dividends. A tax treaty and foreign tax credits usually reduce double taxation, but the outcome depends entirely on your residence. Check the rules where you live before treating the 22% as the final bill.
