A shareholder resolution says EUR 7,800 will be paid, but the company has EUR 8,000 in the bank. Is the cash sufficient? No: an ordinary dividend paid in 2026 also creates EUR 2,200 of company-level income tax. The real cash requirement is EUR 10,000, and the declaration follows the payment month, not the year in which the profit was earned.
In my 15+ years in Estonian accounting, I have seen dividend mistakes arise between three otherwise correct documents: the annual report, the shareholders' resolution and the bank payment. The EMTA guidance on dividend taxation explains the current tax and reporting rule. This guide focuses on what happens after owners decide to distribute profit: the legal checks, cash calculation, payment date and TSD trail.
Confirm the legal profit before reserving the cash
Under the Commercial Code, §§ 157–158, dividends may be paid from net profit or retained profit after earlier losses have been deducted, on the basis of an approved annual report. The shareholders' resolution should state the distributable amount and who is entitled to it. Filing an annual report alone does not authorise an undefined owner transfer.
The company must also pass the equity restriction: the payment may not reduce net assets below share capital plus reserves that cannot be distributed. I recommend checking current management figures as well as the approved report. A loss after year-end may not rewrite the old report, but it can make the planned payment unsafe for creditors and cash flow.
| Question before payment | Evidence | Stop if |
|---|---|---|
| Is profit distributable? | Approved annual report and retained-profit balance | Earlier losses absorb it |
| Who receives the dividend? | Share register and shareholders' resolution | Recipient or proportion is unclear |
| Does equity remain sufficient? | Net-assets calculation after the proposed distribution | Protected capital or reserves would be breached |
| Can the company fund tax and operations? | Cash forecast including dividend tax | Payroll, VAT or suppliers would be put at risk |
Calculate 22/78 from the net dividend, not from spare cash
The EMTA tax rates for 2026 confirms that corporate income tax is 22/78. If the resolution grants shareholders a net dividend of EUR 7,800, the company's tax is EUR 7,800 × 22/78 = EUR 2,200. The distribution therefore uses EUR 10,000 of company cash. The same result can be read as 22% tax on a EUR 10,000 pre-tax distribution.
Do not add social tax, unemployment insurance or funded-pension contributions to an ordinary dividend. Equally, do not use a dividend label for payment for management work. If the owner is being paid for board duties, the remuneration and payroll analysis belongs in a separate file.
| Calculation | Amount | Meaning |
|---|---|---|
| Net dividend approved | EUR 7,800 | Amount due to shareholders |
| Company income tax | EUR 2,200 | EUR 7,800 × 22/78 |
| Total cash requirement | EUR 10,000 | Dividend plus company tax |
| Usual Estonian withholding on a new 22/78 dividend | EUR 0 | Foreign personal tax may still apply |
Since 2025, the former 14/86 rate and ordinary 7% withholding no longer apply to new standard dividends. A company with an unused balance of dividends taxed at 14/86 by the end of 2024 must handle that transitional balance separately; a natural-person recipient may still trigger 7% withholding.
Let the actual payment month drive TSD and INF 1
The EMTA instructions for form TSD requires form TSD by the 10th day of the month after payment. Declare an ordinary paid dividend in Annex 7 and identify every recipient in INF 1. A June resolution followed by an August bank transfer belongs to the August return, due on 10 September. If the resolution permits instalments, each payment follows its own month.
The tax point is not limited to a bank transfer. EMTA treats converting a payable dividend into an interest-bearing shareholder loan as payment when the source document and accounting entry show that conversion. A non-cash dividend is declared at fair value. Send the resolution, recipient identifiers, payment evidence and calculation to accounting before the return is prepared.
- Approve the annual report and the profit-distribution resolution.
- Reserve both the net dividend and the 22/78 company tax in cash planning.
- Confirm recipient identifiers and any non-resident documentation before payment.
- Record the actual payment or non-cash settlement date in accounting.
- File TSD Annex 7 and INF 1 and pay the tax by the 10th of the following month.
- Archive the report, resolution, calculation, declaration and payment evidence together.
EMTA currently states that TSD submission becomes data-based from 1 October 2026. Companies that upload payroll or tax files should review the final technical instructions before the first affected return.
Separate standard dividends from exemptions and foreign-owner tax
The Income Tax Act, § 50 allows exemptions intended to prevent double taxation when qualifying received dividends or foreign permanent-establishment profit are redistributed. The conditions include the source of the income and, in common cases, a holding of at least 10%. Do not claim an exempt balance from a bank description alone; reconcile the Annex 7 tax ledger.
For a standard dividend taxed by the Estonian company at 22/78, Estonia generally does not withhold additional income tax from the recipient. That does not settle the shareholder's tax residence. A non-resident owner should confirm reporting and credit rules in the country of residence before the Estonian payment, especially when the recipient is a company or an old 14/86 balance is involved.
| Case | Estonian company action | Extra check |
|---|---|---|
| New profit taxed at 22/78 | Annex 7, INF 1 and company tax | Recipient's country of residence |
| Qualifying received dividend redistributed | Verify exempt balance and source | Holding and source conditions |
| Unused pre-2025 14/86 balance | Apply transitional tracking | Possible 7% withholding for a natural person |
| Payment is really for management work | Use remuneration and payroll treatment | Agreement, TSD payment type and social taxes |
I approve a dividend file only when the same number appears in three places: the shareholders' resolution, the bank or settlement evidence and the TSD calculation. If one of them uses gross cash and another uses the net dividend, the EUR 7,800 example becomes a EUR 2,200 surprise.
A dividend payment is a short chain with no spare link: approved profit, valid resolution, sufficient equity, a 22/78 cash calculation, the actual payment date and next-month TSD reporting. Treating the resolution date as the tax date is the most avoidable error.
If you plan an owner distribution, send the approved report, resolution draft, shareholder details and payment plan through the Accounting Resources contact form before money moves.