Estonia taxes distributed profit, not earned profit. Income tax on a dividend is paid by the company at 22/78 of the net amount, which is the same as 22% of the whole distribution fund. For a €1000 net dividend the tax is €282.05 and the cost to the company is €1282.05.
Variables (the formula is shown below the calculator)
net dividend — the amount that reaches the shareholder. income tax — the company's tax on distributed profit. gross dividend (fund) — net plus tax, i.e. the total the company sets aside from profit. The rate 22/78 = 0.282051 applies to the net amount; the same arithmetic from the gross is 22%.
Why 22/78 and not 22%
The 22% rate is defined on the gross amount, but what is usually agreed with the shareholder is the sum they receive. Going from net to gross the multiplier is 22/78 ≈ 28.2%. These are not different taxes but the same one seen from both ends: 1000 × 22/78 = 282.05 and 1282.05 × 22% = 282.05.
When the tax arises
The liability arises on distribution, not on earning the profit. While the profit stays in the company there is no income tax. There is therefore no “tax-free portion of profit”: what is untaxed is retaining profit, not distributing it.
The reduced rate no longer applies
A lower rate used to be available for regularly distributed dividends. From 2025 that option is gone and a single rate applies. The calculator follows only the current regime; it cannot be used for earlier years.
Scope and exclusions
Suitable for estimating the tax burden on a dividend from an Estonian company. It does not cover equity distributions, liquidation proceeds, foreign shareholders and tax treaty specifics, or management board member remuneration, which is taxed as salary. The result is informative.
Examples
Net to gross: the shareholder receives €1000
Tax 1000 × 22/78 = €282.05. Total fund €1282.05. Check: 1282.05 × 22% = €282.05.
Gross to net: €10,000 of profit is distributed
Tax 10,000 × 22% = €2200. The shareholder receives €7800. Check: 7800 × 22/78 = €2200.
A common error: 22% of the net amount
Taking 22% of €1000 net gives €220 and a fund of €1220. That is wrong: 1220 × 22% would be €268.40, not €220. From a net amount the factor is 22/78.
Sources
- Income Tax Act (TuMS) — taxation of distributed profit, rate 22/78
- EMTA — taxation of dividends and equity distributions