The profit sits in the company and you want to take it out. A dividend is allowed and it is a normal step. One thing is worth knowing straight away: Estonia and the United Kingdom exchange tax data automatically, so HMRC will see your dividend in any case. Your only task is to make sure that your British tax return matches that data.
The Estonian side: one sentence
When a company pays out a dividend, the company pays income tax on it at the rate of 22/78 — that is roughly 22% of the amount paid out. According to the Estonian Tax and Customs Board, from 2025 a dividend is taxed only at company level, at the rate of 22/78. Nothing more is withheld from a private shareholder. The earlier lower rate of 14/86 and the 7% withholding on a private person's dividend were also abolished from 2025. So the Estonian side is simple: the company pays the tax and the money that reaches you has already been taxed. (Basis: Income Tax Act § 50.)
The British side: SA106 and one common mistake
In the United Kingdom an Estonian dividend is foreign income. You declare it on the foreign pages of the Self Assessment, form SA106. British income tax on the dividend is worked out on top of your total income, according to your tax band.
Here is the most important point. You must declare the gross amount — the whole dividend distributed, before Estonian tax, and not the money that landed in your account. This is exactly the mistake that brings letters from HMRC: a person puts the net amount on the return, the figures do not match, and a query follows. The tax paid in Estonia is entered separately, so that it can be taken into account.
There is a treaty against double tax
You are usually not taxed twice on the same dividend. Under the tax treaty between the United Kingdom and Estonia, the income tax already paid in Estonia is set against the British tax. If the British tax turns out to be higher than the Estonian one, you pay the difference in the United Kingdom — but the same money is still not taxed twice.
Timing matters as well. The Estonian tax arises when the company pays the dividend out. The British side goes by the tax year in which the right to the dividend arose — not by the moment the money reached the account. A payment made close to the 5 April cut-off may fall into a different British tax year, so look at the timing before the payment, not afterwards.
What to do in practice:
- Work out the amount and the timing before you pay the dividend out, not after the event.
- If your accountant has not dealt with Estonian dividends before, pass this note on — that way the gross/net mistake does not happen.
- Keep the Estonian company in order: annual report filed, net assets sound. If dividends from earlier years are still undeclared, deal with them at the first opportunity.
This article was prepared with the help of artificial intelligence.