Concept
Estonia has structured corporate tax differently from almost the entire world: a company does not pay profit tax as long as it retains earnings internally. Tax arises only at the moment of distribution—dividend payments or other withdrawal of funds. While profit is reinvested, the rate is effectively zero. This turns the Estonian OÜ into a convenient tool for accumulation and reinvestment.
How the Rate Is Calculated
The 22/78 rate means 22% of the net distribution amount—approximately 28.2% on the profit from which the dividend is paid. From 2025, the previous preferential regime has been abolished: the 14/86 rate for regularly distributed profit and the associated 7% withholding tax for individuals are no longer in effect, and all distributions are taxed uniformly at 22/78.
What Changed in 2025–2026
Estonia went through a wave of reforms. The planned "security tax," which included a 2% corporate surcharge, was abolished in the Riigikogu in December 2025. Instead, permanent increases in other taxes were established: VAT was raised to 24% from July 1, 2025, and the personal income tax rate to 24% from 2026. Corporate tax on distributed profit remained at 22/78.
⚙️ Deferred taxation benefits those who reinvest. When withdrawing funds, the effective rate is no lower than in ordinary jurisdictions: the savings here are in time and compound interest, not in the final tax percentage.
Estonia as a Holding
For a holding company, another detail is important: dividends received by an Estonian company from a subsidiary with a stake of at least 10% can be redistributed further without repeated 22/78 tax, if the profit has already been taxed at the subsidiary level. This makes OÜ a workable intermediate holding company within the EU, although it falls short of classic holding jurisdictions in terms of tax treaty network and reputation.
Integration with e-Residency
🔗 Related
Holding Structures · Estonian e-Residency · Cyprus Holding · Netherlands Holding (BV) · Luxembourg SOPARFI
An Estonian company can be registered and managed remotely through the e-Residency program: a digital identity provides access to OÜ registration, banking, and online reporting. This has made Estonia popular among nomad entrepreneurs, although e-Residency itself grants neither residence permit nor tax residency.
🍓 Estonian OÜ is good for businesses that accumulate and reinvest profit, and for easy startup through e-Residency. For withdrawing large dividends or complex international holdings, it should be compared with Cyprus, the Netherlands, and Luxembourg.
This material is for reference purposes and does not constitute individual advice.
Key factual claims
- The 22/78 rate means 22% of the net distribution amount—approximately 28.2% on the profit from which the dividend is paid.
- For a holding company, another detail is important: dividends received by an Estonian company from a subsidiary with a stake of at least 10% can be redistributed further without repeated 22/78 tax, if the profit has already been taxed at the subsidiary level.
- Related links: Holding Structures · Estonian e-Residency · Cyprus Holding · Netherlands Holding (BV) · Luxembourg SOPARFI · Estonian Tax and Customs Board: taxation of dividends · EY: significant tax changes in Estonia 2025–2026.