Paying yourself: salary or dividends

The owner of an Estonian company can take money out in two main ways: as a salary, or as a dividend from profit. They are taxed differently and recorded differently. This lesson explains the difference. It does not say which one suits your company, because that depends on your own circumstances.

Salary

A salary is paid for work, through payroll. The company pays the salary, withholds the income tax, and reports it each month in the TSD return. The payment is a cost of the company, and it reduces the profit before any dividend. Payroll brings the reporting duties that come with an employer.

Dividends

A dividend is paid from profit that the company has kept, which the owners have decided to distribute. Estonia taxes distributions when they are paid out, not when the profit is earned. The tax is calculated on the amount paid out, at the rate in force on the payment date. The company reports it in the TSD return for the month of payment.

What the books show

• A salary appears as an expense in the profit and loss report, and it is paid through payroll.
• A dividend appears as a reduction of retained earnings, and it is not an expense.

Things to check before you decide

• How much profit the company has, and whether it is kept in the company or paid out.
• How the company and owner want to share the money over the year.
• The current rules and rates from EMTA, which change from time to time.

Sapita shows the TSD and tax items on the calendar when they apply, with the figures for each. It does not file the TSD return for you.