Estonia has approved a draft law to ratify a new income and capital tax treaty with the UK, replacing the existing 1994 agreement. The treaty sets withholding tax rates for dividends, interest and royalties and will take effect once both countries exchange ratification instruments.
Estonia’s government has approved a draft law to ratify a new income and capital tax treaty with the UK on 15 October 2026.
The treaty was signed on 28 August 2026 and will replace the tax treaty of 1994 between the two countries.
The treaty covers Estonian income tax. In the United Kingdom, it covers income tax, corporation tax and capital gains tax.
Dividends are generally exempt from withholding tax, at 0%. Two exceptions apply. A 15% rate applies to dividends paid from income or gains from immovable property, when an investment vehicle distributes most of that income each year, and the income is tax-exempt. This rate does not apply if the beneficial owner is a pension fund. A 10% rate applies when the beneficial owner is an individual. Interest is taxed at 10%, and royalties at 0%.
The treaty enters into force once both states exchange ratification instruments. In Estonia, it applies from 1 January of the year after entry into force. In the UK. It applies to withholding tax from the first day of the second month after entry into force, to corporation tax from 1 April after entry into force, and to income tax and capital gains tax from 6 April after entry into force.
The 1994 treaty stops applying to each tax on the date the new treaty starts applying to that tax. It ends on the last of those dates.
Earlier, Estonia’s government approved the signing of the income and capital tax treaty with the UK on 19 March 2026.
