It is a decision made by the competent authority of the legal entity to pay dividends from the net profit or retained earnings of previous years in accordance with their participation in the legal entity (shareholding, partnership in a limited or full partnership, membership in a commercial association or other ownership forms as determined by the laws of the country where the company is registered).
Tax rates for corporations in 2020 are 20/80. Tax rates on dividends paid regularly are 14/86. An additional income tax of 7% is withheld from dividends paid to individuals with a reduced tax rate.
In the case of resident companies, the reduced tax rate of 14/86 (16%) is applicable:
- For 2019, the resident company will pay income tax on one third of the profits it distributed in 2018.
- A third of the profits distributed to the resident company during 2018 and 2019 will be deducted in 2020.
Here are some things to consider when paying dividends:
- Dividends are taxed at a rate of 20/80 in general.
- Tax rates for dividends paid regularly are lower at 14/86. Prior to applying a higher rate, a lower rate is mandatory.
- General meetings of shareholders determine how profits are distributed proportionally.
- Share capital must be paid in full before dividends can be paid.
- On receipt of dividends from net income, a dividend report must be submitted and approved.
- Profit distribution is taken into account when entering the accounting program.
- Within a month of payment, dividend amounts must be reported in INF 1 and Annex 7 (by the 10th day after payment).