Dividends are payments that are made from the net profit or retained earnings of previous years in accordance with the decision of the competent authority of the legal entity, and the basis for which is the recipient’s participation in the legal entity (ownership of shares, partnership in a full or limited partnership, membership in a commercial association or other forms of ownership in accordance with the laws of the country where the company is registered).
The corporate income tax rate in 2020 is 20/80. Dividends paid on a regular basis are subject to the lower tax rate of 14/86. When paying dividends to an individual with a reduced tax rate, an additional income tax of 7% is withheld.
A resident company is obliged to apply a reduced tax rate of 14/86 (16%):
- In 2019 – by one third of the profit distributed in 2018, from which the resident company paid income tax;
- In 2020 – by one third of the profits distributed in 2018 and 2019, from which the resident company paid income tax.
When paying dividends, it is important to know the following:
- The general tax rate on dividends is 20/80.
- Dividends paid on a regular basis are subject to the lower tax rate of 14/86. The use of a lower rate is mandatory and will be applied first.
- The decision on the proportional distribution of profits is made by the general meeting of shareholders.
- Dividends cannot be paid until the share capital has been paid in full.
- An annual report must be submitted and approved upon payment of dividends from net income.
- Entry in the accounting program is made based on the decision on the distribution of profits.
- The amount of dividends paid must be presented in Annex 7 in TSD form and in INF 1 form (within a month after payment by the 10th day).