Distribution of dividends, or what to do with the company's profit?

Making the Decision

If the business has been successful during the year, the company earns a profit. This profit can be used in several ways:

• to cover losses from previous years – this may help reduce corporate tax;
• after tax has been paid – to increase the company’s capital.
• it may be received in the form of cash or non-cash funds – in that case the profit is distributed as dividends in accordance with Art. 247a of the Commercial Act.

Dividends are the part of the company’s profit that is distributed among the participants in proportion to the shares or interests they hold.

The general meeting of shareholders adopts a decision on the distribution of profit and its payment in the form of dividends pursuant to the Commercial Act (Art. 137, para. 1). Within three months thereafter, unless the company’s articles of association provide for a longer period, the dividends must be paid out.

Accrual of dividends

Dividends are, as a rule, transferred to the account of an individual from the company’s account. The bank route is always the right choice, since the amount of the annual payment from the company’s cash desk to an individual is limited by law.

Income from dividends in favour of resident individuals from a source in Bulgaria is subject to a final tax under Article 197 of the ЗКПО. In Bulgaria it is 5%, and this income received by an individual is not subject to any further tax.

This tax is paid pursuant to Art. 202 of the ЗКПО by the end of the month following the month in which the income was accrued.

The accounting departments of companies that have paid dividends to individuals during the year prepare a statement recording this fact in accordance with Art. 73 of the ЗДДФЛ. This document is submitted to the National Revenue Agency (NAP) by 30 April of the year following the reporting year.

An individual receiving dividends does not have to declare this income in the annual tax return.

When dividends are distributed from one legal entity to another, no tax is withheld. Withholding tax is mandatory only when a dividend is paid to an individual.

When the company publishes its Annual Financial Statement in the Commercial Register, the fact that dividends have been paid must be reflected in accordance with the minutes of the general meeting.

Company registration in Bulgaria

Accounting services

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