What is a dividend?
A more detailed characterization of dividends than in the introduction should take into account the fact that the right to dividends is due to those who contributed their capital to establish or develop the company. Thus, dividends can be considered de facto compensation for the funds invested in the company.
Important!
Dividends are paid on the company’s net profits. Their achievement is met if the company within the fiscal year increases the company’s equity, but not including the contributions of funds made by shareholders. The company’s taxation should also be deducted from this equation, of course.
In the context of dividends, we usually talk about the payment of funds, but there is also the possibility of settling dividends in kind, for example. What’s more, even real estate can provide dividends to a shareholder. As part of the settlement, the company may also provide services to a person entitled to profits.
What can be the amount of dividends?
The amount of dividends is a matter that is determined as part of the resolution on profit distribution. The Commercial Companies Code indicates that the funds paid out in dividends may not exceed the profit for the previous fiscal year, plus undistributed profits from previous years and amounts transferred from supplementary and reserve capitals created from profit, which may be allocated for distribution. This amount should be reduced by unabsorbed losses, treasury shares, and amounts that, in accordance with the law or the company’s articles of association, should be transferred from the profit for the last fiscal year to supplementary or reserve capitals (Articles 192 and 348 of the Commercial Code).
Important!
Simple joint stock companies are governed by slightly different laws in this context – Art. 30015 of the CCC mentions that the amount of dividends in a simple joint-stock company can be increased by corresponding amounts from the share capital. However, subsequent paragraphs of the law list additional conditions:
- payment of dividends to shareholders from the share capital may not reduce the amount of this capital below 1 zloty,
- payment of dividends to shareholders must not cause the company, under normal circumstances, to lose its ability to meet its maturing monetary obligations within six months from the date of the dividend,
- payment from the share capital can be made only after the entry of the change in its amount in the National Court Register.
Dividend payment: when does it occur?
Of course, dividends are not paid on demand – the decision on how often shareholders and stockholders will receive their payment is made by the company’s general assembly or shareholders’ meeting (mentioned in Article 193 of the Commercial Companies Code). By far the most common dividend frequency is set at once a year, but quarterly is also common.
If the payment date is not specified, it shall be made immediately after the dividend date.
Advance dividend payment – when can it be paid?
The Commercial Companies Code provides for the possibility of making advance payments, but its use is subject to certain limitations.
- First: this payment can only be in the form of cash (so the previously mentioned dividends transferred in kind or services do not apply here).
- Second: the company must first secure the appropriate amount – the dividend advance cannot be paid with money from a source other than the company’s assets.
- Third: in the previous fiscal year, the company must show a profit (confirmed by financial statements).
- Fourth: in the event that, as a result of the advance payments, the company records a loss or profit at the end of the current fiscal year that is less than the sum of the advances paid, the advances paid are refundable. In full, if the company reported a loss, or in part, if the company’s earnings are less than the sum of the advances.
Important!
These rules are slightly modified in joint stock companies. Note that the payment of advances must be confirmed by the approval of the company’s supervisory board. In addition, it must be announced a month before payment. The company’s authorities must also ensure that they meet their information obligations. This includes the date of the financial statements, the amount allocated for dividend advances, and the date on which it was determined who is entitled to receive the advance.
Important!
Advance dividends in a simple joint-stock company cannot be paid out of share capital funds.
How to account for dividend tax?
In order to properly account for dividend tax, you need to be aware of the source of income. The relevant provision can be found in the Personal Income Tax Law – in Art. 17 of the document indicated that dividends belong to the category of income from cash capitals.
It is worth remembering at the same time that dividend income arises when it is paid – so we do not pay tax on the dividend due, but on the dividend that the shareholder has already received.
Income tax on dividends: how are profits from shares taxed?
It’s time to answer the most important question about today’s topic. What is the income tax rate on dividends? Tax on income from dividends and other corporate income is 19% and is a flat tax. What’s more, this income cannot be reduced by the cost of obtaining it. So in reality, we are dealing with a revenue tax here.
There is also good news for shareholders, reaping dividends. This income is not combined with income taxed according to the general tax scale. Thus, the taxpayer does not need to take dividend income into account when completing his tax return, nor does he need to calculate the amount of tax himself or file any other tax return related to this topic.
In short: it is the payer, or in this context the company paying the dividend, who is obliged to pay it, less the amount of income (revenue) tax. Payment of tax to the tax office is also the responsibility of the company – it must do so by the 20th. day of the month following the month in which the tax was collected. The company must inform the authority of the amount of tax collected by completing a PIT-8AR form. The deadline for fulfilling this obligation is the last day of January in the year following the tax year in which the tax was collected.
Summary
As a recap of all that is important, let us remind you that the dividend tax:
- is always 19%,
- is a de facto income tax,
- It is charged on dividends paid, not due,
- The obligation to collect and account for it is on the company.
What’s more, a shareholder doesn’t even have to report dividend income on his or her tax returns.
