How to Distribute Dividends in Romania: A Practical Guide for Company Owners

For many business owners in Romania, distributing dividends is a key way to access company profits. However, the process is regulated by company law and tax legislation, and following the correct steps is essential to avoid penalties. This guide explains how dividends work in Romania, from legal requirements to tax obligations.

Legal Requirements for Dividend Distribution

In Romania, dividends can only be distributed from realised profits, as shown in the company's annual financial statements. Before any distribution, the shareholders must approve the financial statements and decide on the dividend amount at a general meeting. The law also requires that the company's legal reserves be fully funded before profits can be distributed. Typically, at least 5% of annual profit must be allocated to the legal reserve until it reaches 20% of the share capital.

Dividends may be paid quarterly if the company's articles of association allow it, but most companies distribute once a year after the annual accounts are approved. It is important to ensure that the distribution does not leave the company with negative equity or compromise its ability to pay creditors.

Dividend Tax in Romania

Dividends paid to individuals or companies are subject to a dividend tax. As of writing, the standard rate is 8% for dividends distributed from profits earned from 2023 onwards. This tax is withheld at source, meaning the company is responsible for calculating, withholding, and paying it to the state budget by the 25th of the month following the dividend payment.

For individual shareholders who receive dividends as their main source of income, health insurance contributions may also apply if their annual dividend income exceeds a certain threshold. It is advisable to consult a tax professional to understand the full implications for your situation.

Timing and Payment Procedure

Once the shareholders have approved the dividend distribution, the company must pay the dividends within a reasonable time, usually set by the general meeting but no later than six months from the approval date. The payment can be made via bank transfer or in cash, but for amounts above a certain limit, bank transfer is mandatory.

The dividend tax must be declared and paid to the state budget using the specific tax return form, typically by the 25th of the following month. Late payments incur penalties and interest, so it is crucial to keep track of deadlines.

Practical Tips for Business Owners

• Always base dividend decisions on approved financial statements, not on estimated profits.
• Keep detailed records of shareholder meetings and dividend resolutions.
• Ensure that all tax obligations, including corporate income tax, are settled before distributing dividends.
• If you expect to distribute dividends regularly, consider setting up a quarterly schedule in line with legal provisions.

Understanding the rules around dividend distribution can help you make informed decisions and avoid common pitfalls. Always consult with an accountant or tax advisor to ensure compliance with the latest legislation.