The ability to distribute advance (interim) dividends during the current financial year provides business owners of Bulgarian OOD and EOOD companies with increased financial liquidity and capital management flexibility.
However, executing an advance dividend distribution requires strict adherence to the Bulgarian Commercial Act, Accountancy Act, and Corporate Income Tax Act.
1. Legal Requirements for Interim Dividend Distribution
For a company to distribute interim dividends based on its current profit, the following criteria must be met:
- Preparation of an interim financial statement proving net profit for the current period;
- Retained earnings must exceed any accumulated losses from prior fiscal years;
- Formal General Meeting Resolution (or Sole Owner Decision for EOOD);
- Sufficient company liquidity to ensure distributions do not jeopardize obligations to creditors or suppliers.
2. Dividend Withholding Tax (5%)
Dividends distributed to individuals (residents or non-residents) or foreign corporate entities are subject to a 5% final withholding tax at source:
- The 5% tax is withheld by the Bulgarian company at the time of distribution.
- The tax must be remitted to the state budget by the end of the month following the quarter in which the distribution decision was made.
- A Tax Declaration under Art. 55 of CITA must be submitted to NRA.
3. Risks & Hidden Profit Distribution Penalties
A common mistake is withdrawing company funds as advance dividends without an interim financial statement or proper documentation. During an NRA tax audit, undocumented withdrawals can be reclassified as hidden distribution of profit, incurring severe penalties and a 20% administrative fine.
4. Expert Guidance from STATUM
The team at STATUM possesses extensive experience in drafting interim financial statements, shareholder resolutions, and tax filings for international business owners in Sofia and Varna. Contact us today for professional assistance!