We provide comprehensive legal services and accounting support procedures for the payment of dividends and the distribution of profits made by Ukrainian companies.
Distribution of profits is one of the most expected stages for investors and shareholders of any company. Probably this is what most of the businesses are established. So if you do own a company in Ukraine, and that business is profitable, you need to know exactly all the processes of this stage. At the same time, if the profit was cleared from corporate tax, that funds can be used to increase the future revenue of the business.
Dividend payout – is a stage of distribution of profits among the owners/shareholders (or members by Ukrainian law). The right of shareholders to participate in the distribution of company profits is determined by article 116 of the Civil Code of Ukraine and article 88 of the Commercial Code of Ukraine. The detailed process of profit distribution shall be regulated by the company’s articles of association (also called statute).
How frequently Ukrainian company can conduct a dividend payout procedure?
By Ukrainian law dividend payment is possible after the declaration of the company’s income or profit to the fiscal (tax) authorities and the approval of the income statement. Thus, regardless of the tax system business can make dividend payout procedures no more than 4 times a year, or one time a quarter. Profit taxpayers are able to conduct dividend payout one time in a year, as the profit tax statement is submitted one time per calendar year. At the same time companies that are single (fixed) taxpayers can conduct the Ukraine company profit distribution procedure one time in a quarter, or less often.
Consider that it is not a must to process dividend payout after declaring a corporate profit. The company’s shareholder (s) can decide whether to distribute a profit or to use it in order to boost up the activity of such a corporation. It is positively flexible in Ukraine.
Some special laws have restrictions on the profit distribution for the companies that have disputes and/or debts in front of previous shareholders. That’s why a skilled solicitor and an accountant in Ukraine are needed to conduct a dividend payment procedure properly.
The procedure of profit distribution by Ukrainian company
The dividend payout procedure can be started by the company`s supreme body (general meeting of shareholders, owners) and only after approval of the decision. So, first of all, it is necessary to call and run a shareholder’s meeting of Ukrainian company. The decision can be approved only if the company’s balance sheet (a statement) had been presented to state authority. Payments are distributed in proportion to the shares. Payment can be carried out both in cash and in the property. Only shareholders that have done their contribution to the share capital of the company do have the right to get profit. Of course, only cashless money transfer of the profit is possible. The CEO of a Ukrainian company as well as the Supervisory board can not take alone the decision on dividend payment.
If the owner of the company is a foreign company or individual, profit can be transferred in foreign currency to the shareholder’s account opened in foreign banks. In such a case Ukrainian banks will be involved as it is necessary to get approval on the currency exchange and money transfer abroad. It is necessary to provide the bank with all the requested documents in order to make the transaction approved. Although there are some restrictions of National Bank of Ukraine, still such transaction is possible. Taking a decision on profit distribution shareholders can decide the final term for the payment to be completed.
Taxation on corporate profit distribution and Ukraine dividend tax rates
Dividend tax is a passive income tax. Upon payment of dividends for individuals, the Company acts as a tax agent. Company is responsible to hold and to transfer taxes on dividends to the Ukrainian budget (p. 170.5.2. Art. 170 of the Tax Code of Ukraine). Dividends are not taxable (p. 196.1.6 Art. 196 of the Tax Code of Ukraine) by value-added tax (VAT).
Tax rates for individuals depend on the company’s tax system. There are two tax rates:
- 5% of the profit – if the company is an income tax payer (par. 5.2. art. 167 of the Tax Code of Ukraine);
- 9% of the profit – if the company is a single (or fixed) taxpayer (par. 5.4. art. 167 of the Tax Code of Ukraine).