What are "dividends"?

The profits of the companies can be distributed to the shareholders, proportionally to the number of shares held. 

The part of the profit distributed to the shareholders is constituted as dividends. 😊 


Definition and types of dividends:

Dividends represent "part of the profit of a joint-stock company (SA) that belongs to each shareholder at the end of each financial year, in relation to the shares he owns". 📑 


Dividends can be of several types:

❶⠀Dividends paid in money: are the dividends that come into the possession of the shareholders in cash;

❷⠀ Dividends paid in shares: these are not dividends, but they can be regarded as one, since the company's profit is transmitted to the shareholders, in the form of shares.


How are dividends calculated?

The General Assembly of the company decides which part of the profit is distributed as dividends. This amount is divided by the total number of shares, resulting in the dividend per share.

Each shareholder calculates the dividends to be collected by multiplying the dividend per share by the number of shares held. 😉


How are dividends taxed?

The application of a tax rate of 8% on income obtained from dividends was introduced in "Tax code" from 2023 and aims to:

➤⠀dividends distributed to Romanian individuals and legal entities;

➤⠀ as well as dividends obtained from Romania by non-residents.

From January 1. 2023 according to the provisions of OG 16/2022 the tax on dividends increases from 5% to 8 %.

1. The tax on dividends paid by a Romanian legal entity to another Romanian legal entity is a percentage of 8% and is paid to the state budget by the 25th of the following month. The tax exemption is maintained if the beneficiary of the dividend holds more than 10% of the shares of the dividend payer, for a period of more than 1 year.

2. The tax on income from dividends distributed to natural persons is 8% as a percentage, applicable through withholding at source, the tax being final. The tax on dividends paid to non-residents is still in percentage of 8%.


Advantages and disadvantages of dividends:

➤⠀ Advantage: shareholders benefit directly from the companies' profits.

➤⠀Disadvantage: by distributing dividends, the value of a company's shares decreases, with an amount that can be higher or lower than the value of the dividend.

Author: Banca Transilvania

Financial consultancy

 ACCOUNTING ONE is close to you. The company of accountancy ACCOUNTING ONE, can help you with tax advice of any nature: fiscal, accounting, legal, regulatory.