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Dividends distributed during the financial year

According to the Companies Law no. 31/1990, article 67, the share of the profit paid to each partner constitutes a dividend.

Dividends shall be distributed to the shareholders in proportion to their share in the paid-up share capital, optionally quarterly on the basis of the interim financial statements and annually, after adjustment by the annual financial statements, unless otherwise provided for in the articles of association.

They may optionally be paid on a quarterly basis within the time limit set by the general meeting of shareholders or, as the case may be, by special laws, the adjustment of the differences resulting from the distribution of dividends during the year being made through the annual financial statements.

The payment of the differences resulting from the regularization shall be made within 60 days from the date of approval of the annual financial statements for the past financial year. Otherwise, the company shall owe, after this term, the penalty interest calculated according to article 3 of the OG no. 13/2011 on the legal interest and penalty interest for bank obligations, as well as for the regulation of some financial-fiscal measures in the banking sector, approved by the Law no. 43/2012, if a higher interest rate has not been set by the articles of association or by the resolution of the general meeting of shareholders that approved the financial statements for the past financial year.

According to the Accounting Law no. 82/1991, article 19, paragraph (31), the quarterly distribution of profits to shareholders or associates may optionally be made, during the financial year, within the limit of the quarterly net accounting profit, plus any retained profits and amounts withdrawn from reserves available for this purpose, less any losses carried forward and amounts deposited in reserves in accordance with legal or statutory requirements, respectively on the basis of the interim financial statements approved by the general meeting of shareholders or associates, as the case may be.

According to OMFP no. 3067/2018 for the completion of certain accounting regulations, entities that have opted, according to the law, to distribute dividends during the financial year shall record that distribution in account 463 Receivables representing dividends distributed during the financial year (accounting item 463 Receivables representing dividends distributed during the financial year = 456 Settlement with shareholders/associations regarding capital).

Dividends distributed in accordance with item 4231 are accrued on the dividends distributed on the basis of the annual financial statements approved by law (accounting item 457 Dividends payable = 463 Dividend receivables distributed during the financial year).

 

Function of account 463 Receivables representing dividends distributed during the financial year:

This account is used to keep track of the dividends distributed, in accordance with the law, during the financial year and which are to be settled after the approval of the annual financial statements.

Account 463 Dividend receivables distributed during the financial year is an asset account.

The debit of the account 463 Receivables representing dividends distributed during the financial year is registered :

– the amount of dividends distributed during the financial year (456).

 

The credit of account 463 Receivables representing dividends distributed during the financial year is registered:

 

– the amount of dividends distributed during the financial year and settled on account of annual dividends (457);

– amounts received in respect of refunds of dividends due in accordance with the law (512, 531).

The balance of the account represents the amounts distributed as dividends, according to the law, during the financial year.

Since the company in question falls within the scope of application of the Order of the Minister of Public Finance no. 1.802/2014 for the approval of the Accounting Regulations on individual annual financial statements and consolidated annual financial statements, if it opts for quarterly distribution of dividends, it is obliged to prepare interim financial statements.

For example, if it is decided to distribute dividends on 30.09.2023, the company will prepare interim financial statements on 30.09.2023. These consist of the balance sheet and the profit and loss account, having the same structure as that applicable to the annual financial statements prepared in accordance with the provisions of OMFP no. 1802/2014. Interim statements cannot be prepared with a reference period of one month within a quarter, their periodicity being only quarterly.

However, in order to draw up the interim financial statements as at 30.09.2023, following the option for the quarterly distribution of dividends, an inventory of assets, liabilities and equity will be carried out in accordance with the provisions of the MFP Order no. 2861/2009 for the approval of the Rules on the organisation and carrying out of the inventory of assets, liabilities and equity.

 

After the inventory has been carried out and the results of the inventory have been registered , the company will proceed to determine the result to be distributed.

Interim financial statements are prepared on the basis of the trial balance, which includes the results of the inventory.

The distribution of the result to dividends shall be carried out in accordance with the provisions of the articles of association and the equity holding ratios.

The adjustment of the amounts distributed during the financial year (2023) shall be made after approval of the annual financial statements as at 31.12.2023, and the dividends distributed and overpaid during the financial year (2023) shall be returned within 60 days from the date of approval of the annual financial statements.

It should be noted that the repayment obligation applies to the sole shareholder who received dividends on a quarterly basis, and the company’s management is obliged to pursue the recovery of these amounts.

 

Accounting monograph for the distribution of quarterly dividends:

 

  • During the year:

 

Registration the distribution of dividends during the financial year:

 

463 Dividend receivables distributed during the financial year = 456 Settlement with shareholders/associations on capital

 

Withholding tax on dividends:

 

456 Settlement with shareholders/associations on capital = 446 Other taxes, duties and similar charges

 

Net dividend payments:

 456 Settlement with shareholders/associations on capital = 5121 Bank accounts in MDL

 

Tax payments:

 446 Other taxes, duties and similar charges = 5121 Accounts with banks in lei

 

  • At the beginning of the year following the end of the financial year in which quarterly dividends were distributed:

 

Closing the profit and loss account:

 121 Profit or loss = 1171 Retained earnings representing undistributed profit or loss.

 Registration of final dividend payments as per the annual financial statements:

 1171 Retained earnings representing retained profit or loss = 457 Dividends payable

 

Clearing account 457 with 463:

 457 Dividends payable = 463 Dividend receivables distributed during the financial year.

 Refund by the members of the amount overpaid within 60 days of approval of the annual financial statements:

 5121 Bank accounts in lei = 463 Claims for dividends distributed during the financial year

Within 30 days of their approval by the AGA, the interim financial statements will be submitted to the territorial units of the Ministry of Public Finance.

 

Dividend tax:

 The obligation to calculate and withhold tax on dividends lies with the legal entity paying the income, with the payment of dividends.

Currently, the dividend tax is determined by applying a tax rate of 8% on the gross dividend paid to the shareholders and is declared in the form 100 “Declaration on payment obligations to the state budget” and is transferred in full to the state budget, being a final tax.

The general rule concerning the deadline for declaration/payment to the state budget is up to and including the 25th of the month following the month in which the dividend is paid.

If the distributed dividends will not be paid until the end of 2023, the related dividend tax is payable until 25 January 2024.

The income payer must submit form 205 “Information return on withholding tax and realised gains/losses, by income recipient” annually by the last day of February 2024.

According to article 170, paragraph (4) of Law no. 227/2015 on the Tax Code, starting with the income for the year 2023, in the case of individuals who cumulatively earn income from self-employment, intellectual property rights, association with a legal entity, transfer of use of goods, agricultural activities, forestry, fish farming, investments, other sources, the calculation basis of the social health insurance contribution (CASS) is modified being represented by:

 

a) the level of 6 gross minimum wages per country, in force on the deadline for submission of the single declaration, in the case of income between 6 and 12 gross minimum wages per country;

b) the level of 12 gross minimum wages per country, in force on the deadline for submission of the single declaration, in the case of income between 12 and 24 gross minimum wages per country;

c) the level of 24 gross minimum wages per country, in force on the deadline for submission of the single declaration, in the case of income above 24 gross minimum wages per country.

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  2. According to Article 7, paragraph 46 of the Tax Code, the calculation, withholding, declaration and payment of tax on dividend income by the income payer is a withholding tax called withholding tax. In this context, the company must take all measures to declare and pay the tax on dividends on time, since withholding and non-payment (…) within 60 days of the due date provided by law of the tax, constitutes an offence and is punishable by imprisonment from 1 year to 5 years or a fine, according to Article 61 of Law 241/2005, for the prevention and combating of tax evasion.2
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  4. In short:
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  • The quarterly distribution of dividends allows the distribution of the current year’s profit.

  • Interim financial statements are required

  • The quarterly distribution of dividends can only be made after approval of the interim financial statements

  • Dividends will be distributed in proportion to the shareholding of the associates/shareholders in the share capital

  • The regularisation of the amounts distributed in the form of dividends during the year (quarterly) will take place at the time of the preparation of the annual financial statements, at the beginning of the following year.

  • Dividends distributed and overpaid during the financial year must be repaid within 60 days from the date of approval of the annual financial statements.

  1.  
  2. Legal basis:
  3. – Fiscal Code (approved by Law no. 227/2015, published in the Official Gazette no. 688 of 10.09.2015), as amended and supplemented;
  4. – Companies Law no. 31/1990, as amended and supplemented;
  5. – Accounting Law no. 82/1991, as amended and supplemented;
  6. – OMFP no. 3067/2018 to supplement certain accounting regulations.