Amendments to the Commercial law of Latvia: Opportunity to pay out dividends several times a year

Extraordinary dividends

According to amendments in the Commercial law of Latvia as of 01.07.2014 will be possible to pay out dividends 4 time per year if appropriate amendments are made in the Articles of Association. Dividends will be possible to pay out 1 per quarter but max in amount of 85 % from the quarter income. Income tax 10 % will be applicable in this case, plus corporate income tax 15 % shall be covered.

Regarding extraordinary dividends

For individuals 10 % tax will be applicable for received extraordinary dividends. The day when dividends are calculated will be considered as day of the receiving of dividends (when shareholders make a decision on dividing of the profit and paying out of dividends).

Personal income tax shall be calculated and covered by the company (payer of dividends) when dividends are divided.

After approving of the annual report the tax will be applicable only to the difference between calculated dividends and  calculated extraordinary dividends to whom tax is already calculated and covered.

Regarding legal persons, if instead of the planned profit in the end of the taxable year are losses, extraordinary dividends will be considered as expenses non connected with the commercial activity of the company and coefficient 1,5 will be applicable to all sum paid out as extraordinary dividends. Therefore the amount of the payable tax will increase and received extraordinary dividends will be not very good option for the shareholders of the company from tax point of view if there are paid out in dividends more than  company’s  made profit in appropriate financial year.

Therefore if decision on paying out of the extraordinary dividends are made by the shareholder it is recommended to evaluate the company commercial activity and to make as possible reasonable prognoses about planed results of the commercial activity in the end of the year to prevent the company from the situation when in the end of the financial year unreasonable paying out of extraordinary dividends is a result for additional tax payable.  

Special regulation

According to legislation if any extraordinary dividends will be paid out to the offshore or low tax territory shareholder, 30 % tax will be applicable. Therefore will  be ensured that CIT % are covered and also 15 % to the profit paid, and there are no risk that no tax are covered in the end of the financial year.

The legislature has not approved yet order of the extraordinary dividends determination, calculation and paying out.