12 Nov Distributing dividends to companies or persons: when and how much?
Distributing dividends to companies or persons: when and how much?
3 November, 2021
Have you already thought about your options for paying out a dividend this year? It’s important to do this well in time so that the dividend decision is made in the financial year. Only then can the dividend be set off against any payment claims on the shareholder. We’d like to share some important points you need to consider.
Distribution of dividends between companies
Do you have room to pay out dividends? If so, you should really get started now. Dividend payments between companies are exempt from dividend tax because the so-called participation exemption applies (from a holding of 5% of the shares). By assessing your liquidity, solvency and equity, you can determine how much dividend you can pay to the shareholder company.
In general, it is advisable to pay out as much surplus cash as possible to the shareholder and to keep the active company ‘lean’. When doing so, of course, sufficient liquidity needs to stay available for you to reach your business objectives. But there are other ways to do this as well, such as through a money loan provided by the shareholder company. What’s more, if you are dealing with a credit agreement, it is imperative that you check whether specific requirements have been set for certain ratios. A dividend distribution usually negatively affects these ratios.
Dividend distribution to natural shareholders
The payment of dividends from your holding company to yourself as a natural shareholder is also a matter worth paying attention to. Perhaps you have made some consumptive private withdrawals during the year. It can certainly do no harm to not let these accumulate too much, so as to ensure they are repaid through a dividend distribution. In this case, you do need to pay dividend tax on the dividend distribution. At the moment of distribution, your company pays 15% to the tax authorities and you pay the remainder of 11.9%.
If your holding company has a claim on you for more than € 500,000, it is likely that you have to deal with the consequences of the Bill on Excessive Lending later on. The timely distribution of dividend could therefore be a useful option to (partially) repay the debt in advance.
Statutory conditions for the distribution of dividends
In order to pay out a dividend, Dutch law stipulates that companies must conduct a balance sheet test and distribution test. The balance sheet test assesses the possible distribution, taking into account reserves that you are obliged to keep in accordance with the articles of association or the law. The distribution test examines whether a dividend distribution does not result in you no longer being able to pay creditors. This test is performed by the board of the company.
Restrictions of Emergency Bridging Measure for Sustained Employment (NOW) on dividend distribution
If you have made use of Temporary Aid Scheme to Maintain Employment, (in Dutch: tijdelijke Noodmaatregel Overbrugging voor behoud van Werkgelegenheid or NOW), restrictions may apply to paying out a dividend. We recommend consulting the applicable rules in advance in such cases.
Do you have any questions about dividend distribution or could you use some help? Please contact one of our advisors.