Dividend
Profit distribution to shareholders. The distribution is limited by the statutory distribution test (balance test and distribution test, art. 2:216 DCC).
What does dividend mean?
Profit distribution to shareholders. The distribution is limited by the statutory distribution test (balance test and distribution test, art. 2:216 DCC).
Dividend is a distribution on shares. For a BV (private limited company), a distribution resolution can only take effect after approval by the board; the board assesses whether the BV can foreseeably keep paying its due debts. Restricted reserves also limit the distribution.
How does it work?
Dividend at a BV requires two decisions. The general meeting adopts the distribution, to the extent that equity exceeds the statutory and articles-based reserves (art. 2:216(1) DCC). That resolution has no effect until the board approves it; the board refuses if it knows or should reasonably foresee that the BV will not be able to keep paying its due debts afterwards (paragraph 2). If it goes wrong, directors who knew or should have foreseen this are jointly and severally liable for the shortfall, and the shareholder who knew compensates the shortfall, up to the amount received (paragraph 3).
In the books, dividend is not an expense. It is deducted directly from equity and, until it is paid, is a debt to the shareholder. The BV withholds 15% dividend tax (art. 5 Dividend Tax Act 1965) and files the return and pays the tax within one month after the dividend is made available.
Example
A BV has equity of € 260.000, of which € 40.000 is a statutory reserve. Room under the balance test: € 220.000. On 1 July the meeting resolves to pay € 100.000 in dividend. The board checks it against the liquidity forecast: bank balance € 130.000 and € 70.000 more receipts than payments over the next twelve months. Approval follows. Entry: other reserves € 100.000 debit, dividend payable € 85.000 credit and dividend tax payable € 15.000 credit. The shareholder receives € 85.000; the BV pays € 15.000 to the tax authorities within one month.
In the annual accounts
Movement in equity or dividend liability after a valid resolution, not operating costs.
Difference from the salary of the director-major shareholder
Salary is remuneration for work and a business expense that reduces profit; the BV withholds payroll tax on it. Dividend is a distribution out of profit after corporate income tax to the shareholder and is not an expense. A withdrawal on current account is something else again: a loan that the shareholder must repay and that appears as a receivable on the BV's balance sheet.
Common mistakes
- Booking dividend as a P&L expense
- Assessing only the current bank balance
What to watch for
- Record both the resolution of the meeting and the approval of the board in writing, with the balance test calculation and the liquidity forecast attached.
- If the BV pays an interim distribution, test with current figures and not with the last annual accounts.
- The tests are the same for micro and large companies. See How much dividend may I pay out? and, for a resolution after the balance sheet date, Dividend after the balance sheet date.
Legal basis and source
art. 2:216 DCC
Frequently asked questions
Is dividend deductible from profit?
No. Dividend is a distribution of profit after tax, not a business expense. It reduces equity, not the result.
May a BV pay dividend in a year with a loss?
It can, if equity after the distribution stays above the statutory and articles-based reserves and the board expects the BV to keep paying its due debts. The distribution then comes from reserves of earlier years.
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