The main purpose of any business is to make a profit. In this case, the part of the net profit distributed between the participants (owners) according to their share in the equity of the company, are called dividends (para. 4 of Accounting Standards 15 “Revenue”). Dividends can be paid when, according to the accounting, the company received a net profit. What are the accounting and tax consequences of dividend payment for the issuer?
When dividends to be paid
As it was mentioned, dividends can be paid if, according to the accounting records, the company received a net profit. However, this is not the only source of dividend payment. For example, joint-stock companies can pay dividends on preferred shares at the expense of reserve capital or special fund.
In addition, business entities (where the current legislation also includes, in addition to joint-stock companies, limited or additional liability companies, general and limited partnerships) may pay dividends from both the net profit of the current reporting period and the net profit of the previous periods (years) remaining unallocated.
In order to pay dividends, it is possible to use both the whole amount and part of undistributed profits. Since liability for non-payment of dividends by economic partners is not provided by the legislation in force, they can pay them immediately for a few years.
Accounting
As for the transactions for dividend payment and accruing, it should be noted that they do not affect the issuer’s expenses or income, and therefore do not change the subject to the income tax. In accounting, the accruing of dividends to the founders is reflected by the record: Dr 443 “Profit used in the reporting period” − Cr 671 “Payments on accrued dividends”.
Payment of dividends is reflected by the record: Dr 671 − Cr 311 “Current accounts in national currency” (301 “Cash in national currency”).
At the end of the year, the balance on the sub-account 443 should be closed in correspondence with sub-accounts 441 “Profit undistributed” and/or “Uncovered losses” with the deduction of the balance on one of these sub-accounts.
Exceptions are dividend payments in kind. They are reflected in the usual way as a sale and purchase transaction.
Tax consequences
Taxation of the value added tax (hereinafter − VAT) also depends on the form in which dividends are paid. Dividends paid by the issuer in cash or in the form of securities are not subject to VAT taxation (para. 196.1.6 of TCU).
At the same time, if the payment of dividends is carried out in a commodity form (goods, products, etc.), such transaction is subject to VAT on general grounds as a normal sale of goods. Payment of dividends in the commodity form is subject to VAT taxation in the general order at a rate of 20%. In this case, at the date of such “payment”, the company should make a tax invoice, register it in the Unified Register of Tax Invoices and include the amount of VAT to tax liabilities for the relevant reporting period.
Payment of dividends to individuals and legal entities has its own peculiarities. In particular, an issuer of corporate rights who makes a decision to pay dividends to its founders, legal entities that are residents of Ukraine, calculates and contributes an advance payment of the income tax to the budget. It is calculated at a rate of 18%. Under this condition, the amount of dividends payable is not reduced by the amount of the advanced payment. Professional “De Visu” consultants are eager to show all the nuances of dividends payments and their taxation.
