The company (LLC – payer of corporate income tax) pays dividends to its founders (also LLC – payers of corporate income tax) quarterly. For three quarters of last year, there was a profit, and the results of the year received losses. Is it correct to pay dividends for the three quarters of last year? Is it necessary to make any adjustments in accounting?
Yes, in this case the dividends were paid rightly.
The LLC may pay dividends for any period, which is a multiple of the quarter, unless otherwise provided by the charter. This right is enshrined in part 3 of Article 26 of the Law of Ukraine "On Limited and Additional Liability Companies" of 06.02.2018, No. 2275-VIII (hereinafter – Law on LLC). In this case, the main condition for accrual and payment of dividends is the presence of net income for a specific accounting period. There is no provision for the revision or conversion of dividends in connection with losses in subsequent periods.
Thus, no adjustments are required in this case. In the three quarters of last year, net profit was generated that could be distributed. Accordingly, the company fully legally calculated and paid dividends to its founders.
As for the afterlife of the overpaid dividend's advance call, you will not be able to pay it back. This is directly indicated by subparagraph 57.11.2 of the Tax Code of Ukraine (hereinafter –TCU). According to its norms, the amount of prepayments during the tax (reporting) period of dividend's advance calls from corporate income tax at dividend payment is subject to deduction in the accrued income tax liability declared in the tax return for such tax (reporting) period. If, however, the dividend's advance call paid exceeds the amount of the tax liability accrued for such a tax (reporting) period, then the amount of such excess is carried forward to reduce the tax liability of subsequent tax (reporting) periods until its full maturity. And when a taxable entity receives the negative value of such a subsequent period, it will reduce the tax liability of future tax (reporting) periods until it is fully paid.
Given these tax requirements, the LLC loses nothing. The dividend's advance call paid by the company for the profit quarters of the year will not be deducted from the income tax liability for the current year, since the LLC has received losses for the year. However, it can be taken into account in the reduction of income tax over the coming years. The mechanism of such transfer is provided in lines 16.3 and 16.4 of the ЗП supplement to the income tax return.
