Quarterly distribution of dividends starts in July 2018
Romanian Law now allows for dividends to be paid quarterly throughout the financial year.
Starting on 15 July 2018, business owners enjoy legislative amendments relating to the regulation of a new dividend payment system following entry into force of Law no. 163/2018 for the amendment and supplementing of Accountancy Law no. 82/1991, Companies Law no. 31/1990 and Law no. 1/2005 regarding the organisation and functioning of the cooperation (“Law no. 163/2018”).
Law no. 163/2018 sets forth a more flexible approach to the distribution of amounts registered as profits, throughout the course of the financial year. In particular, companies who register profits will now be able to approve and pay dividends to their shareholders not just annually, as was previously the case, but also quarterly. Moreover, the distribution of dividends earlier than the end of the annual financial year will no longer be classified as a crime and sanctioned with imprisonment, as was the case under former legislation.
At the same time as the implementation of the new dividend payment system, companies will now have an obligation to prepare interim financial statements along with the annual financial statements. Furthermore, the interim financial statements shall be subject to audit in cases where the respective entities have a statutory auditing obligation in relation to the annual financial statements, or in cases where such entities opt for auditing their annual financial statements. If such annual statements are subject to verification by censors, the same will apply to the interim financial statements as well.
Law no. 163/2018 further provides that entrepreneurs who decide to distribute profits throughout the financial year, within the limit of the quarterly net profit achieved, will always have to perform a re-evaluation of any interim distributions after approval of their annual financial statements. Following the re-evaluation process, any amounts received by shareholders over and above their entitlement will have to be repaid, within 60 days of the date of approval of the annual financial statements.
Therefore, this new payment system encourages the rotation of capital and new investments, as well as economic growth, and entrepreneurs will benefit from the fact that a company’s shareholders will not have to wait to make new investments or simply to receive dividends, as has been the case so far.
According to the old provisions, a company could only distribute dividends at the end of the financial year but, in reality, dividends were paid much later, due to the payment being conditional upon the approval of the annual financial statements, which most often occurred 120 – 150 days after the end of the financial year.
The legislative amendments also have a financial impact on the general government budget, by virtue of the shareholders who received quarterly dividends having to pay the associated income taxes quarterly to the general government budget, so effectively increasing the amount of available cash and bolstering budgetary reserves during the fiscal year. In addition, there is also the obligation to pay any income tax differences resulting from the re-evaluation of the profit account after the submission of the annual financial statements.
Should you have any questions or need further information in relation the above, please contact our Corporate Team: Silviu Stratulat, Managing Partner, at SStratulat@saa.ro; Ramona Iancu, Partner, at RIancu@saa.ro and Cristina Man, Managing Associate, at CMan@saa.ro, or call our office on +40 (21) 316 87 49.