Dividend Distribution Rules Luxembourg

Example: If a company pays a dividend of 100 euros and the taxpayer`s marginal tax rate is 39%, the amount of tax payable is calculated as follows: A dividend (ordinary or interim) is usually paid in cash, but can also be paid in kind, which is subject to additional approvals, conditions and formalities. A dividend is part of the profits generated by a company and distributed to its shareholders from distributable amounts within the meaning of Luxembourg law. Since the distributing company has already paid tax on the dividends distributed, it can benefit from an exemption of up to 50% if the distributing company: the distribution payments (dividends, profit shares and other income allocated in respect of shares, capital shares, profit shares or other equity of the companies concerned) are officially approved by all shareholders and recorded as such in the accounts, are considered regular dividends. Finally, before making a dividend distribution (ordinary or interim), contractual arrangements binding the company (including debt financing and contractual joint venture agreements) must be reviewed, as they may contain prohibitions or restrictions on such distributions. If the shareholders` decision not to distribute a dividend on distributable profit at the Annual General Meeting, which approves the annual financial statements for the past financial year, does not warrant discussion, the question often arises: can shareholders distribute a dividend later and under what conditions? Overall, all the revenue a company distributes to its partners is a dividend. This includes both regular dividends and hidden distributions. It should be noted that ordinary dividends can also be distributed without net income from distributable reserves. EU PSD GAAR: the participation exemption no longer applies to dividends distributed by a subsidiary established in another Member State (which would otherwise be eligible for the participation exemption) if the income is generated under an agreement or series of agreements introduced for the main purpose or one of the main objectives of obtaining a tax advantage, which is contrary to the object or purpose of the PSD. are not authentic, having regard to all relevant facts and circumstances. The right to a dividend depends on the existence of distributable profits and a decision of the competent body of the company. What is a dividend, under what conditions can a dividend be distributed and who can decide to pay a dividend? If a shareholder receives benefits that he would not normally have received if he had not been a shareholder, these benefits are considered a hidden distribution of profits by the tax authorities. Application for a reduction / partial refund of the withholding tax on dividends – Right to a reduction or refund of the Luxembourg withholding tax on dividends The hidden distribution of profits is included in the taxable income of the paying company and the beneficiaries. The refund of the premium and account 115 is controversial.

We cannot equate the distribution/repayment of Agios/Account 115 in all respects with the payment of dividends/distribution of interim dividends, as it is not a distribution of distributable profits and reserves. However, there are some limits to the distribution/refund of the premium/account 115. As already mentioned, Article 461-2 of the Luxembourg Law on Companies refers to ”distributions”. This is a broader concept than the mere distribution of profits/dividends and these provisions seal the pillar of all distribution restrictions. Therefore, the reimbursement of the share premium / account 115 should in any case meet the conditions of article 461-2 of the law. Such a repayment cannot therefore be made if the distribution would have the effect that the net assets declared at the date of declaration of the preceding financial year would be less than the amount of the subscribed share capital plus reserves, the distribution of which is prohibited by law or by the statutes. Beneficiaries who receive dividends must in principle declare them to the tax authorities of their country of residence. Article 461-2 also provides that ”no distribution may be made to shareholders in an amount equal to the amount of profits for the previous financial year, plus retained earnings and advance deductions from reserves available for this purpose and less the recovery of losses and amounts attributable to reserves under the law or statutes, Exceeds. In any case, if part of the share purchase premium / account 115 has not been made distributable by the articles of association of the company, an amendment of the articles of association by the shareholders is required before each distribution / refund.

In principle, the decision on the reimbursement/distribution of the premium/account 115 rests with the shareholders. Whether the Board of Directors can distribute the issue premium/account 115 as part of the distribution of an interim dividend is also the subject of legal debate. To the extent that the Premium Account and Account 115 differ from the distributable reserve accounts, we are of the opinion that the Distribution Resolution of the Annual General Meeting should be submitted to the Annual General Meeting for approval in the absence of management empowered to authorize the distribution of the 115 Premium Account/Account as part of the distribution of the interim dividend. The legal provisions that allow the board of directors to distribute interim dividends include distributable reserves, but not the share premium and similar premium accounts. In addition, the amounts indicated in the premium account and the 115 account do not result from the profits of the company, but from the contributions of the shareholders and their resolution. In the absence of express authorisation from the Management Board, the Management Board should therefore not be allowed to distribute/reimburse those amounts. The interim dividend is an initial payment on the next dividend to come. It is subject to several conditions laid down by Luxembourg law. It should be noted that the interim dividend consists of two parts: The company can distribute the profits in the form of dividends to its shareholders/shareholders in proportion to their shares in the company.

At the time of distribution of profits, dividends are taxable at the level of beneficiaries. `Except in the case of a reduction in the subscribed share capital, no distribution may be made to shareholders if, on the date of declaration of the preceding financial year, the net assets shown in the annual financial statements are less than the amount of the subscribed share capital plus reserves, the distribution of which is prohibited by law or by the statutes.` Statutory provision (Articles 461-3 LCC): Interim dividends may be distributed at any time under the following conditions: Since the interim dividend is based on interim/provisional profits, the interim dividend paid exceeds the distributable profit at the end of the financial year, this difference is considered an advance on the next dividend. Example 1: SA1, a Luxembourg public limited company, pays a dividend to SA2, an Italian company that has held 13% of SA1 for two years. SA1 does not have to deduct the withholding tax because the participation is greater than 10%. Anti-hybrid rule: The dividend exemption does not apply to dividends or profit distribution profits that are tax deductible in the hands of the distributing company. Partnerships are not profitable. Partnership income tax is borne by their partners, whether they earned that income or not. . . .