When starting a business in Romania, a common question among new entrepreneurs is “when can a new Romanian company pay dividends?”. It is understandable for entrepreneurs to want to know how quickly they can withdraw money from their company’s profits in the form of dividends. Shareholders want to get company profits into their pockets as soon as possible.
From a Romanian company law perspective, the answer is: relatively fast, assuming there is profit available for distribution in your company. Let’s see what this means in practice, as some shareholders may want their Romanian company distribute dividends to their accounts even faster than this.
According to the Romanian legislation in place for 2024, a Romanian company is allowed to pay dividends either annually, following the approval of the company’s financial statements for the previous year, or quarterly, throughout the year. The rules governing the distribution of profits under the form of dividends are specified in Law No. 31/1990, in Law No. 82/1991, and in the implementing Orders issued by the Ministry of Finance.
Whether a Romanian company is established at the end or at start of a year, or at any other time during the year, it is in principle possible to distribute dividends relatively quickly after its establishment. Of course, assuming there is profit in the company that can be distributed to its shareholders. Otherwise, dividends cannot be paid if the company has not generated any profits and is on a loss position.
More exactly, as per the applicable legislation, companies have the flexibility to pay dividends on a quarterly basis during the year. Therefore, if the necessary financial and accounting requirements are met at the company level, it is possible to withdraw funds from the company before the end of the calendar year.
For example, if a company is established on January 1st, and registers a profit for the first quarter of the year (January – March), it can distribute dividends immediately at the end of that quarter. However, it’s important to note that in all cases of quarterly dividend distributions, interim financial statements must be prepared. Specifically, starting from April, dividends can be distributed based on the approved interim financial statements.
Dividend distributions can thus be done on a quarterly basis, if shareholders of the company choose to do so.
Just keep in mind that dividend distribution policy must also be approved by the company’s Articles of Association or by a written decision of its shareholders.
In addition to the above, shareholders must know that there are also taxes due on dividends, as per the Romanian tax legislation.
In Romania, dividends are subject to an income tax rate of 8%. This rate applies to dividends paid to both resident and non-resident shareholders. A critical aspect of this taxation system is the withholding tax mechanism. Romanian companies distributing dividends are required to withhold the 8% income tax at source before making the payment to shareholders.
For resident shareholders, the 8% tax withheld at source typically fulfills their tax obligation for the dividend income. However, individual shareholders must still include this income in their annual tax return, if the total annual income reaches a certain government-specified threshold, becoming also subject to health insurance contribution.
Founded in 2008 as TAX IQ, our company has gained extensive expertise over the years, allowing us to effectively utilize our experience to benefit our clients’ best interests. Over time, we have succeeded to build a solid reputation as trusted tax advisor for the entire community of Romanian expats.
Founded in 2008 as TAX IQ, our company has gained extensive expertise over the years, allowing us to effectively utilize our experience to benefit our clients’ best interests. Over time, we have succeeded to build a solid reputation as trusted tax advisor for the entire community of Romanian expats.