Understanding “Dividend”
In Bulgaria, dividends are the income shareholders and partners receive based on their participation in the capital of domestic legal entities. According to Bulgarian law, “dividend” refers to distributions arising from shareholdings that reduce a company’s equity capital. These distributions include:
- Income from shares,
- Income from shareholdings, including those in unincorporated companies, and
- Other rights classified as income from shares.
Sources of Dividend Distribution
Under the Commercial Act, shareholders and partners have specific rights related to company profits, including the right to dividends. In limited liability companies (LLCs), partners are entitled to dividends proportional to their shares unless an alternative arrangement exists. Dividend rights are tied to those holding shares at the time of the profit distribution decision.
Dividends are distributed to the following types of shareholders:
- Domestic and foreign individuals,
- Local legal entities, and
- Foreign legal entities.
Conditions for Dividend Distribution
For a company to distribute dividends, certain conditions typically apply:
- Completion of the financial year,
- Adoption of the annual financial report and balance sheet,
- A resolution from shareholders regarding the distribution and payment of profits.
Requirements for Dividend Distribution
The primary requirement for dividend distribution is the availability of profit, either accumulated from past financial years or transferred as reserves. The Commercial Act does not restrict the timing or frequency of dividend distributions; these decisions are at the discretion of the general meeting, provided there is profit available for distribution.
The advance distribution of dividends—where dividends are paid based on current-year profits before finalizing annual accounts—is a possible scenario. The Commercial Act does not explicitly prohibit this, which suggests that advance distribution is permissible if aligned with a company agreement or a shareholder resolution.
In 2022, the Supreme Administrative Court confirmed that no legal prohibition exists against advance dividend distribution. Additionally, a 2022 opinion from the National Revenue Agency (NRA) states that advance dividends are no longer treated as hidden profit distribution, provided the following conditions are met:
- Past profits have been distributed,
- Current period profit exists with applicable corporate taxes, and
- Reasonable projections support that annual net profit will allow the advance dividend distribution.
If advance distributions exceed the actual profit available at year-end, this can result in an undisclosed profit distribution, considered to have occurred at the time of the advance payment.
Method of Payment
As of September 1, 2023, dividends exceeding BGN 1,000 must be paid via bank transfer, from the company’s account directly to the recipient’s personal account. For amounts below BGN 1,000, cash payments are permitted, contingent on separate resolutions by the owners for each amount.
For more information please reach out to us at sofia@eurofast.eu