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What are dividends? Dividends are that part of a company's profits that goes to shareholders at the end of each financial year; the total amount received will be in line with the number of shares they own in the company.
The General Meeting of Shareholders decides exactly how much is to be distributed in the form of dividends, or it can decide not to distribute the profits, which eliminates taxation.
How dividends and dividend tax are calculated
The calculation of the dividend tax varies depending on the status of the shareholders (individuals or companies).
When the company decides to share its profits with shareholders, the amount decided at the General Meeting will have to bear a 5% tax that will be paid to the state budget, according to the new Tax Code.
Let's take an example where a company wants to give its shareholders a total of 500,000 lei in dividends. And to make the example even easier to understand, we can consider that this company has only one shareholder to whom it has to pay dividends.
The tax paid to the state budget will be 5%*500,000=25,000 lei. The company is entitled to pay this tax up to and including the 25th of the month following the month in which the dividends are distributed.
At this point, the company is left with 475,000 lei to share/give to its shareholder.
Further, if the shareholder is an individual, they may be liable to pay additional dividend tax. If the total amount received by the individual from dividends and other income (e.g. rents) exceeds the threshold of 12 gross minimum wages, then the individual must also pay a CASS contribution.
From 1 January 2022, the minimum wage in the economy has become 2,550 lei per month and the ceiling of 12 minimum wages is 30,600 lei. In our case, the total amount of dividends (475,000 lei) far exceeds the 12 salaries. Thus, the shareholder has to pay an additional 10% tax.
The 10% CASS tax applies to the total amount of the 12 minimum wages, i.e. 10%* 30,600= 3,060 lei to be paid by the shareholder as an individual.
In the end, the shareholder is left with dividends of 475,000 - 3,060 = 471,950 lei.
Important:
1. Are exempt from the 5% dividend tax: NGOs; employers' or trade union organisations; companies receiving dividends and engaged in research, innovation, development; companies receiving dividends and having parent company status for a subsidiary in another EU member country.
2. The 10% CASS tax is separate from your CASS liability as an employee. The individual has to pay tax on both dividends and income from wages.
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