Often, the owners of a newly established company want to withdraw some of the profit before the end of the year — but they do not have any accumulated profit from previous years. The solution is advance distribution of dividends. For a long time it was risky from a tax point of view, but the practice is now clearer.
In this manual, an accounting firm Rodi Consult (Varna) explains when it is permissible, what conditions it requires, and how it is taxed — updated for 2026.
In short: Advance distribution of dividends is permissible (confirmed by the Supreme Administrative Court and the National Revenue Agency) if there is a justified profit forecast, maintained capital coverage, a decision of the general meeting and an interim financial report. It is subject to 5% tax. If the advance amount exceeds the annual profit, the excess is a hidden distribution with a risk of sanction.
What are dividends?
A dividend is a distribution of profits among partners or shareholders. In the case of an LLC/LLC, the law speaks of "the right to a portion of the profits in proportion to the shares, unless otherwise agreed" - that is, the partnership agreement may provide for a different ratio. The decision to distribute is within the competence of the general meeting or the sole owner.
What is an advance dividend distribution?
This is a preliminary allocation of the current profit between owners before the financial year has ended — based on projected profit, not accumulated from previous years. The Commercial Code does not explicitly prohibit it, which makes it permissible under certain conditions.
Conditions for it to be legal
- Reasonable forecast for the net profit for the year;
- Maintaining capital coverage;
- Interim financial report under applicable accounting standards;
- Solution of the general meeting (or the sole owner), and the basis is in the partnership agreement.
Tax treatment - the new practice of the NRA
Previously, the NRA treated advance dividends as hidden profit sharing. With a new opinion (issue No. 33-00-165#1/09.06.2022) and decision of the Supreme Administrative Court No. 1304/11.02.2022, the position has changed: the advance distribution is now accepted as dividend distribution within the meaning of the CPC, as long as the conditions are met.
Important: if the amount distributed in advance exceeds the annual net accounting profit, the excess is treated as a hidden profit distribution - with the risk of a 20% sanction (Art. 267 of the CPC) upon audit.
How much is the tax?
The dividend is taxed at 5%. When the recipient is individual, the company withholds and pays the final tax by the end of the month following the month of the decision; the person does not declare it in the annual return. When the recipient is legal entity: a local trader does not owe tax, and for foreign legal entities or local non-traders 5% is withheld. For a link to the general taxation of profits, see our article on corporate tax.
FAQ
Can I distribute a dividend before the end of the year?
Yes. Advance distribution of dividends is permissible — confirmed by the practice of the National Revenue Agency and a decision of the Supreme Administrative Court. It requires a substantiated forecast for the annual profit, maintained capital coverage, a decision of the general meeting (or sole owner) and an interim financial report.
How is the advance dividend taxed?
The dividend is subject to 5% final tax. When the recipient is an individual, the company withholds and pays the tax by the end of the month following the month in which the distribution decision is made. Individuals do not declare this income in their annual tax return.
What happens if the advance dividend exceeds the annual profit?
If the advance distribution exceeds the annual net accounting profit, the excess is treated as a hidden profit distribution. It is also taxed as a dividend, and in the event of a tax audit, a penalty of 20% is imposed on the amount (Article 267 of the CITA).
Is tax paid on dividends to a company (legal entity)?
Depends on the status of the recipient. A local legal entity - a trader does not owe tax on the dividend received. For foreign legal entities or local individuals who are not traders, a 5% withholding tax is withheld.
Does an individual have to declare the dividend in the annual tax return?
No. Dividends received from local companies are subject to final withholding tax (5%), so individuals are not required to declare them in their annual tax return.
The conclusion
Advance distribution of dividends is now safer, but it requires precision — a forecast, an interim report, a decision, and attention to ensuring that the amount does not exceed the actual annual profit. Otherwise, you risk a penalty for hidden distribution.
Are you planning an advance dividend? Explore Rodi Consult accounting services or is contact us — we will prepare the interim report and documents correctly. Phone: +359 893 474 576.
This article is for informational purposes only and does not constitute accounting or tax advice. Please consult an accountant for your specific situation.
