From July 2018 distribution of dividends in Romania is permitted before the closing of the financial year. The quarterly distribution is enabled through Law No. 163/2018 which was published in the Romanian Official Gazette on 12 July 2018 and took effect on 15 July 2018.
Until July 2018, the distribution of dividends in Romania was possible only after the financial year was closed and the net profit of the closed financial year was determined. As it can be imagined, such prohibition had implications from a cash-flow perspective for the shareholders of Romanian companies.
Distribution of dividends in Romania before July 2018
In this respect, the Romanian company law allowed for dividends to be distributed only from profits determined according to the law (i.e. after the closing of the financial year). Furthermore, the same law provided that the distribution of dividends in Romania, amongst others, in the absence of financial statements was fraud, action punishable with prison for the administrator of the company distributing such dividends.
To disallow such prohibition, the distribution of dividends in advance is possible in Romania starting from July 2018 when the company law and accounting law were modified (Law No. 163/2018) to enable the distribution in advance on quarterly basis.
Conditions of quarterly distribution
There are some conditions for allowing the quarterly distribution. The interim distribution can be performed during the year – only up to the quarterly net profit (after the mandatory reserves, if any, are set-up) –, but the carried forward losses must be off-set before the dividends can be distributed. The interim distribution must be based on interim financial statements approved by the shareholders. Such interim financial statements must be prepared therefore quarterly and they must be audited if the company is subject to mandatory audit (thus, increasing the costs and the administrative burden of the company).
The distribution of quarterly dividends is recorded in accounting as receivable against the shareholders and the settlement of the interim dividends must be performed after the annual financial statements are approved. In case the dividends distributed in advance are higher than the dividends approved through the annual financial statements, the overpaid dividends must be returned in 60 days from the date when the annual financial statements were approved (otherwise, interest would be due).
Having considered the above, the new provision is a step forward, from a cash-flow perspective, for the shareholders of Romanian companies.
If you would like to know more about distribution of dividends in Romania, please visit the homepage of Ensight, the exclusive representative of WTS Global in Romania.
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