Small businesses may benefit from a reduced withholding tax on dividend distributions if they meet a specific waiting period requirement. Generally, the withholding tax rate for dividends is 30%, but under the VVPRbis regime, this rate can be reduced to 20% or even 15%. In this article, we detail the waiting period requirements and other conditions to qualify for this tax advantage.
Different Rates under the VVPRbis Regime
The VVPRbis regime offers reduced rates with specific waiting periods:
20% Rate: This rate applies to dividends distributed from the profits of the second fiscal year following a cash capital contribution made during the company’s formation or a capital increase.
15% Rate: This rate is available from the third fiscal year after the cash capital contribution or for later fiscal years.
Typically, profit distributions are decided at the annual general meeting, often held in May or June of the following year. If dividends are distributed at other times, these may be considered interim dividends, declared at an extraordinary general meeting. In such cases, the waiting period can effectively be shortened by one year, as confirmed by tax authorities.
Eligibility Requirements
To qualify for the reduced rates of 20% and 15%, the following conditions must be met:
Small Company: The company must qualify as a small enterprise at the time of the dividend distribution.
Shares Issued after July 1, 2013: The shares must have been issued during the company’s formation or a capital increase after this date.
Cash Contribution: The capital must have been contributed in cash and fully paid.
Practical Examples
Standard Distribution Example: If a company is incorporated on July 19, 2020, and the first fiscal period extends to December 31, 2021, the 20% rate would apply to dividends distributed at the annual general meeting in 2024, based on the profits from the 2023 fiscal year. The 15% rate would be available from the 2025 annual meeting.
Interim Distribution Example: In the same scenario, an extraordinary general meeting in 2023 could distribute interim dividends at the 20% rate, while the 15% rate would apply to interim dividends distributed in 2024.
Optimizing Profit Distributions
If retaining profits in the company is not a priority, distributing them in line with the VVPRbis timeline can be advantageous. When liquidity is limited, distributions in kind or crediting the amount to a current account receivable from the company may also be considered.
Planning profit distributions according to the VVPRbis requirements can be a strategic tool for optimizing tax efficiency and managing business profits.
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