Dividend for tax purposes
In connection with the taxation of dividends in Bulgaria with a withholding tax, the question arises as to what is included in the concept of dividend.
A dividend is a distribution in favor of a person resulting from his share in the capital of another person, as a result of which the equity capital of the latter is reduced, including:
- income from shares;
- income from shareholdings, including from unincorporated companies and from other rights, treated as income from shares;
- hidden profit distribution.
The distribution which according to the accounting legislation is accounted for by the allocating person as an expense, except for the cases of hidden profit distribution is not a dividend.
Hidden profit distributions are:
- the amounts unrelated to the activity carried out by the taxable person or exceeding the usual market levels, charged, paid or distributed in any form for the benefit of the shareholders, partners or persons related to them, with the exception of the dividends;
- accrued interest costs (unless the terms of the loan have been agreed in fulfillment of requirements provided for in a regulatory act), when at least three of the following conditions are present:
= the loan exceeds the equity of the payer of the income as of December 31 of the previous year;
= the repayment of the loan or the interest on it is not limited by a fixed term;
= the repayment of the loan or the interest on it or the amount of the interest is dependent on the availability or the amount of earnings of the payer of the income;
= the repayment of the loan is dependent on satisfying the demands of other creditors or on the payment of dividends.
