From 1 September 2012 follow the news on economic operations here.

Payment of Net Profit, Reduction of Protective Interest

With recent changes of the Income Tax Act (in effect after 15 October 2011), the provision on liability of paying up profit or dividend to natural persons (stakeholders or shareholders) to their giro account at a commercial bank has been cancelled.

In other words, net profit can be paid up again in cash or on behalf of their current account (as it was before this repealed provision entered into force, i.e. until 1 July 2010). Other than paying that way, one can pay up net profit through calculation payment (eg. compensation).

However, the company – profit payers, i.e. dividend payers, are obligated to keep records about calculated and paid up dividends and stakes in the profit per each individual natural person – user of the paid up amount, and to advise Tax authorities about it, in a way and within deadlines prescribed by changes of the Rulebook on Income Tax (which at the moment of writing this article haven't been determined yet), by the competent minister.

The same changes of the Act include the change of protective interest rate too, which has been reduced from 4% to 3%. Protective interest is used to determine receipts in-kind on the basis of more favourable interest, in order to pay income tax and possible contributions.

Example: if a company approves a loan to their employee, at 2% interest rate per year, the difference between such agreed upon interest and legal protective interest (the difference in our example is 1%) is treated as a salary in-kind and it's basis for calculating all prescribed taxes and contributions.

Published: 24/11/2011

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