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Extraordinary dividends changes from 01.07.2014. Latvia

July 22, 2014   •  17:11    •   Category: News

From 1 July 2014 changes to the Commercial Law of Latvia allow companies to pay dividends (extraordinary dividends) from the profits of the current year. Only 85% of the profit from the current year may be paid out as dividends.

Amendments to the articles of association regarding extraordinary dividends

For the company to be able to declare extraordinary dividends, the company must first make amendments to its articles of association providing that dividends may be defined and calculated from the profit gained in current financial year.

Amendments to articles of association may state terms and conditions for the management board to hold the shareholders’ meeting for deciding on extraordinary dividends.

Amendments of the articles of association must be registered with the Commercial Register.

Responsibilities of the management board regarding extraordinary dividends

The management board may make suggestion about the amount of extraordinary dividends justified by the profit of the company available for distribution. In order to decide on extraordinary dividends the management board must prepare a financial report for the period to be covered by the particular extraordinary dividend. The report must be prepared in line with the general rules for preparation of the annual report. The prepared financial report and recommendation of amount available for distribution as extraordinary dividends is sent to shareholders.  

Decision of shareholders.

The management board making recommendations to the shareholders about how much profit is to be distributed as a dividend must confirm:

1)  financial situation of the company has not worsened from the moment of preparing the financial report

2)  payment of the extraordinary dividend does not put the company in a situation where it might not be able to fulfil its obligations for the rest of the financial year.

The shareholders’ meeting must not increase the amount of profit available for distribution as extraordinary dividends. The amount of dividends must not exceed the amount recommended by the management boar

Declaration and payment of extraordinary dividends

Decision about the payment of extraordinary dividends must take place:

1)  not earlier than 3 months after  the previous decision about distribution of dividends

2)  not later than 3 months after the period for which the particular financial report has been prepared

The shareholders’ meeting can decide on distribution of extraordinary dividends, if company meets following requirements:

  1) company does not have tax debts;

  2) company’s tax payments are not deferred or divided into instalments and advance tax payments are not reduced.