Dividend distribution in a limited liability company in the UKKO Entrepreneur service

A limited liability company may distribute dividends to its shareholders if the company has sufficient distributable funds and the dividend distribution does not jeopardize the company’s solvency.

In the UKKO Entrepreneur service, dividend distribution is processed in connection with the company’s financial statements. We will provide you with information about the company’s distributable funds and the amount of equity. Based on this information, you can decide the amount of dividends to be distributed.
 

How dividend distribution proceeds

1. We prepare a draft of the financial statements

When the draft of your company’s financial statements is ready, you can review it. The notes to the financial statements show, among other things, the company’s distributable funds and the amount of equity.

Please note that, among other things, the following factors affect the distribution of dividends:

• A shareholder loan affects the mathematical value of the shares and, consequently, may also affect the taxation of the dividend that can be distributed.
• In the case of shortened or extended financial years, the mathematical value of the shares is calculated based on the previous financial year.
   

2. Decide whether to distribute dividends

You can decide to distribute dividends or leave the retained earnings in the company. The amount of dividends cannot exceed the company’s distributable funds. However, the company must retain enough funds to pay its invoices, taxes and other obligations.

The decision to distribute dividends is made at the general meeting of shareholders, and the decision is recorded in the minutes of the meeting.
 

3. Determine the amount of dividends

The taxation of dividends is affected by the mathematical value of the shares. Generally, dividends corresponding to a maximum of 8% of the mathematical value of the shares are treated as capital-income dividends. If the dividends exceed this amount, the excess may be treated as earned-income dividends.

Shareholder loans and certain other factors related to the company or the shareholder may affect the mathematical value of the shares. If necessary, you can request further information from the service to support the calculation.

Here is a link to a dividend calculator Kokeile tästä osinkolaskuria
 

4. Send us the dividend distribution decision

Once you have made the decision, provide us with the amount of dividends to be distributed and the decision recorded in the minutes of the general meeting in the way requested in the service.
 

5. We finalize the financial statements and declarations

We process the dividend distribution based on your decision and finalize the financial statements. We also prepare the declarations related to the dividend distribution that are included in the service and send the completed documents to you for electronic signature.
 

6. Sign the documents

Sign the documents sent to you electronically. At the same time, check that the amount of dividends and the date on which the dividends become available for withdrawal correspond to the decision made by the company.
 

7. Pay the dividend and the advance tax withholding

Once the documents have been signed, you can pay the dividend to the shareholder on the date specified in the decision. The service generates the necessary payment documents:

• Dividend payment to the shareholder:
  • The payment document specifies the net dividend to be paid, i.e. the actual amount to be paid to you after deducting the amount of withholding tax.
  • If the limited company has more than one shareholder, a separate expense voucher will be created for the dividend payment to each shareholder.
  • Once you have paid the dividend amount to the shareholder(s), allocate the correct bank transaction to the relevant expense voucher and mark the expense as paid.
     
• Advance tax withholding payable to the Finnish Tax Administration:
  • The payment document specifies the amount of withholding tax payable to the Finnish Tax Administration on the dividends (7.5% / 28% of the dividend amount payable).
  • The due date is the 12th day of the month following the month in which the first possible dividend payment date falls. The exact payment details can be found in the tax return attached to the expense voucher.
  • Once you have paid the withholding tax to the Finnish Tax Administration, allocate the correct bank transaction to the relevant expense voucher and mark the expense as paid.

Dividend taxation in brief

Dividends paid by an unlisted limited liability company may consist of taxable capital income, taxable earned income and tax-exempt income. The tax treatment depends, among other things, on the amount of the dividend and the mathematical value of the shares.

If the dividend is no more than 8% of the mathematical value of the shares:

• Up to EUR 150,000, 25% of the dividend is taxable capital income and 75% is tax-exempt income.
• For the portion exceeding EUR 150,000, 85% is taxable capital income and 15% is tax-exempt income.

If the dividend exceeds 8% of the mathematical value of the shares, 75% of the excess is taxable earned income and 25% is tax-exempt income.

The EUR 150,000 threshold is calculated per shareholder. The total amount of dividends received from unlisted companies during the same year affects the calculation of the threshold.

More information of dividends can be found on Tax Administration's page
 

Advance tax withholding on dividends

The limited liability company withholds tax from the dividend before paying it:

• 7.5% on dividends up to EUR 150,000
• 28% on the portion exceeding EUR 150,000

Advance tax withholding is calculated on the full amount of the dividend, even if part of the dividend is tax-exempt income for the shareholder.

The advance tax withholding is generally paid to the Finnish Tax Administration by the 12th day of the month following the month in which the dividend became available for withdrawal. If the due date is not a banking day, it is moved to the next banking day. 
 

Pay attention to the date on which the dividend becomes available for withdrawal

The date on which the dividend becomes available for withdrawal is decided at the general meeting of shareholders. If no separate date is specified, the dividend is generally available for withdrawal immediately after the decision of the general meeting.

The dividend is generally taxed in the year in which it becomes available for withdrawal, even if you withdraw the money at a later date.
 

Frequently asked questions

Can I decide not to distribute dividends?

Yes. You can leave the retained earnings in the company. In that case, they are not paid to the shareholders as dividends at this stage.

Can I distribute more dividends than 8% of the mathematical value of the shares?

Yes, provided that the company has sufficient distributable funds and the other requirements for dividend distribution are met. However, the portion exceeding 8% may be taxable earned income for the shareholder.

Can I withdraw the dividend immediately after the general meeting?

You can, provided that the decision of the general meeting does not specify a later date on which the dividend becomes available for withdrawal. Check the date stated in the decision before making the payment.

What if the company has several shareholders?

A separate dividend payment document (expense voucher) is created for each shareholder. Pay the dividends according to the decision and match each payment with the correct document.

How many dividend distributions are included in the service?

The service fee includes one dividend distribution per financial year in connection with the company’s financial statements. Processing a dividend distribution based on financial statements prepared elsewhere is not included in the service.