Founding of an association (2025)
This article will give you all the information you need about the process of setting up and registering a society, the documents required and the costs.
What is an Extraordinary Dividend?
Extraordinary dividends are part of the net profit for the current reporting period that is distributed to the owners, even before the annual report is presented.
It is important to note that the payment of extraordinary dividends is governed by the Commercial Code and is subject to certain conditions and restrictions.
These dividends differ from ordinary dividends in that extraordinary dividends can be paid several times a year.
Here you will find all the information you need on extraordinary dividends, the conditions and restrictions.
Information will correspond to changes Commercial Law, which comes into force on 16.07.2025.
Unlike ordinary dividends, extraordinary dividends can be paid even by newly established companies if certain conditions are met. Ordinary dividends are usually paid out of profits accumulated in previous financial years.
This means that even a new company can benefit from an extraordinary dividend if it meets the requirements. This option can be particularly attractive for young companies that do not have enough income to pay salaries and related taxes.
In order for a company to pay an extraordinary dividend, a number of conditions must be met (Commercial Code, Art.161.1 and Art.161).
The company must not have accumulated losses or tax debts, including deferred tax. This ensures that dividends are not paid at the expense of the company's financial stability.
There must be a reasonable expectation that the payment of the dividend will not interfere with the entity's ability to meet its obligations during the remaining months of the financial year. The entity must be able to meet its financial obligations after the dividend is paid.
The company's share capital must be at least €2800. This means that micro-businesses with lower share capital can only pay ordinary dividends.
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Only €25The board of directors of the company must prepare a financial report covering the period for which the distribution is proposed. This report must comply with the legal requirements for annual financial statements. It must be accurate and comply with the applicable laws and regulations.
Extraordinary dividends can technically be paid 4 times a year, with at least 3 months between each payout decision. In addition, the decision must be taken within 3 months after the end of the accounting period from which the dividend is paid. This limitation is intended to ensure a prudent and sustainable distribution of profits.
The amount of the dividend distributed may not exceed the amount proposed by the board of directors and must be in proportion to each owner's contribution, unless otherwise specified in the company's articles of association. It must be ensured that the amount to be paid is reasonable and corresponds to the investment of the owners. The amount of the extraordinary dividend shall not exceed 85% of the profit as calculated in the financial statements.
The company's articles of association should expressly authorise the payment of extraordinary dividends, specifying the conditions for such payments. The articles of association must be drafted appropriately to reflect this possibility.
The URonline team will prepare and submit all the necessary documents on your behalf
Only €25In Latvia, the distribution of profits is subject to 20% corporate income tax (CIT), as set out in Section 3(1) of the CIT Law.
The calculation involves dividing the dividend amount (D) by 0.8 and then multiplying the result by 20%: (D/0.8) * 0.2.
When calculating your tax, it is important to take into account the nuances of calculating the dividend tax.
For example, if the owner wants to receive €8,000, the GST is calculated as (8,000 / 0.8) * 0.2 = €2,000. The VAT must be transferred to the Treasury Single Tax Account:
* Beneficiary: State budget (SRS)
* Registration No: 90000010008
* Beneficiary authority: the Treasury
* BIC code: TRELLV22
* Account number: LV33TREL1060000300000
The amount of dividends distributed to the owner of the LLC is not subject to personal income tax (PIT) or compulsory state social insurance contributions (VSAOI). It is also important to calculate the UIT correctly in the case of an extraordinary dividend to avoid problems with the SRS.
Members of the company's board of directors do not have to have an employment contract and pay themselves a salary if the following conditions are met:
Extraordinary dividends are prohibited in a small-capital LLC.
The corporation tax (CIT) on dividend payments is 20%.
If the sole member of the limited liability company and the member of the board of directors himself provides a service and produces and sells goods in small quantities, he can pay himself dividends once a year or extraordinary dividends every 3 months.
Suppose you are the sole owner of a business that earned €15 000 between 1 January 2024 and 31 March 2024. You decide to pay EUR 8 000 as an extraordinary dividend.
1. On 1 April 2024, you and your accountant prepare the financial statements for the period. This statement must show the financial position and profit of the company for the period.
2. on 15 April 2024, as the sole owner of the LLC, you create and sign Member's Resolution No 1/2024, resolving to pay EUR 8 000 as an extraordinary dividend to your personal bank account. The resolution must be documented and archived in accordance with the laws and regulations.
3. the accountant calculates the GST: (8000 / 0.8) * 0.2 = EUR 2 000. The calculation must be accurate and comply with the VAT law.
4. This amount is transferred to the Treasury as a payment of GST. The payment must be successful and documented by a payment order.
5. by 30 January 2025, the accountant shall prepare and submit to the State Revenue Service (SRS) a report on payments to natural persons declaring a dividend payment of EUR 8 000 under income code 3011. The report must be submitted on time and in accordance with the requirements of the SRS.
The total cash flow from the company is EUR 10 000, of which EUR 2 000 goes to the CIT and EUR 8 000 to the shareholder. If the company had several shareholders, the minutes of the Shareholders' Meeting would replace the decision. In this case, it is important to ensure that all shareholders agree to the payment of the dividend.
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Only €25In order for a company to pay an extraordinary dividend, it must comply with all the conditions set out in the Commercial Code. The Commercial Code regulates the activities of companies in Latvia and sets out the requirements for the payment of dividends, share capital and other important matters. It is important to make sure that the company complies with all the provisions of the Commercial Code to avoid legal problems and penalties.
Procedure for amending the Statutes includes a number of steps to be taken to formally authorise the payment of extraordinary dividends. The first step is a decision by the members' meeting to amend the articles of association. At this meeting, the members must decide that the Articles of Association include a clause on extraordinary dividends. The resolution must be in writing and signed.
The following documents are required to register amendments to the statutes with the Register of Companies:
Application form KR18
Minutes or decision of the meeting of members
New version of the Statutes
An important aspect to take into account is the small capital Increase in the share capital of a limited liability company. The share capital may be increased only on the basis of a resolution of the meeting of members setting out the terms of the increase. This resolution must be adopted before the amendment to the statutes is registered and must be included in the documents to be submitted.
A share capital increase may be necessary if a company wishes to pay an extraordinary dividend but does not have sufficient available funds. By increasing share capital, a company can raise additional funds and have the means to pay a dividend.
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Only €25The following documents are required to increase the share capital and register amendments to the articles of association with the Register of Companies:
Application form KR18
Minutes or decision of the meeting of members
New version of the Statutes
Rules for increasing share capital
Applications by members or third parties to acquire shares
Compartment of the register of members
Payment service provider's statement or payment order for part payment
The registration process with the Registrar of Companies is the final step for the approval of the amendments to the statutes. Documents can be submitted electronically. A state fee of EUR 20 must be paid at the time of submission. The Register of Companies will examine the application within 1-3 working days and decide on the registration of the amendment to the articles of association.
If all the documents are prepared correctly and comply with the legal requirements, the amendments to the articles of association will be registered with the Companies Registry and the company will be able to legally pay the extraordinary dividend. After registration, the company will receive a notification of the registration of the amendment to the articles of association.
Make sure your company's articles of association allow for the payment of extraordinary dividends.
Decide to amend the Articles of Association to include an extraordinary dividend.
Prepare the application (form KR18), the minutes of the members' meeting, the new version of the statutes and, if necessary, the share capital increase documents.
Ensure all documents are signed with a secure e-signature.
Submit your documents within 14 days of the decision.
Pay the €40 stamp duty.
The application will be examined by the Registrar of Companies within 1-3 working days.
Extraordinary dividends can be a useful tool for distributing profits to shareholders. However, it is very important to comply with all legal requirements to avoid potential problems. It is highly advisable to consult a qualified accountant and legal advisor before deciding on an extraordinary dividend.
Don't forget to check the latest legislative changes to ensure compliance with the requirements that will apply in 2025. Regular consultations with experts will help you avoid mistakes and ensure that your business is compliant with the law.
The URonline team will prepare and submit all the necessary documents on your behalf
Only €25An extraordinary dividend is a portion of a company's profits for the current reporting period that can be distributed to owners before the annual report is approved. Unlike ordinary dividends, they can be paid several times a year if certain conditions laid down in the Commercial Code are met.
The main differences are:
Payout time: Extraordinary dividends can be paid out of current period profits without waiting for the year-end and approval of the annual accounts.
Frequency of costs: They can be paid several times a year (technically up to four times), with at least three months between decisions.
Suitability for new businesses: Even newly established companies can pay extraordinary dividends if they are profitable and the other conditions are met. Ordinary dividends are most often paid out of accumulated profits from previous years.
In order to pay an extraordinary dividend, a company must comply with a number of provisions of the Commercial Code:
Share capital: The company must have a share capital of at least €2,800. Extraordinary dividends cannot be paid in a small-capital LLC.
No losses and no debts: The entity must not have accumulated losses from prior periods and tax debts.
Solvency: The board must have reasonable assurance that the payment of the dividend will not jeopardise the entity's ability to pay creditors for the remainder of the financial year.
Compatibility of the Statutes: The company's articles of association must explicitly provide for the possibility of extraordinary dividends.
Financial overview: An interim financial report must be prepared for the period for which the dividend is calculated.
Limit on the amount payable: A maximum of 85% of the profit for the period may be distributed as an extraordinary dividend.
Extraordinary dividends are subject to 20% corporation tax (CIT), just like ordinary dividends. In fact, the calculation amounts to 25% on net dividends. For example, if the owner wishes to receive €8,000, the UIT will be €2,000 ((8,000 / 0.8) * 0.2).
As a natural person, the owner does not have to pay any additional personal income tax (PIT) or compulsory state social insurance contributions (SSSIC).
No, a small-cap SIA (with a share capital of less than €2,800) cannot pay an extraordinary dividend. To do so, the share capital must first be increased to the minimum amount required by law.
Exceptional dividends can be paid up to four times a year. Dividend payments may be decided no more frequently than every three months. In addition, the decision must be taken within three months of the end of the period for which the dividend is calculated.
If the statutes do not provide for this possibility, the statutes must be amended. The process includes:
Convening a meeting of members and deciding whether to amend the statutes.
Preparation of the necessary documents (application form KR18, members' resolution, new version of the statutes).
Filing documents with the Register of Companies and paying the state fee.
It depends on the situation. If a company has only one shareholder, who is also the sole member of the board, and a monthly turnover of less than five minimum salaries (€3,700 in 2025), he may not receive a salary and may pay out the profits in dividends. In this case, the tax burden is lower (only 20% UIT) compared to payroll taxes. However, it should be borne in mind that no social contributions are payable in the absence of a salary.
Let's assume that "X" Ltd makes a profit of €15 000 from 1 January to 31 March. The sole owner wishes to pay €8,000 in dividends.
Financial overview: The Accounting Officer prepares the financial statements for the three-month period.
Decision: The owner accepts and signs the shareholder's resolution to pay an extraordinary dividend of €8,000.
Calculation of GST: The accountant calculates the GST: (8000 / 0.8) * 0.2 = €2000.
Payment of tax: The company transfers €2000 to the Treasury.
Dividend payments: €8000 is transferred to the owner's personal account.
Report to the SRS: By 30 January of the following year, the accountant submits a report to the SRS declaring the dividends paid.
Mistakes often occur when the type of company is incorrectly reflected in various documents or when the cadastral designation of the registered office is incorrect.
The Statutes should expressly provide for the possibility of extraordinary dividends.
To do this, the share capital must first be increased to at least EUR 2 800. It is important to remember that the share capital of a small-capital limited liability company cannot be increased by a pecuniary contribution. Only after the share capital has been increased and the relevant changes have been registered with the Companies Registration Office, can the Articles of Association be amended to provide for extraordinary dividends.
The resolution of the meeting of members must approve the terms of the share capital increase, which must contain all the necessary information.
In addition to the standard documents (KR18, minutes, articles of association), the terms of the share capital increase and documents proving payment must also be submitted.
When the share capital changes, the value of the members' shares also changes, which must be accurately reflected in the new section of the register of members
Make sure the documents are in the correct format.
Documents must be signed with a secure electronic signature and time stamp.
Before submitting the documents, you must make sure that the amount of the stamp duty is correct and that you have paid it. Any incorrect or overpaid amount can be recovered by applying to the Companies Registry.
If the UR finds an error, the notary public postpones the decision for up to 30 days, pointing out the deficiencies. It is important to react promptly to such decisions and make the necessary corrections so that the registration process is not delayed and stamp duty is not lost.
Website of the Register of Companies (UR): [https://www.ur.gov.lv/]
State Revenue Service (SRS) website: [https://www.vid.gov.lv/]
Commercial Law: [https://likumi.lv/]
This article will give you all the information you need about the process of setting up and registering a society, the documents required and the costs.
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