Contributions on dividends: when health insurance contributions are payable

Contributions on dividends are one of the topics that leave shareholders and managing directors of limited liability companies (s.r.o.) scratching their heads. The question “do I pay health insurance contributions on my profit share?” has no single universal answer – it depends mainly on the accounting period for which the profit was made.

Why the period of the profit matters

The rules on taxing dividends and levying contributions on them have changed several times over the years. What is decisive is the accounting period for which the profit was made, because that is what determines whether the profit share is subject to health insurance contributions, income tax, or both, and how much is due. That is why you cannot say across the board that “dividends are (not) taxed” – you always have to start from the specific accounting period and the rules in force for that year.

• profit for older periods – a different regime from more recent ones
• what counts is the accounting period in which the profit was made, not the year of payment
• the regime has changed over time, so the period needs to be identified

Health insurance contributions on dividends

For profit from certain periods, health insurance contributions were paid on the profit shares distributed, and these were settled in the annual health insurance reconciliation. For other periods, dividends are not subject to health insurance contributions but are subject to withholding tax. It is therefore essential first to determine precisely which period’s profit is involved.

Social insurance contributions on dividends

An ordinary dividend (a shareholder’s profit share that is not remuneration for work) is generally not subject to social insurance. The situation is different if it is a managing director’s remuneration or income that has the nature of a wage – in that case, contributions do arise and are assessed as for an ordinary employee.

Profit share vs. remuneration for work

The key is to distinguish a pure profit share from remuneration for holding the office. If a managing director receives remuneration for work, it is subject to contributions as for an employee. An after-tax profit share is treated differently. Confusing these two types of payment is the most common mistake when paying out.

• profit share – a different regime from a managing director’s remuneration
• remuneration for work is subject to both social and health insurance
• labelling the payment correctly determines the contributions

Dividends from abroad and from another company

A special situation arises when the profit share comes from a foreign company or when it is a profit share paid between companies. In that case, the assessment also takes into account where the income comes from, whether a double taxation treaty exists and what the relationship between the companies is. An individual who receives a dividend from abroad must take care to declare this income correctly, because different rules may apply to it than to a domestic profit share. For cross-border payments in particular, we recommend a consultation so that you avoid double taxation or, conversely, undeclared income.

How to avoid mistakes

Before distributing profit, it is worth going through which years the profit comes from and setting the tax and contribution regime accordingly. The general meeting’s decision on the distribution of profit should be unambiguous, so that it is clear what is a profit share and what is any remuneration.

Summary

Contributions on dividends depend on the period in which the profit was made and on the nature of the payment. At Bilvao, we will help you identify the correct regime and set up the payment so that it is efficient in terms of both tax and contributions. Check the specific rates and caps for the period concerned.

Related articles: How the assessment base for contributions is calculated, Sick leave for self-employed persons and sickness benefits, Obligations towards insurers when closing a business.

Frequently asked questions

Do I pay health insurance contributions on all dividends?

No. It depends on the accounting period for which the profit was made. For some periods, dividends were subject to health insurance contributions; for others, they are subject to withholding tax and no contributions. That is why you first need to determine the period of the profit.

Is a profit share subject to social insurance?

A shareholder’s ordinary profit share is generally not subject to social insurance. However, if it is a managing director’s remuneration for holding the office or income of a wage-like nature, contributions do arise. What matters is distinguishing the payment correctly.