What is a dividend (profit share) and how is it taxed in Slovakia

Dividend is a concept that entrepreneurs and investors come across very often. In practice, however, this term covers two different legal regimes – depending on whether the company is a joint stock company (a.s.) or a limited liability company (s.r.o.).

In this article we explain:

• what is a dividend and what is a profit share,
• who is entitled to it,
• how profit is paid out in a limited liability company,
• how dividends are taxed in 2024-2026,
• what mistakes to watch out for.

Dividend vs. profit share: what’s the difference?

Although in common parlance the term dividend is also used for LLCs, legally they are different institutes:

• A joint stock company (a.s.)
  → pays a dividend to shareholders.
• Limited liability company (s.r.o.)
  → pays a share of profits to the shareholders.

In this article, we also use the term “dividend” for LLCs in a simplified, colloquial sense, with the legally correct term being a share of the profits.

Who is entitled to a dividend or profit share?

The entitlement arises for a person who:

• is a shareholder (a.s.) or a partner (s.r.o.),
• shall have that status on a record date to be determined by the General Assembly,
• the company has made a profit after tax and the general meeting has decided on its distribution.

However, making a profit does not automatically mean that the profit must be paid out.

How is the payment of profit share in s.r.o.

The LLC regime is stricter than many entrepreneurs realise.

Basic conditions of payment

A profit share can only be paid if:

1. ordinary or extraordinary accounts have been approved,

2. the company shows a profit after tax,

3. the general meeting decides on the distribution of profits.

Legal restrictions (key in practice)

A profit share cannot be paid if:

• the company would thereby cause its own bankruptcy (no proximate causation is required),
• the equity falls below the legal limit after the payout,
• the company has unsettled losses from previous years that the law requires it to cover,
• it is an advance on a profit share (which is prohibited in an LLC).

Taxation of dividends and profit shares (overview by year)

The taxation of dividends depends on the year in which the profit is made, not the year of payment.

Profits for 2017 – 2023

• withholding tax: 7%
• without health levies

Profit for 2024

• withholding tax: 10%
• without health levies

Profits for 2025 and beyond

• withholding tax: 7%
• without health levies

The tax is withheld and paid directly by the company; the recipient of the dividend no longer includes it in the tax return.

Legacy profits and health levies (2011-2016)

A special regime applies to dividends from earlier years:

• Dividends from 2011-2016 profits
  → generally not subject to income tax,
  → but may be subject to health levies.

In the past, the health levy rate has varied according to the period and the status of the insured person. Therefore, individual assessment is recommended for older earnings, especially if higher amounts are involved.

Dividends from abroad and non-residents

If it is the recipient of a dividend:

• tax non-resident of the Slovak Republic, or
• a person from a state designated as a non-cooperative jurisdiction,

higher withholding tax (up to 35%) may apply.

At the same time, it is always necessary to examine:

• a double taxation treaty,
• the nature of income under the Slovak Income Tax Act,
• up-to-date lists of non-cooperative jurisdictions (subject to change).

The most common mistakes and risky practices in profit disbursement

In practice, we repeatedly encounter these mistakes:

• payment of profits without meeting the statutory tests,
• trying to circumvent the ban on advance payments of profit sharing,
• “masking” the payment of profits as a loan or other consideration,
• ignoring the rules on foreign structures.

Such practices can lead to:

• domeraniu data,
• penalties by the tax authorities,
• liability of the managing directors for breach of duty.

When it is worth consulting an expert

The payment of a dividend or profit share is simple at first glance, but in reality it is a combination of commercial, tax and accounting law.

Professional assessment is recommended especially in cases where:

• these are higher amounts,
• you are dealing with legacy profits,
• you have foreign associates,
• you are considering optimising your ownership or holding structure.

To make sure your profit payout is set up correctly and securely, contact the Highgate Group team. We’ll be happy to help.