To motivate corporate tax payers to distribute profits more systematically, the new changes to the Income Tax Act enable a reduced CIT rate of 14 % (on the gross amount) to apply to regular dividend payments from 2019. To apply the reduced tax rate in 2019, dividend payments must already have been made in 2018.

Under the general rule, dividends are taxed at the corporate tax rate of 20/80. The special rule applicable to regular dividends enables a reduced CIT rate of 14/86 to apply to regular dividends. The amount of dividends subject to the reduced rate is the arithmetical average amount of annual dividends calculated based on the dividends paid within the last three years. Dividends exceeding this amount will be taxed at the current tax rate of 20/80.

In 2019, the reduced tax rate can be applied to 1/3 of dividends paid in 2018, while in 2020 it can be applied to up to 1/3 of dividends paid in 2018 and 2019.

Example: If you pay dividends of EUR 120,000 in 2018, the reduced tax rate applies on dividend payments up to EUR 40,000 for dividend payments made in 2019. Dividends exceeding this amount will be taxed at the standard 20/80 tax rate.

A shareholder that receives dividends who is a natural person must pay additional personal income tax on dividends at the rate of 7%. So the reduced tax rate has an effect only on dividend payments between corporate taxpayers.