Paying dividends in a Lithuanian UAB: when, interim dividends, tax

Dividends in a UAB are declared by the general meeting of shareholders when it approves the annual financial statements and distributes the profit. Dividends can also be declared for a period shorter than the financial year (interim dividends), but only after interim financial statements are prepared and the statutory deadlines are kept. Dividends cannot be declared while the company has overdue obligations or while its equity is too low, and a company that has not paid its taxes on time may not pay them. Declared dividends must be paid within one month, and the company itself withholds and pays the tax on them.

Who declares annual dividends and when

Profit is distributed by the annual general meeting that has approved the annual financial statements (Article 59(1) of the Law on Companies of the Republic of Lithuania (ABĮ)). The annual general meeting must take place every year no later than 5 months after the end of the financial year (ABĮ Article 24(1)). This time limit applies to companies whose financial year ended on 1 July 2026 or later (Article 38(3) of ABĮ amending law No XV-386). Where the financial year ended earlier, the time limit of ABĮ Article 24(1) in its earlier wording applies: no later than 4 months after the end of the financial year. The decision on distribution of profit belongs to the general meeting (ABĮ Article 20(1)(12)). It needs a qualified majority of at least 2/3 of the votes of the shareholders attending the meeting (ABĮ Article 28(1)(6)).

The decision states which part of the profit is allocated to dividends (ABĮ Article 59(2)(14)). While the mandatory reserve is below 1/10 of the share capital, at least 1/20 of the net profit must be transferred to it (ABĮ Article 59(5)). What remains may be kept as retained earnings and carried forward to the next financial year (ABĮ Article 59(2)(16)).

What is distributed is the distributable profit. It is the sum of the profit (loss) for the year, the retained earnings (losses) of earlier years, transfers from reserves and shareholders’ contributions to cover losses (ABĮ Article 59(3)). When this sum is positive, the meeting must distribute it (ABĮ Article 59(4)). After the distribution, the remaining distributable profit may not be lower than the carrying amount at the year end of development costs recognised as intangible assets (ABĮ Article 59(3)).

The law provides for two cases: dividends for the financial year and dividends for a period shorter than the financial year (ABĮ Article 60(3)). The second case is described below.

When dividends are prohibited

The general meeting may not decide to declare and pay dividends if at least one of two conditions is met (ABĮ Article 59(6)):

• the company has unperformed obligations that fell due before the decision;
• the company’s equity is lower, or would become lower after the payment, than the sum of its share capital and reserves (other reserves excluded).

In addition, a company that has not paid its taxes on time may not pay dividends (ABĮ Article 59(8)).

In 2024 the Supreme Court of Lithuania (Lietuvos Aukščiausiasis Teismas, LAT) held that not every unperformed obligation in itself makes a decision to declare or pay dividends unlawful: what matters most is whether, after the distribution, the company cannot pay its debts to creditors (LAT e3K-3-99-381/2024, para 72). Still, an overdue obligation at the time of declaring or paying dividends creates a presumption that the payment caused the later failure to pay creditors, but the shareholders who received the dividends may rebut it (ibid.). If the overdue obligation is paid after the decision but before the dividends are paid, the breach is treated as removed (ibid., para 74). The court also said that dividends declared earlier and not paid on time are themselves overdue obligations to the shareholders (ibid., para 96). The case was decided under an earlier edition of the ABĮ, but the wording of ABĮ Article 59(6)(1) has not changed.

Shareholders can also be paid out by reducing the share capital (ABĮ Article 52(2)(3)). Such a decision may be adopted only if the financial statements show no undistributed losses and no long-term liabilities; the requirement on long-term liabilities does not apply if all such creditors consent in writing (ABĮ Article 52(6)). The decision may not be adopted if the company is insolvent or would become insolvent after paying out (ABĮ Article 52(7)). We explain how in Reducing the share capital of a UAB in Lithuania.

Who receives dividends, and can they be unequal

A dividend is the part of the profit allocated to a shareholder in proportion to the nominal value of the shares the shareholder owns (ABĮ Article 60(1)). In the same circumstances, all holders of shares of the same class have equal rights (ABĮ Article 3(2)). So a separate decision cannot reduce or increase the dividend of one holder of ordinary shares. The articles of association may not set the amount of the dividend for holders of ordinary shares (ABĮ Article 42(5)).

Different dividend rights can only be created through preference shares. Their classes and rights are set in the articles of association (ABĮ Article 42(2)), which must also state a fixed preference dividend as a percentage of nominal value or the method of calculating it (ABĮ Article 42(7)).

If a share is not fully paid and the payment deadline has not passed, the dividend is reduced in proportion to the unpaid part. If the deadline has passed, no dividend is paid (ABĮ Article 60(4)). The articles may also provide that the dividend is reduced on shares paid up during the period for which the dividend is declared (ibid.).

Dividends go to those who, at the end of the day on which the company body declaring the dividends adopted its decision, were shareholders or had a right to the dividends on another lawful basis (ABĮ Article 60(7)). So when shares change hands, the date of the decision matters, not the period in which the profit was earned.

Deadline for paying dividends

The company must pay declared dividends no later than within one month after the date of the decision, and paying dividends in advance is prohibited (ABĮ Article 60(5)). Dividends are paid in money (ABĮ Article 60(6)).

Declared dividends are an obligation of the company to the shareholders, and a shareholder may claim them as a creditor (ABĮ Article 60(2)). The LAT said that the one-month deadline is mandatory and cannot be extended by agreement (LAT e3K-3-99-381/2024, para 98). It is therefore better not to provide in the decision that part of the dividends will be paid months later, and to declare only the amount the company can pay within a month.

Interim dividends

Interim dividends are declared by the general meeting. The right to propose them belongs to shareholders holding at least 1/3 of all votes, unless the articles set a higher majority (ABĮ Article 60¹(1)). If the articles provide for it, the board, or the manager where there is no board, may declare interim dividends up to the amount set in the articles (ABĮ Article 60¹(2)). A decision of the meeting needs a qualified majority (ABĮ Article 28(1)(8)).

Before the decision, interim financial statements and a draft decision are prepared. The period always starts at the beginning of the current financial year (ABĮ Article 60¹(3)). The decision is adopted within 3 months after the end of the period, not before the previous year’s annual financial statements are approved and its profit distributed, and no later than the end of the financial year (ABĮ Article 60¹(4)).

Interim dividends may be declared only if both conditions are met (ABĮ Article 60¹(5)):

• the amount does not exceed the profit of the period plus retained earnings brought forward, less the part that must go to reserves;
• the company has no overdue obligations and, after paying the dividends, would be able to meet its obligations for the current financial year.

The next interim dividends may be declared no earlier than after 3 months (ABĮ Article 60¹(6)). The interim financial statements are filed with the Register of Legal Entities within 30 days of the decision (ABĮ Article 58(5)). The payment deadline is the same one month (ABĮ Article 60(5)).

Return of unlawfully paid dividends

A shareholder must return a dividend paid in breach of mandatory rules of the ABĮ if the company proves that the shareholder knew or should have known of it (ABĮ Article 14(6)). ABĮ Article 60(2) gives the company the same right to recover a dividend that was declared or paid unlawfully. Recovery therefore depends on two things: whether a prohibition was breached, and what the shareholder knew about the company’s finances.

Tax

For individuals, dividends are income from distributed profit (Article 12(1) of the Law on Personal Income Tax of the Republic of Lithuania (GPMĮ)). It is taxed at the 15 percent rate (GPMĮ Article 6(6)(1)). Such income received from a Lithuanian company falls into class A (GPMĮ Article 22(2)(1)), so the paying company calculates, withholds and pays the tax (GPMĮ Article 23(1)). The tax withheld is paid by the 15th day or the last day of the same month, depending on the payment date (GPMĮ Article 23(3)).

Income from distributed profit of a non-resident individual whose source is in Lithuania is also an object of income tax (GPMĮ Article 5(4)(2)). Before paying, check whether a double tax treaty applies with the shareholder’s country of residence: this article does not cover its effect.

Where the shareholder is a Lithuanian company, dividends are taxed at the 17 percent corporate income tax rate, and the paying company withholds the tax by the 15th day of the following month (Article 33(1) of the Law on Corporate Income Tax of the Republic of Lithuania (PMĮ)). No tax is due if the receiving company has held at least 10 percent of the voting shares without interruption for at least 12 months, including the moment of distribution (PMĮ Article 33(2)). A foreign corporate shareholder is subject to the same rate and the same withholding (PMĮ Article 34(1)). The same 10 percent and 12 month exemption applies to it, unless it is registered or otherwise organised in target territories (PMĮ Article 34(2)). A return on dividends paid is filed by the 15th day of the following month (PMĮ Article 36).

MB: distributing profit to members

A small partnership (MB, mažoji bendrija) does not declare dividends, but it distributes profit to members under similar rules. The members’ meeting that has approved the annual financial statements must distribute the profit (Article 26(1) of the Law on Small Partnerships of the Republic of Lithuania (MBĮ)). This needs at least 2/3 of all members’ votes (MBĮ Article 18(1)(2)). Profit is shared in proportion to contributions unless the regulations provide otherwise (MBĮ Article 26(4)). So, unlike in a UAB, the regulations may set a different split.

Profit may also be distributed for a shorter period, after financial statements for that period are drawn up (MBĮ Article 26(2) and (3)). Such a decision is unanimous (MBĮ Article 19(1)(3)). A member may also take funds for personal needs as profit paid in advance (MBĮ Article 24), in the way set in the regulations (MBĮ Article 25(1)). If the member’s share of the year’s profit is lower than the advances received, the member repays the difference within 30 days of approval of the annual statements (MBĮ Article 26(6)). If the year ended in a loss, all advances must be repaid (ibid.).

The prohibitions are similar: profit may not be distributed if the annual statements are not approved, if there are overdue obligations or if the distributable profit is negative (MBĮ Article 26(8)). Additional conditions apply to an interim distribution (MBĮ Article 26(9)). Income of a Lithuanian resident from an MB falls into class B (GPMĮ Article 22(3)(1)). The member files the annual income tax return personally or through an authorised person (GPMĮ Article 27(1)) and pays the tax by the end of the filing deadline (GPMĮ Article 27(5)).

More on shareholders and shares

• Shareholders and shares
• Admitting a new MB member and leaving an MB in Lithuania
• Selling UAB shares to a foreign buyer: signatures and apostille
• Company power of attorney for use abroad: form, apostille, validity
• Setting up a holding company: paying for shares with shares, and tax

How to start

Send us the latest approved annual financial statements or an interim balance sheet, the articles of association, the list of shareholders and the dividend amount you have in mind. Tell us whether the company has any overdue liabilities and whether any shareholders live abroad.

Phone +370 5 212 1506, email info@linden.lt

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