Save money by taking your dividend on account

If your balance sheet is healthy,  why not take a dividend from next year on this year’s account? It can save you on tax if you haven’t used this year’s tax allowance on dividends…

Dividend on account (Dividendo a cuenta)

As this year’s results are good, you and your fellow shareholders are planning to take a dividend out of this year’s profit – which would normally be paid after the close of the year.

But you can take a dividendo a cuenta by paying the shareholders part of the dividend this fiscal year, and the rest in the next financial year, spreading the amount over two year’s tax spread. The dividend is charged to this years profit generated by the company.

The benefit comes from your income tax (IRPF)

Dividends which you receive are taxable on your income tax savings base and are divided into three bands. The first €6,000 is taxable at 19%, the second band between €6,001 and €50,000 are taxed at 21% and everything above €50,000 is taxed at 23%.

The savings?
This comes because by splitting next year’s dividend over two years, you can divide the total amount across two year’s tax allowance.

The example

Imagine you were planning to take €20,000 in dividend from this year’s profit, which would be paid to you in 2018 (and be taxable in the income tax for that fiscal year).

  • If you pay yourself the whole amount next year, you pay 19% on €6,000 and 23% on the subsequent €14,000.
  • If you take €6,000 on account this year, you get instant access to the cash, and have to pay 19% tax on it this year. Next year, you take the €14,000 reminder, but this is taxed at 19% for the first €6,000 and 21% on the remaining €7,000.

So by taking the money on account, you not only have access to €6,000 straight away, but you are also saving by making the most of the tax allowance on two years.

Requirements to take a dividend upon account

To distribute a dividend upon account, the administrators of the company must present a balance sheet justifying the existence of sufficient liquidity in the company to permit it. The total to be distributed cannot exceed the results obtained from the end of the last fiscal period, deducting all losses carried over in the period, the amount that must be paid into the legal reserve (usually 10% of benefits) and the estimated tax to be paid upon the final results.

Maria Luisa

María Luisa Cervantes is a chartered accountant who graduated from the University of Granada in 2002. Founder of Cervantes Alarcón Consulting, she is an experienced accountant and financial advisor who is a member of the Almería guild of economists. With more than 15 years of experience in business administration and international trade, she is also a subject matter expert in the UK - Spanish bilateral agreements which cover the rights of expats to live, work and retire in Spain.