Distribution of profit for 2025 in 2026

When to distribute 2025 profits in 2026

Profits for 2025 are typically paid out only after the company has prepared its financial statements for 2025 and they have been approved by the General Meeting (or by the sole shareholder acting as the General Meeting). At the same time, the legal prerequisites for profit distribution and for the payout itself must be met, which in practice are often as important as the accounting figures themselves.

It is important to emphasize that the moment of the decision and the moment of the payout are two different things. The General Meeting determines what profit will be distributed and to whom it belongs. However, immediately before the payout, the Executive Director must assess whether the distribution and payout will not jeopardize the company's solvency. If the payout were to lead to insolvency, the Executive Director must not make the payment, even if the shareholders' decision is formally correct.

This is why we recommend approaching the topic as risk management: "we have an approved profit" does not yet mean "we can pay out the money." In practice, cash flow, the structure of liabilities, the seasonality of income, and expected expenses in the coming months are also decisive factors.

Step-by-step: a safe process for distributing a share of profits

If you want your profit distribution to be legally sound and practically defensible, we recommend following a clear procedure. It is not complicated, but it needs to be followed in a logical sequence and have an audit trail. In the event of a dispute or inspection, it is not your assumption that matters, but the documents and the actual state of the company at the time of the payout.

Checklist (2026 / profit for 2025)

1. Prepare the financial statements for 2025 and verify that they reflect reality (especially receivables, provisions, and liabilities).

2. Approve the financial statements at the General Meeting / by a decision of the sole shareholder.

3. Decide on the profit distribution (amount, ratio, due date, possibly payment in installments).

4. Perform the balance sheet tests and verify that the distribution complies with statutory limits.

5. Check the Register of Beneficial Owners (without registration, the payout may be blocked).

6. Perform the insolvency test immediately before the payout (not just at the time the financial statements are approved).

7. Set up and remit the tax (especially withholding tax for natural persons, or specific rules for legal entities).

8. Make the payment on the date specified in the resolution and keep accounting and tax records.

If any step is missing or performed only "for show," the payout may be deemed unauthorized. In extreme cases, this can lead to the restitution of the payment, the executive director's liability for damages, or impacts on relationships between shareholders. Experience shows that a simple rule works best: what doesn't exist on paper is as if it never happened.

Control Tests and the Executive Director's Liability

The Executive Director is responsible for managing the company with the duty of due managerial care, and profit distribution is a typical situation where this responsibility is assessed very strictly. It is not enough that the General Meeting has decided. Before the actual payout, the Executive Director must verify that the company will not harm itself or its creditors by making the payment. If this were to happen, the Executive Director has a duty not to make the payment.

In practice, three main areas are assessed, which we recommend using as a basic control framework:

• Balance sheet test (equity): the distribution must not violate the statutory limits for protecting the company's own resources.

• Test for un-depreciated development costs: if the company reports un-depreciated development costs, this can realistically reduce the "safe" room for distribution.

• Insolvency test (solvency): at the time of the payout, the company must be able to meet its due liabilities and must not cause its own insolvency through the payout.

The insolvency test is often the biggest stumbling block. Accounting profit does not mean you have available cash. If the money is tied up in receivables, inventory, or long-term projects, an ill-considered profit distribution can be very risky. We therefore recommend always evaluating the payout with regard to actual cash flow and planned expenses.

Taxation of Profit Distribution: The Most Common Mistakes

The distribution of a share of profits generally has a clear tax regime, but mistakes are still common in practice. The basic principle is simple: the company first taxes the profit with corporate income tax, and then the payout itself to the shareholder may be subject to withholding tax, typically for natural persons. However, the specific rates and conditions may depend on the recipient's status and whether it is a domestic or foreign structure.

A common mistake is also confusing a dividend with an executive director's remuneration. An executive director's remuneration is usually associated with a different tax and social security burden, can be a company expense, and typically requires a proper contractual setup. A dividend, on the other hand, is a distribution of already taxed profit and is handled differently for both accounting and tax purposes.

Practical rules that usually make the difference

• Address the tax setup before the payout. Retroactive corrections are often unnecessarily expensive and risky.

• The recipient determines the process. The procedure is different for a natural person, a legal entity, and a foreign shareholder.

• The payer bears the responsibility. If the company fails to withhold or remit the tax, the problem typically falls primarily on the company.

If you want to optimize your profit distribution, we recommend proceeding strategically: decide on the amount and timing, create a provision for liabilities, and above all, align the legal steps with the accounting and financial reality. In well-managed companies, profit distribution is a standard process, not an improvisation.

Alternatives to Dividends: When Another Path Makes Sense

A dividend is the most common way to "extract" value from a company, but it is not always the most suitable. In practice, the decision depends on whether you need a regular income, a one-time capital withdrawal, or, conversely, stability for investments and financing. Each model has different legal and tax implications and different risk points.

• Executive Director's remuneration: suitable for regular income, but usually with a higher tax and social security burden and the need for a proper contractual framework.

• Salary (employment contract): applicable if you are actually performing dependent work and the content corresponds to the reality of the work performed.

• Contractual performance for the company: for example, invoicing for services, provided you are actually providing them and it is not a disguised relationship.

• Loan to a shareholder: can be a legal instrument, but without a contract, repayment schedule, and economic logic, it is usually highly risky.

If you are considering the right model, we recommend starting with your goal and the reality: what amount you need, when you need it, and what liabilities and investments the company faces in the coming period. The right setup often saves money and trouble.