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Accounting for and taxation of dividends

In Hungary the resolution on dividend is taken once a year when the financial statements are approved and the company's supreme body decides on the amount and payment of the dividend. Under the effective legal regulations, untied retained earnings supplemented by the after-tax profit from the previous financial year may be disbursed as dividend.

What is dividend?

In Hungary, the Company’s members are entitled to a proportionate part (dividend) of the after-tax profit for the year as per Act C of 2000 on Accounting* or the after-tax profit supplemented with the untied retained earnings.

Who is entitled to dividend?

Pursuant to the Civil Code, those members shall be entitled to dividends that have the right to exercise their membership rights vis-à-vis the Company as of the time of adopting the decision on the payment of dividends. 

When is dividend payable?

The vast majority of companies reporting for the normal calendar year are currently in the process of finalising last year's accounts. When the financial statements for the business year are adopted, the company's supreme body decides on the amount of the dividend and its payment.  Dividends are declared once a year, when the financial statements are approved.  


Amount of the dividend

Under the effective legal regulations, the untied retained earnings supplemented by the after-tax profit of the previous business year is considered for the purposes of dividend.

The Accounting Act provides for a limit on dividend payment: dividend may be disbursed only if the amount of equity less the tied-up reserves and the positive valuation reserve does not fall below the amount of subscribed capital following the disbursement of the dividend. This is a very important regulatory tool, as in many cases the tied-up reserve will determine the dividend if the taxpayer recognises a development reserve, for example. The development reserve must be shown separately in the tied-up reserve.

In the case of parent companies, the amount of dividends and shares received (due) not yet included in the previous year's financial statements but recognised in the current year up to the balance sheet date may be considered as an increasing item in the amount of the untied retained earnings and equity. 

Please note, however, that negative retained earnings reduce the possibility of paying dividends.

Accounting for dividend payable 

The amount of the dividend declared and payable shall be entered in the accounting records in the financial year following the year closed with the financial statements as of the date of the decision to pay dividends. 

The dividends payable to shareholders are accounted for on the basis of the shareholders' decision approving the financial statements and on its date, as an item decreasing the retained earnings and increasing liabilities.

In the present case, the decision on the use of the after-tax profit of the 2023 financial statements as dividend will be taken in the period following the current year, i.e. when the financial statements are approved in 2024.  

The declaration and payment of dividend may be separate in time based on the currently effective rules. Immediate disbursement is not required: disbursement may be scheduled based on the cash flow.  

Former interim dividends

If interim dividend was paid to the shareholders during the year based on an interim balance sheet, it is important that the interim dividend is classified as actual dividend when the financial statements are approved. If there is no coverage on the basis of the financial statements, or if the general meeting decides on lower dividend, the interim dividend does not qualify as dividend.  In such a case, the amount of the interim dividend or the difference is treated as a loan on which interest is charged.  


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