The company's profit is not automatically the partner's profit. Until the board of directors makes a distribution decision, the funds remain the company's, and only with that decision does a dividend arise, which is taxed at 8% and withheld by the company at source before the net payment is passed on to the partner.
This page shows the conditions for approving profit, the step-by-step procedure, the ready-made format of the shareholders' resolution, how much profit can be distributed, and how much actually remains in the partner's hands. The mechanics of withholding tax on rent, interest, and fees are covered on the sister page.
Read also: When is tax withheld at source and what is the rate?.
The first requirement is not the figure in the bank account but the approved profit. The company closes the year, prepares its financial statements, pays income tax on its profit, and only after that does the shareholders' assembly have a net profit to decide on.
Without approval of the financial statements and without a distribution resolution, any amount withdrawn from the company's account to the partner is simply cash with no legal title—not a dividend. This is the distinction that saves you a lot of trouble during audits.
A sole proprietor and the self-employed have no dividends, because the profit belongs to them directly. After paying income tax on the profit, the money is transferred to the personal account without any further obligation.
Read also: Profit tax rates by business form.
The distribution of profit is not a bank transfer; it is a company decision with documentary evidence. The order of steps is as follows.
The year ends and the financial statements are prepared, showing the net profit after tax.
✔ The shareholders' assembly approves the year's financial statements.
✔ The Assembly makes a separate decision on the distribution, specifying the amount and the allocation by quota.
✔ The company withholds 81% on the gross dividend amount.
✔ Withheld tax is declared and paid electronically through e-Filing.
✔ Net payment is transferred to the partners from the company's bank account.
✔ The decision is recorded in the decision book and attached to the year's file.
This is the format we use with clients. The fields in brackets are filled in, and the rest of the text remains the same.
DECISION OF THE PARTNERS' ASSEMBLY. Company [full name]. NIPT [number]. Date [dd.mm.yyyy]. Place [city]. Present: the partners representing [xx]% of the subscribed capital. Agenda: approval of the financial statements for the year [vvvv] and distribution of profit. The Assembly resolves. 1. The financial statements for the year [vvvv] are approved, with a net profit after tax in the amount of [amount] lek. 2. A dividend is distributed in the gross amount of [amount] lek, according to the percentage of share ownership, and the remaining portion is retained undistributed. 3. Withholding tax of 8% is applied to the gross dividend amount, i.e., [amount] lek, and it is paid within the legal deadline. 4. The net payment to the partners is made from the company's bank account by [dd.mm.yyyy]. 5. The administrator is charged with implementing this decision. Signed by [names of the partners].
In the annual file are the approved financial statements, the minutes and the assembly resolution, the calculation of the withholding tax, the confirmation of the e-Filing declaration, and the bank payment order for the net amount for each partner. This file is the only response that works during the audit.
Read also: Tax audit, fines, and your rights.
The dividend is taxed at 81% and the tax is withheld at source by the distributing company, so the partner does not pay any additional tax on the amount received. The calculation basis is the gross amount of the declared dividend, not the net amount that goes into the bank.
| Dividend recipient | Base | The |
|---|---|---|
| Resident individual, partner of the company | Gross dividend | 8% |
| Resident entity, partner of the company | Gross dividend | 8% |
| Entity that meets the conditions for participation exemption | Gross dividend | no retention |
| Non-resident recipient, individual or entity | Gross dividend | 8%, subject to the double taxation agreement. |
The zero-percent profit tax rate, which applies to annual gross revenue up to 14,000,000 lek until December 31, 2029, does not eliminate the dividend. It covers the company's profit, while 81 percent is allocated to the partner's share.
Attention. The exact moment the obligation arises—namely the date of the assembly resolution or the date of the actual payment to the partner—and the provision that sets the deadline for reporting withholding tax. UNVERIFIED; must be confirmed before publication. The practical recommendation remains the same: the tax is withheld and reported in the month the payment to the partner is made.
Read also: Who does not pay capital gains tax until 2029.
Net profit is distributed after tax, that is, after covering losses from previous years and after replenishing the reserves required by the statute. If the company has carried-forward losses, those losses are covered before any dividend is declared.
Undistributed retained earnings from prior years remain available and may be distributed later by a separate assembly resolution. They are neither lost nor taxed until the assembly decides on distribution.
Caution. The limitations of commercial law on the amount distributable, including statutory reserves and the solvency test, are governed by Law No. 9901/2008 “On Traders and Commercial Companies.” NOT VERIFIED at the article level; must be confirmed before publication.
Before making a decision, we always check three things: the approved net profit, the carried-forward loss, and actual liquidity, because a dividend declared without funds in the account creates only a premature tax liability.
Read also: How is a company's taxable profit calculated?.
When the partner is another company, the 8% holding is carried out in any event, with only one exception. When the dividend is distributed from one entity to another entity that owns at least 10% of participation and has held that participation for at least 24 months, the participation exemption applies and withholding is not imposed.
This is the provision that allows group structures with a parent company and subsidiary companies to avoid paying 81% tax at each level of the structure. The 24-month requirement is carefully monitored, because its absence turns the payment into taxable dividends and shifts liability onto the distributing company.
When participation is below 10%, or when it was taken out less than 24 months ago, 8% is retained and the point is closed without discussion. In multi-level structures, documentation of the date the quotas were purchased is part of the file.
Withdrawing money from the company's account without a distribution resolution, without a contract, and without an invoice is not a dividend; it is simply unearned income with no legal title. Upon audit it may be reclassified, resulting in tax, interest, and penalties.
The legitimate ways a partner can withdraw money from the company are few and all documented: dividends by board resolution; a salary as a director on the payroll with contributions; rent or services by contract and invoice; or repayment of a documented loan. Any other route is unnecessary risk.
The risk does not lie solely in the unpaid 8% tax. When the amount is reclassified, the company is treated as a withholding agent that failed to withhold tax, and the penalties are compounded with interest of 0.061% per day on the amount and a penalty of 501% of the amount that should have been withheld.
Read also: Actual cost of the employee and the managing partner.
This is the calculation that interests the partner, because it measures how much profit remains in hand from the company's earnings. The result depends on a single factor: whether the company is under the zero-rate regime or not.
Net amount for the partner, taxable profit 6,000,000 lekë
| Step | Turnover up to 14,000,000 lek | Turnover over 14,000,000 lek |
|---|---|---|
| Profit Tax | 0 lekë, rate 0% | 900,000 lek, rate 15% |
| Net distributable profit | 6,000,000 lek | 5,100,000 lek |
| Dividend tax 8% | 480,000 lek | 408,000 lek |
| It remains for the partner. | 5,520,000 lek | 4,692,000 lek |
| Total tax burden | 480,000 lek, so 8.0% | 1,308,000 lek, so 21.81 TP3T |
Company with a net profit of 5,100,000 lek after tax. The assembly decides to distribute only 2,000,000 lek. The 81% dividend tax yields 160,000 lek, the partners receive 1,840,000 lek, and 3,100,000 lek remain as retained earnings, which are taxed only when distributed in a subsequent year.
This is why distributions are planned, not improvised. When the partner doesn't need all the money, retaining profits within the company defers taxes and maintains liquidity for investment.
Read also: Profit distribution and dividend tax.
The rate is 81 TP3T, withheld at source by the distributing company. The partner receives the net amount and does not pay a second tax on it.
Yes. The zero rate covers the company's profit, not the transfer of funds to the partner. With a profit of 4,000,000 lek fully distributed, 320,000 lek are retained and the partner receives 3,680,000 lek.
On the gross dividend amount determined by the assembly. The bank payment is the gross amount minus 8%, so the calculation starts from the decision and not from the payment order.
Only what remains after covering the carried-forward loss and after meeting the reserves required by statute. If no profit remains after coverage, no dividend is distributed.
Distribution is tied to approved profit and requires an assembly resolution in each case. For the following year's profit and for partial distributions during the year, please write to us with your specific situation, as the treatment depends on the statute and the financial statements.
Yes, except in the case of exclusion from participation, namely when the recipient has held at least 101 TP3T of participation for at least 24 months. In that case, the holding is not carried out.
The lawful methods are the administrator's salary via payroll and contributions, rent or contract services by invoice, and the repayment of a documented loan. Withdrawal without legal title risks recharacterization.
The obligation arises upon distribution, so the rates in effect at the time of distribution apply. For undistributed earnings from prior years and any potential implications, please write to us with your figures.
There isn't any. The profit is his directly, and after income tax the money goes into his personal account with no further obligation.
Read also: Sole proprietor or LLC, which structure suits you?.