Paying dividends to shareholders: how does it work?

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What is a dividend?

A dividend is a distribution of profits to shareholders. A company generates profits, pays corporation tax on those profits and may then decide to distribute part of the remaining profit.

A simple example: a company closes its financial year with a profit. As there are funds available after taxes, the shareholders may decide to distribute all or part of that profit. That distributed amount is called a dividend.

In other words, a dividend is not a salary, employment income or a reimbursement of expenses. It is a return paid to shareholders because they own shares, not for services rendered.

Who can receive a dividend?

A dividend is distributed to shareholders. They can be individuals but also other companies or investment vehicles.

Various situations are possible. Private investors may receive dividends on shares in listed companies. Co-owners of a family business may receive dividends when the company distributes profits. And entrepreneur-shareholders may receive dividends from their own company.

It is important to distinguish between your role as a shareholder and any other role you may have within the same company. For example, are you also a director or managing director? If so, you may receive remuneration for your work. That is not a dividend but professional income. A dividend is what shareholders receive.

When can a company distribute a dividend?

A company can distribute a dividend only if it has profits or available reserves. You cannot simply withdraw funds from a company and call it a ‘dividend’.

The dividend distribution must be legally and financially permissible. The company must have sufficient distributable funds and must remain financially sound after the distribution. Depending on the type of company, specific rules and checks apply.

For companies with limited liability, the distribution rules are particularly important. They are intended to prevent funds from being distributed if doing so would leave the company unable to meet its obligations.

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The net assets test and liquidity test

With certain company forms, an assessment must be made before a dividend is distributed in order to determine whether the distribution is justified.

The net assets test examines the company’s equity. After the dividend distribution, the company’s net assets may not become negative or fall below certain legally or statutorily limits.

The liquidity test looks at short-term affordability. The management body must assess whether, after the distribution, the company will still be able to pay its due debts over a period of at least twelve months.

In other words, profit on paper is not always sufficient. A company may show accounting profits but still lack sufficient cash to pay suppliers, taxes, wages or other expenses. In such cases, a dividend distribution may be ill-advised.

How is a dividend allocated?

A dividend is usually decided by the general meeting, on the basis of the approved annual accounts. The shareholders then decide what should be done with the profit.

There are several options:

· leave the profit in the company

· allocate the profit to reserves

· distribute part of the profit as a dividend

· distribute the entire available profit, if this is legally and financially possible

In some cases, an interim dividend (charged against accumulated profits from previous years), or a provisional dividend (charged against the interim result of the current financial year), may also be distributed. In such cases, there is no need to wait for the ordinary annual allocation of profit. Such a distribution requires extra attention as the timing and calculation must be right, and all formal requirements must be respected.

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What is the difference between salary and dividend?

A dividend is often compared to a salary but they are two entirely different types of income.

A salary is remuneration for work. A person who works as an employee, director or executive receives employment income, which is subject to personal income tax and social security contributions. For the company, salary is in principle a deductible business expense.

A dividend is a distribution of profits to shareholders. It is paid out of profits after corporate income tax. The dividend is usually subject to withholding tax. For the company, a dividend is not a deductible expense.

For entrepreneurs who are also shareholders, a combination of salary and dividend can be advantageous. For investors, this comparison with salary is usually irrelevant: they receive dividends purely because they own shares.

How much tax do you pay on a dividend?

In Belgium, the standard rate of withholding tax on dividends is generally 30%. This means that withholding tax is deducted when the dividend is paid and remitted to the tax authorities.

A simple example:

A company distributes a gross dividend of €10,000. At 30% withholding tax, €3,000 is deducted and the shareholder receives a net amount of €7,000.

However, there may be other tax considerations. The profit from which the dividend is paid has already been subject to corporation tax. As a result, the total tax burden may be higher than the withholding tax alone suggests.

For private investors in listed shares, the withholding is often applied automatically via the bank or intermediary. In the case of dividend payments from a private or non-listed company, the declaration, withholding and payment of the withholding tax must be handled correctly.

Are there more favourable dividend regimes?

Yes. For certain companies and shareholder situations, regimes exist that allow dividends to be distributed on more favourable terms under specific conditions. Two well-known examples are VVPRbis and the liquidation reserve.

VVPRbis

VVPRbis is a favourable tax regime for dividends from some small companies. Under specific conditions, the withholding tax may be lower than the standard rate of 30%.

However, strict conditions apply. For example, the shares must be new registered shares issued following a cash contribution. They must be fully paid up and held continuously. The timing of the dividend distribution also plays a role.

Until recently, the rate under VVPRbis could be reduced to 15% from the third financial year following the year of the contribution. As from 1 July 2026, this reduced rate will increase to 18%. As a result, VVPRbis remains an attractive option but the benefit is smaller than it used to be.

Liquidation reserve

A liquidation reserve is another regime for small companies. Under this system, the company allocates part of its after tax profit to a separate liability account and pays a separate levy at that time.

After a waiting period, this reserve can later be distributed under more favourable tax conditions. Here too, rates are changing in 2026, making the right timing even more important.

Which option is most suitable depends on the company, the shareholder structure, the profits, the plans and the cash needs. This is typically something to be assessed together with an accountant or tax adviser.

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Is a dividend always a good option?

Not automatically. A dividend can be appealing but only if it fits within the broader financial picture.

For a shareholder, it’s obviously nice to receive distributed profits. However, for the company, a dividend means money leaving the business, money that can no longer be used for investments, growth, staff, stock, taxes or unexpected costs.

Paying a dividend is therefore less advisable if the company is planning major investments in the near future, has limited cash resources, or has significant outstanding debts.

For entrepreneur-shareholders it is also important not to see dividends separately from the rest of their income. A dividend doesn’t build social rights and therefore cannot simply replace a salary or director’s remuneration.

What factors must be considered before paying out a dividend?

These are the key questions before distributing a dividend:

· Is there sufficient profit or available reserves?

· Does the financial position allow for a distribution?

· Do the statutory distribution tests apply and are the conditions met?

· Has the decision been taken correctly?

· Has the withholding tax been calculated correctly?

· Are the declaration and payment handled on time?

· Is the distribution aligned with the company’s plans?

· Does a preferential regime apply, such as VVPRbis or a liquidation reserve?

The formal requirements must also be observed. These include the decision of the general meeting, the accounting treatment, the declaration of withholding tax and its payment within the statutory deadline.

An error in calculation or timing can have undesirable consequences so be sure to seek guidance, especially in the case of interim dividends, multiple shareholders, VVPRbis or liquidation reserves.

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Receiving dividends as an investor

Anyone who invests in shares may also receive dividends. Some companies pay a dividend annually, semi-annually or quarterly, whereas other companies prefer to reinvest their profits in growth.

For investors, a dividend can be attractive because it provides a form of return, in addition to a potential increase in share price. However, a dividend is not guaranteed. A company may decide to reduce, skip or discontinue its dividend if results fall short or if it needs the funds for other plans.

That is why investors look not only at the level of the dividend but also consider its sustainability. An exceptionally high dividend is not always better. Sometimes it indicates a temporary situation or higher risks.

Distributing dividends as an entrepreneur-shareholder

For entrepreneurs who are shareholders of their own company, a dividend is often part of a broader question: how do you extract money from your company in a correct and tax-efficient way?

There are several options:

· salary or director’s remuneration

· dividend

· bonus

· reimbursement of expenses

· benefits in kind

· pension buildup through the company

· rent or interest, provided this is properly structured and done at market terms

The best mix depends on your situation. A start-up often has different needs from an entrepreneur with stable profits. Those aiming for strong growth may prefer to retain more resources within the company. Those needing more personal income will look for a different balance between salary and dividend.

Dividend planning is therefore not a standalone tactic but part of your overall financial planning.

Common misconceptions about dividends

“A dividend is the same as salary”

No. Salary is received for work. A dividend is paid out to shareholders. The tax treatment is different and so is the impact on social rights.

“If there’s money in the bank, you can always distribute a dividend”

No. Cash in the bank is not sufficient. There must also be distributable profit or available reserves. Moreover, the company must remain financially sound after the distribution.

“A dividend is tax-free”

No. Dividends are usually subject to withholding tax. In addition, the profit has already been subject to corporation tax.

“The highest dividend is always best”

Not necessarily. Money that is distributed is no longer available to the company. These funds may be required at a later stage for investments, growth, staff, stock, taxes or unexpected costs.

“A preferential regime applies automatically”

No. Regimes such as VVPRbis or the liquidation reserve are subject to conditions. Not every company or dividend distribution qualifies.

Conclusion: a dividend is a distribution of profits, but it should be done thoughtfully

A dividend is a distribution of profits to shareholders. This can be attractive for investors who generate returns from their shares, but also for entrepreneur-shareholders who wish to extract accumulated profits from their company.

However, a dividend is not simply money that can be withdrawn at any time. There are a number of factors to consider: the financial health of the company, the legal distribution rules, withholding tax and any preferential regimes such as VVPRbis or the liquidation reserve.

Especially in 2026, with changing rates for certain dividend regimes, sound advice is no luxury. A dividend should therefore not be considered separately but as part of a healthy financial strategy, ensuring that the distribution remains both tax-compliant and financially responsible.