Dividend Distribution in an IKE: Taxation, Procedure and Calculation Example

Basic IKE Tax Framework

An IKE is taxed at a flat corporate rate of 22% on its profits, regardless of their amount. If profits remain in the company and are not distributed, this is the only tax due and no additional liability arises. Distributing profits to the partners is not mandatory but optional and is decided by the partners’ meeting.

For a broader comparison with other structures, see our guide to choosing a business legal form and when converting a sole proprietorship to an IKE is worthwhile.

The 5% Dividend Tax

If a profit distribution is approved, an additional dividend tax at a rate of 5% is imposed on the amount distributed. The company withholds this tax upon payment and remits it to the tax authority. This withholding settles the partner’s tax liability for that income, meaning they do not need to declare it again or pay additional tax on their personal return. This rate is lower than the corresponding dividend tax for a Public Limited Company, which is 10%.

Requirements Before Distribution

Unlike certain partnerships using single-entry books, profit distribution by an IKE requires approved annual financial statements. The company must first prepare and approve the balance sheet and the remaining statements for the financial year to which the distributable profits relate before making any payment to the partners.

Read in detail what the balance sheet and annual financial statements include.

The Statutory Reserve

Before any distribution, an IKE must create a statutory reserve by retaining 5% of its net profits after tax until that reserve reaches a minimum percentage of capital, as provided in the company’s articles of association. This amount is not distributed to the partners but remains in the company as a safety reserve.

Approval and Payment Procedure Step by Step

1. Preparation and approval of the annual financial statements for the relevant financial year
2. Convening the partners’ meeting and deciding the percentage of profits to be distributed by an absolute majority of the total number of company shares, unless the articles provide otherwise
3. Creation of the statutory reserve before calculating the amount available for distribution
4. Calculation and withholding of the 5% dividend tax on the amount distributed
5. Remittance of the withheld tax to the tax authority within the prescribed deadline
6. Payment of the net amount to the partners according to their ownership percentages

A Complete Calculation Example

Suppose an IKE with two partners holding 60% and 40% earns pre-tax profits of €100,000 during the financial year.

• Corporate tax at 22%: €100,000 × 22% = €22,000
• Profits after tax: €100,000 − €22,000 = €78,000
• Statutory reserve at 5% of after-tax profits: €78,000 × 5% = €3,900
• Amount available for distribution: €78,000 − €3,900 = €74,100
• Dividend tax at 5%: €74,100 × 5% = €3,705
• Net amount distributed to the partners: €74,100 − €3,705 = €70,395

From this net amount, the first partner (60%) receives €42,237 and the second partner (40%) receives €28,158, with no additional tax liability on their personal returns because the tax has already been withheld and remitted by the company.

Can Partners Receive Percentages Different from Their Ownership?

As a rule, profits are distributed in proportion to each partner’s ownership interest in the capital. An asymmetric distribution, meaning a distribution in a different ratio from the company shares, is permitted only when expressly provided for in the company’s articles of association. Without such a provision, an asymmetric payment risks being reclassified as manager remuneration, with different and often less favourable tax treatment.

Distribute Profits or Keep Them in the Company: Which Is Better?

If the partners do not need the funds immediately, retaining profits in the company defers the dividend tax indefinitely and leaves more capital available for reinvestment. If the partners wish to release capital for personal use, however, the combination of 22% corporate tax and 5% dividend tax remains, in most cases, more attractive than progressive personal taxation, particularly at higher profit levels.