Deemed Dividend Distribution in Relation to Shareholder Current Accounts

Deemed Distribution Rule for Shareholder Current Accounts

Under the new legislation, shareholders of a GmbH who are natural persons will be required to settle all receivables recorded in their shareholder current account by the balance sheet date. Alternatively, the receivable may be converted into an arm’s length loan.

Such a loan must comply with the principles applicable to agreements between related parties. In particular, it must be supported by a written agreement, provide for adequate collateral, a commercially reasonable term and interest rate, and be based on a creditworthiness assessment of the shareholder that disregards the shareholder’s participation in the company.

Deemed Distribution if No Action Is Taken

If the current account balance is neither repaid nor converted into an arm’s length loan by the balance sheet date, the outstanding amount will be subject to the new deemed distribution rule and, consequently, to Austrian capital gains withholding tax (KESt).

The amount will be deemed to have been distributed to the shareholder on the day following the balance sheet date and will be treated as received on that date. For withholding tax purposes, the KESt return must be filed and the corresponding tax remitted within one week.

De Minimis Threshold for Significant Shareholders

For shareholders holding, directly or indirectly, at least 10% of the company’s shares, a de minimis threshold of EUR 50,000 applies for practical reasons. The rationale is that significant shareholders typically engage in a higher volume of transactions with the company.

Only the portion of the current account balance exceeding EUR 50,000 will be subject to the deemed distribution rule.

Conclusion

The new deemed distribution regime represents a significant tightening of the tax treatment of shareholder current accounts. The reform is intended to address the frequently observed practice of maintaining shareholder receivables over extended periods, often to finance private expenditures without timely repayment.

Minority shareholders are particularly affected, as the new rules apply to them from the very first euro outstanding. Companies, shareholders and their tax advisers should therefore review current account balances well in advance of each balance sheet date and take any necessary measures to ensure compliance with the new requirements.