A dividend is the cleanest way to return profit, but it is lawful only if the paying company passes its own country's distributable profits or capital maintenance test, and it may suffer withholding tax. The UK tests realised profits, Germany protects the registered capital of a GmbH, India requires profits after depreciation, and the UAE requires an annual reserve transfer. Directors who get it wrong can be personally liable.
Company law tests before any dividend
In the UK a company may distribute only accumulated realised profits less accumulated realised losses. In India a dividend must come from the year's profits after depreciation or from undistributed profits of earlier years, and the declared amount must be placed in a separate bank account within five days. In the UAE a limited liability company must set aside 5% of net profits each year until its statutory reserve reaches half its capital, and fictitious profits may not be distributed.
Germany approaches the question from the capital side. A GmbH may not pay to shareholders any assets needed to cover its registered share capital, and this applies to any benefit, not just declared dividends. Managing directors are personally liable for payments in breach, even if shareholders resolved to make them. A German AG must in addition build a legal reserve from 5% of annual profit until it reaches one-tenth of share capital.12345678
Withholding tax on the way out
Germany withholds 25% plus solidarity surcharge, 26.375% in total, on dividends. A foreign corporate shareholder can reclaim two-fifths of the tax withheld, reaching 15.825%, without relying on a treaty, and treaties or the EU Parent-Subsidiary Directive can reduce it further. The Germany-UAE treaty expired at the end of 2021, so a UAE parent relies on domestic relief only.
India's domestic rate on dividends paid to non-residents is 20% before surcharge and cess, reduced by treaty, for example to 10% for a UK parent. The UAE and Singapore levy no withholding on dividends, Saudi Arabia levies 5%, and the United States 30% unless a treaty reduces it.91011121314151617
| Market | Company law test | Domestic withholding on dividends to a foreign company | Source |
|---|---|---|---|
| United Kingdom | Accumulated realised profits less realised losses (s830 CA 2006) | Not researched | legislation.gov.uk |
| Germany (GmbH) | No payment from assets needed to cover share capital (§ 30 GmbHG) | 25% plus 5.5% solidarity surcharge (26.375%); two-fifths refundable to foreign corporations | gesetze-im-internet.de; PwC |
| India | Profits after depreciation or undistributed prior profits (s123) | 20% before surcharge and cess; treaty may reduce | Companies Act reproduction; Income Tax Department |
| UAE (mainland LLC) | 5% annual transfer to statutory reserve until half of capital; no fictitious profits | 0% | Ministry of Economy and Tourism; Ministry of Finance |
| Singapore | Not researched | None (one-tier system) | PwC |
| Saudi Arabia | Not researched | 5% | ZATCA |
| United States (federal) | State corporate law; not researched | 30% unless treaty rate | IRS |
Decisions to make
- Does the subsidiary have distributable profits, or free assets above share capital, on its latest accounts?1672Each country applies its own test, and a dividend paid in breach can be recovered and expose directors.
- Has the UAE subsidiary made its 5% statutory reserve transfer?4The reserve must be built before profits are treated as available for distribution.
- Which withholding rate applies after treaty and domestic relief?1011121317German, Indian and US domestic rates are high; relief depends on the parent's residence and paperwork.
- Would a loan repayment or capital reduction be cheaper than a dividend?18Loan principal repayments are outside the GmbH capital maintenance rule and suffer no dividend withholding.
Documents usually needed
- Latest audited or interim accounts showing distributable reserves
- Board and shareholder resolutions declaring the dividend
- Tax residency certificate and treaty forms for the parent
- Withholding tax returns and certificates for the parent's credit claim
- Bank account record of the dividend deposit (India) and statutory reserve calculation (UAE)
Common mistakes
- Paying an interim dividend on management accounts that do not show sufficient realised profits
- Treating intra-group service charges or asset transfers at undervalue as outside capital maintenance rules
- Overlooking that the Germany-UAE treaty has expired
- Declaring an Indian dividend without depositing it in a separate account within five days
- Assuming no withholding tax because the parent country does not tax the dividend
Questions businesses ask
Can a German subsidiary of a UAE parent reduce dividend withholding below 26.375%?
The treaty expired on 31 December 2021, so treaty relief is not available, but a foreign corporation can reclaim two-fifths of the tax under domestic law, leaving 15.825%, subject to anti-abuse rules.1110
Are directors personally exposed for an unlawful dividend?
In Germany managing directors are liable to the company for payments in breach of capital maintenance, even when shareholders resolved to make them where the money is needed for creditors.7
What this guide does not yet confirm
These points need checking with a qualified local professional before you rely on them.
- Distributable profit rules in Singapore, Saudi Arabia (Companies Law 2022), France (Code de commerce) and US state corporate law (for example Delaware) could not yet be checked.
- The Indian Companies Act was read from secondary reproductions because India Code and the MCA PDF refused automated access.
- Changes made to the UAE Commercial Companies Law by Federal Decree-Law No. 20 of 2025 were not checked; free zone dividend rules were not researched.
- UK withholding on dividends was not confirmed on an official page.
- Surcharge and cess on Indian withholding were not confirmed.
Sources and review status
Each statement is numbered to the source it was checked against. We use official sources where we can, and each statement says whether it was checked against an official or a secondary source. Sources last checked on 19 October 2026. None of it has been professionally reviewed yet: it is research checked against official and secondary sources by WONE Global, not legal or tax advice.
A UK company may only pay dividends and other distributions out of accumulated, realised profits less accumulated, realised losses. Companies Act 2006 s830; further rules apply to public companies and investment companies.
Reused from gb-banking-004.
An Indian company may declare or pay a dividend for a financial year only out of that year's profits after depreciation, out of undistributed profits of previous years, or out of money provided by government for the purpose under a guarantee. Companies Act, 2013, section 123(1) (central law). A company may first transfer such percentage of profits to reserves as it considers appropriate.
Secondary reproduction of the statute; India Code and the Ministry of Corporate Affairs PDF refused automated access.
An Indian company must deposit the amount of any declared dividend, including an interim dividend, in a separate account with a scheduled bank within five days of declaration. Companies Act, 2013, section 123(4). Unpaid or unclaimed dividends must be moved to an Unpaid Dividend Account within seven days after the 30-day payment period (section 124).
Secondary reproduction of the statute; India Code and the Ministry of Corporate Affairs PDF refused automated access.
A UAE limited liability company must set aside 5% of its net profits each year to a statutory reserve, and the partners may stop the transfers once the reserve reaches half of the capital. Federal Decree-Law No. 32 of 2021 on Commercial Companies, Article 103 (mainland companies). Free zone companies follow their own regulations. Federal Decree-Law No. 20 of 2025 amended the law and was not checked for changes to this article.
UAE commercial companies may not distribute fictitious profits to partners or shareholders, and partners must return profits distributed in breach of the law. Federal Decree-Law No. 32 of 2021, Article 30(1) and (2) (mainland companies).
A German GmbH may not pay out to its shareholders assets that are needed to maintain its registered share capital. Capital maintenance rule in section 30(1) sentence 1 GmbHG; it applies to any payment or benefit to shareholders, not only formal dividends.
German GmbH managing directors are personally liable to the company for payments made out of the assets needed to maintain share capital in breach of section 30, and a shareholder resolution does not release them where the payment is needed to satisfy creditors. Section 43(3) GmbHG; section 43(2) makes directors who breach their duties jointly and severally liable for the resulting loss.
A German stock corporation (AG) must transfer one-twentieth (5%) of its annual net profit, less any loss carried forward, to a legal reserve until the legal reserve and certain capital reserves together reach one-tenth of share capital or a higher amount set in the articles. Section 150(1) and (2) AktG; applies to the AG, not to the GmbH.
German capital gains withholding tax (Kapitalertragsteuer) on dividends is charged at 25% of the gross distribution. Section 43a(1) sentence 1 no. 1 EStG, applying to capital income under section 43(1) sentence 1 no. 1 EStG. The 5.5% solidarity surcharge is added; treaty and EU Parent-Subsidiary Directive relief can reduce the final tax.
A foreign corporation with limited German tax liability can reclaim two-fifths of the German capital gains withholding tax deducted from its dividends, independently of any treaty claim. Section 44a(9) sentence 1 EStG; subject to the anti-abuse rules in sections 50c and 50d(3) EStG. Claims under section 43b (Parent-Subsidiary Directive), section 50g or a treaty are unaffected.
With the 5.5% solidarity surcharge, German dividend withholding is 26.375%; a foreign corporate shareholder can recover the excess over 15.825%; qualifying EU parents holding at least 10% for a year are exempt; and the treaty dividend rates listed are 5%, 10% or 15% for the UK, 10% for India, while the Germany-UAE treaty expired on 31 December 2021. Ordinary interest paid to non-residents is generally not subject to German withholding tax; exceptions include convertible and profit-sharing bonds and interest on loans secured on German property.
Secondary source used for combined effective rates and treaty rates; the statutory 25% rate and two-fifths refund are separately confirmed on the EStG.
The Income Tax Department lists general domestic rates for non-residents of 20% on dividends, 20% on interest on foreign-currency borrowings, 20% on royalties and 20% on fees for technical services, with lower rates for specified bonds and funds. Income-tax Act rates as presented by the department (1961 Act section references such as s115A); surcharge and cess not shown.
Section references on the page are to the 1961 Act; the 2025 Act renumbered these provisions. Reused from tx-withholding-and-treaties-005.
The Income Tax Department lists India-UK treaty rates of 10% on dividends (15% for certain property-linked distributions by investment vehicles), 10% (paid to a bank) or 15% on interest, and 10% or 15% on royalties and fees for technical services. India-UK DTAA.
Reused from tx-withholding-and-treaties-013.
Withholding tax on UAE-sourced income paid to non-residents is set at 0%. Covers dividends, interest, royalties and service fees paid to non-residents, unless the income is attributable to a UAE permanent establishment or nexus; the Cabinet may set other rates.
Reused from ae-tax-004.
Singapore does not levy withholding tax on dividends paid by Singapore-resident companies, which operate a one-tier system under which dividends are tax-exempt in shareholders' hands.
No official page stating this was opened. Reused from sg-tax-006.
Withholding tax of 5% applies to dividends and to loan charges paid to non-residents. Kingdom-source payments to non-residents; treaty rates may reduce the rate.
Reused from sa-tax-005.
Dividends paid by a US company to a foreign shareholder are FDAP income subject to 30% US tax, or a lower treaty rate, usually collected by withholding. Federal. Relevant to profit repatriation from a US subsidiary.
Reused from us-banking-002.
The German capital maintenance rule does not apply to payments made under a domination or profit transfer agreement, to payments covered by a fully recoverable counter-performance or repayment claim against the shareholder, or to the repayment of a shareholder loan. Section 30(1) sentences 2 and 3 GmbHG. The fully recoverable claim exception is the basis on which upstream loans and cash pool sweeps from a GmbH are assessed.
Questions on this topic
18 statements on dividends and distributable reserves
