New legislation regarding dividend distribution in 2020

A change in Corporate Income Tax Law (§25) will lead to amendments in the Accounting Law, that concern dividends. Basically the new article (§5б), applicable as of January 1st 2020, states that R&D expenses are accumulated in intangible assets and the company cannot distribute dividends in case the book value of the previous exceeds the retained earnings. In other words, when an entity doesn’t recognize those expenses as OPEX, until those intangibles are fully amortized or derecognized, the company cannot “share” the profit with the investors, unless it had accumulated enough funds, the amount of which should be higher than the book value of the assets in question. The changes in legislation were made because a lot of tech companies capitalize the expenses and thus there are no personnel expenses in the income statement, which biases the financial result and practically makes it higher. It is still unknown whether the new rules will apply for the assets, capitalized in 2019 or it will be applicable for 2020 assets and so on. Because of this, the Association of Bulgarian Investor Relations Directors will address Ministry of Finance (Tax policy Directorate) to clarify it.