Interim dividend: Applicability and requirements
The revised stock corporation law has established a legal framework for distributing interim dividends under Art. 675a CO, effective from 1 January 2023. This article explores the scope of this provision and its practical application.1
Common forms of distributions
Companies can distribute dividends to shareholders in various ways, typically as ordinary or extraordinary dividends.
Ordinary dividend: Paid from retained earnings or reserves created for this purpose, based on approved annual financial statements.
Extraordinary dividend: Resolved at an extraordinary general meeting and charged against the remaining freely available equity capital (that is, equity not distributed at the ordinary general meeting) according to the latest approved annual financial statements.Both ordinary and extraordinary dividends rely on the most recent approved financial statements, audited if applicable. Auditors must review the Board of Directors’ dividend proposal if the company has auditors.
Equity items that can be distributed as interim dividends
Only profits from the current financial year may be distributed as interim dividends (HWP, Ordentliche Revision, 2024, p. 459, N 1480). If, for example, the financial year corresponds to the calendar year, the profit for the current financial year accumulated from January 1 to, for example, March 31, 2025, can be distributed as an interim dividend.
It should be noted that any equity items already reported as of December 31, 2024, cannot be distributed as an interim dividend. If, for example, the company has share capital of CHF 100,000, statutory profit reserves of CHF 50,000, profit carried forward of CHF 1,000,000 and an annual profit of CHF 200,000 as of December 31, 2024, the equity items (profit carried forward/annual profit) can only be distributed as ordinary or extraordinary dividends, but not as interim dividends. If, therefore, a dividend totaling CHF 2,000,000 is to be distributed on an interim profit of CHF 800,000 reported as of March 31, 2025, CHF 1,200,000 must be distributed as an ordinary/extraordinary dividend and the interim profit of CHF 800,000 as an interim dividend.
Requirements for the distribution of an interim dividend
- Statutory basis. The company's articles of association must not expressly exclude the distribution of an interim dividend.
- Freely available equity. An interim dividend may only be distributed if the company has sufficient freely available equity.
- Approval of the last annual financial statements. An interim dividend can only be distributed once the last annual financial statements have been approved. This means that if the profit accrued as of March 31, 2025 is to be distributed, the annual financial statements for the 2024 financial year must first be approved.
- Interim financial statements. The preparation of interim financial statements is mandatory for the payment of an interim dividend. Pursuant to Art. 960f para. 1 CO, the interim financial statements must be prepared in accordance with the provisions governing annual financial statements and must generally consist of a balance sheet, an income statement, and notes, whereby the applicable provisions for larger companies and groups remain reserved. Before the interim dividend is declared, the general meeting must approve the (audited, if applicable) interim financial statements.
- Possible audit by the auditors. No audit of the interim financial statements and the Board of Directors' proposal for the appropriation of profits is necessary if the company does not have auditors. In addition, the legislator has provided that an audit of the interim financial statements and the proposal for the appropriation of profits may also be waived if the company has an auditor but all shareholders agree to the distribution and the claims of creditors are not jeopardized as a result. However, it should be noted that, according to EXPERTsuisse (HWP, Ordentliche Revision, 2024, p. 461, N 1492), an audit of the proposal for the appropriation of profits relating to distributions from capital reserves created during the year is mandatory if the company has an auditor. In this case, both the interim financial statements and the proposal for the appropriation of profits are subject to audit.
- Allocation to retained earnings. Five percent of the interim profit must be allocated to the statutory retained earnings reserve, provided that the statutory retained earnings reserve together with the statutory capital reserve has not yet reached half of the share capital entered in the commercial register.
Effects of the interim dividend on other equity transactions
Interim dividend rules offer greater flexibility in distributing profits accrued during the year, repurchasing own shares, creating reserves during the year and upstream or cross-stream loans or collateral and guarantees.
Accounting and tax treatment
With regard to the annual financial statements, the interim dividend should be recorded at the time of the dividend distribution without affecting income and reported as a negative item in equity (HWP, Ordentliche Revision, 2024, p. 460, N 1486). This ensures that the annual profit is recorded in full in the annual financial statements. It would not be appropriate to offset the interim dividend against retained earnings or another reserve, because an interim dividend is distributed from the current fiscal year's profit.
Interim dividends are also subject to withholding tax (Art. 4 para. 1 lit. b VStG). The interim dividend must be disclosed in the notes to the next regular annual financial statements. The recipient must record the interim dividend in the financial year in which it was received. This should ensure that the requirements of Art. 25 para. 1 VStG are met.
Conclusion
The legal basis for interim dividend distributions has streamlined the group’s internal distribution policy. We are here to answer any questions you may have on this topic and to assist with your next interim dividend distribution.
