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Payment Of Dividends And Interest On Equity
The bylaws of a Brazilian company must specify a minimum percentage of income available for distribution, which must be paid to shareholders as mandatory dividends or as interest on shareholders’ equity. With consideration to the provisions of Brazilian Corporation Law, Banrisul’s bylaws set mandatory dividends at 25% of net income for each fiscal year, as adjusted by Brazilian Corporation Law.
Additionally, Banrisul’s board of directors may recommend that its shareholders approve a dividend distribution in excess of the mandatory amount, including amounts registered in other reserves, which are legally available for distribution.
Dividends
Banrisul is required by Brazilian Corporation Law and by its bylaws to hold an annual shareholders’ meeting no later than the fourth month following the end of each fiscal year at which, among other things, the shareholders must vote to declare an annual dividend. The annual dividend is calculated based on the Bank’s audited financial statements prepared for the immediately preceding fiscal year.
Any holder of shares on the date on which the dividend is declared is entitled to receive dividends.
Under Brazilian Corporation Law, dividends are generally required to be paid within 60 days of the declaration date unless the shareholders’ resolution establishes another date of payment, which, in such case, must occur before the end of the fiscal year in which the dividend is declared.
Banrisul’s bylaws do not stipulate that the value of distributed dividends must be corrected for inflation.
Each shareholder has a three-year period from the date in which the dividend (or the interest) attributable to shareholders’ equity was made available to the shareholder to claim such amounts, after which the aggregate amount of any unclaimed payments legally reverts to the Bank.
Banrisul’s board of directors may declare interim dividends or interest on shareholders’ equity based on realized income verified in annual or semiannual financial statements. The board of directors may also declare dividends based on financial statements prepared in periods shorter than six months, provided that the total amount of dividends paid in each semester does not exceed the amounts accounted for in the Bank’s capital reserve account. Interim dividends may also be paid from revenue reserve accounts based on the latest annual or semiannual financial statements. Any payment of interim dividends may be offset by the amount of mandatory dividends relating to the net income earned in the year in which the interim dividends were paid.
Interest On Equity
Since January 1, 1996, Brazilian companies are permitted to pay interest to shareholders and treat those payments as a deductible expense for purposes of calculating Brazilian income tax and, since 1998, for the purpose of social contribution tax. This deductible expense is limited to the greater of: (i) 50% of the Company’s net income (before the distribution of any deductions resulting from the social contribution tax and Brazilian income tax) for the applicable period, and (ii) 50% of the Bank’s accumulated income. Banrisul’s bylaws allow the payment of interest on shareholders’ equity as an alternative to the payment of mandatory dividends. The rate applied in calculating interest on shareholders’ equity cannot exceed the TJLP for the applicable period. The amount distributed to the Bank’s shareholders as interest on shareholders’ equity, net of any income tax, may be included as part of the mandatory dividends. In accordance with applicable law, Banrisul is required to pay to shareholders an amount sufficient to ensure that the net amount they receive in respect of interest on shareholders’ equity, after payment of any applicable withholding tax, plus the amount of declared dividends is at least equivalent to the mandatory dividend amount.
Any payment of interest on shareholders’ equity to shareholders, whether or not they are residents of Brazil, is subject to an income tax of 15%, with the rate increasing to 25% for individuals living in a tax haven (i.e., a country where there is no income tax or where income tax is below 20% or where local legislation imposes restrictions on disclosure regarding the shareholder composition or investment ownership).