The timing, frequency and amount of future dividend payments, if any, will depend upon various factors that our Board of Directors may consider relevant, including our earnings and financial condition. Our bylaws provide for a minimum mandatory dividend of 40% of our adjusted annual net income, if any, as determined under IFRS at our individual financial statements. Brazilian companies are permitted to make limited distributions to shareholders in the form of interest accrued on share capital, commonly referred to as “interest on shareholders’ equity,” and treat such payments as a deductible financial expense for purposes of Brazilian income tax and social contribution on profits. This notional interest distribution is treated for accounting purposes as a deduction from shareholders’ equity in a manner similar to a dividend. The benefit from the tax-deductible interest on shareholders’ equity is recorded in the income statement. The minimum mandatory dividend includes amounts paid as interest on shareholders’ equity. However, payment of such interest on shareholders’ equity is subject to Brazilian withholding income tax at the rate of 15%, whereas no such withholding is required in connection with dividends paid.
Annual adjusted net income not distributed as dividends or interest on shareholders’ equity may be capitalized, used to absorb losses or otherwise appropriated as allowed under the Brazilian Corporation Law and our bylaws. Therefore, annual adjusted net income amounts may not necessarily be available to be paid as dividends. We may also not pay dividends to our shareholders in any particular fiscal year upon the determination of the Board of Directors that such distribution would be inadvisable in view of our financial condition at the time. Any such dividends not distributed would be allocated to a special reserve account for future payment to shareholders, unless used to offset subsequent losses.
Under the Brazilian Corporation Law any holder of record of shares at the time of a dividend declaration is entitled to receive such dividends, which are generally required to be paid within 60 days following the date of such declaration, unless otherwise resolved by the shareholders’ meetings, which, in either case, must occur prior to the end of the fiscal year in which such dividends were declared. Our bylaws do not provide for a time frame for payment of dividends. Shareholders have a three-year period from the dividend payment date to claim the payment of dividends, after which we are no longer liable for such payment.
Shareholders who are not residents of Brazil must register their investment with the Central Bank in order for dividends, sales proceeds or other amounts to be eligible for remittance in foreign currency outside of Brazil. Our common shares underlying the Ambev ADSs will be deposited with the Brazilian custodian, Banco Bradesco S.A., which acts on behalf of and as agent for the Depositary, which is registered with the Central Bank as the fiduciary owner of those common shares underlying our ADSs. Payments of cash dividends and distributions on our common shares will be made in reais to the custodian on behalf of the Depositary. The custodian will then convert those proceeds into U.S. dollars and will deliver those U.S. dollars to the Depositary for distribution to ADS holders. If the custodian is unable to immediately convert dividends in reais into U.S. dollars, ADS holders may be adversely affected by devaluations of the real or other exchange rate fluctuations before those dividends can be converted into U.S. dollars and remitted abroad. Fluctuations in the exchange rate between the real and the U.S. dollar may also affect the U.S. dollar equivalent of the trading price of our common shares in reais on the B3.
Brazilian companies are allowed to distribute earnings to shareholders under the concept of interest on shareholders’ equity, which is equivalent to a dividend but represents a tax efficient alternative to distribute earnings to shareholders because it is deductible for income tax purposes up to a certain limit established by Brazilian tax laws. The maximum amount of interest accepted for tax purposes is calculated using the Company’s net equity, excluding some reserves, multiplied by the TJLP. The TJLP is the official long-term interest rate defined by the Central Bank and used as reference in long-term loans provided by the BNDES.
The amounts paid as interest on shareholders’ equity are deductible for Ambev’s income tax and social contribution on net profits purposes. This deduction is limited to the greater of (i) 50% of the net income ((after the deduction of social contribution on net income but before taking into consideration the provision for corporate income tax and the amounts attributable to shareholders as interest on shareholders’ equity); or (ii) 50 of the sum of retained profits and profit reserves as of the date of the beginning of the period in respect of which the payment is made.
Interest on shareholders’ equity is treated similarly to dividends for purposes of distribution of profits. The only significant difference is that a 15% withholding income tax is due by nonexempt shareholders, resident or not of Brazil, upon receipt of such interest payment, which tax must be withheld by us on behalf of our shareholders when the distribution is implemented. If the shareholder is not a Brazilian resident, and is resident or domiciled in a tax-haven jurisdiction, withholding income tax is due at a 25% rate. According to Brazilian tax legislation, in the case of payments of interest on shareholders’ equity, a shareholder’s country or location should be defined as a tax-haven jurisdiction when such country or location (a) does not tax income, or (b) taxes income at a rate lower than 20%. In addition to criteria (a) and (b) above for the definition of a tax-haven jurisdiction, a country or location should also be considered a tax-haven jurisdiction if the laws of such country or location do not allow access to information related to shareholding composition, to the ownership of investments, or to the identification of the beneficial owner of earnings that are attributed to non-residents. The Brazilian Revenue regularly issues a list of jurisdictions which are considered tax-haven jurisdictions.
The amount shareholders receive as interest on shareholders’ equity net of taxes is deducted from the minimum mandatory dividend owed to shareholders.
In accordance with CVM rules, the Company can launch Share Buyback programs, which can be put into effect through the purchase of shares in cash at the stock exchange or through the issuance of put and call options (provided that the volume of such options issued multiplied by their respective strike prices does not exceed the limit established for the program). Each program launched has a pre-established amount and also follows other restrictions established by legislation specially related to the maximum amount of shares to be kept in treasury, which may not exceed the equivalent to 10% of the free float of each class of shares.
The following table shows the cash dividends and interest on shareholders’ equity paid by Ambev to its preferred and common shareholders since 2006:
|VALUE PER SHARE (NET)||VALUE||DISTRIBUTION1 2|
1IOC = Interest on Capital. / DIVID = Dividends
2Per share data adjusted to reflect any stock split or reverse stock split in the period.