Dividend Distribution

Dividends are profits companies have allocated to shareholders in proportion to their shares.

Dividends are profits companies have allocated to shareholders in proportion to their shares. Companies declare income tax at the current company tax rate of 28 percent. But this is not enough for a dividend. Companies are obliged to withhold an extra tax out of profit net of company income tax when they distribute dividend to shareholders. In this way, shareholders would not need to pay income tax for their dividend income. To use an inappropriate metaphor, it is like PAYE companies withhold for employees attached to their salaries. The additional tax companies reserve is for shareholders attached to their dividend income.

If a company, usually, board of directors, elects to distribute dividends, the time and the amount are also decided when they have its income statement. There is some important date to your declaration.

Declaration date:
the day that you announce there will be a dividend distribution.

Record date:
the day that distinguishes the shareholder that will be paid from those whom company will not pay to

Payment date :
the day you will receive dividend

1. Not all dividend declarations shall follow the above taxation rule. There are some special dividends that would not be subject to above rules. These payments are used to allocate surplus capital to shareholders. Such is one-off, cannot be categorized to the “dividend” in the taxation
2. When a shareholder transfers the ownership of shares to others during a financial year. Imputation credits are not forfeited on a condition that continuity test is yet to be passed.
3. Dilemma that pends company to pay dividends to shareholders. Company facing trade-offs between short-term shareholder benefits and company long-term development have to think thoroughly about whether to distribute and how much to distribute, since the more it pays out, the less retained earning left for future operation.

We can give you an analysis of the current financial situations of your business, and advise when and how to declare a dividend to shareholders. We also can help you to finish taxation, file the tax with dividend in a timely manner. Premium Accounting Solutions provides professional and reliable tax service for you.