Dividend Distribution

Dividends are profits companies have allocated to shareholders in proportion to their shares. Companies file income tax at the current company tax rate of 28 percent, but this is not enough for dividend tax. Companies are obliged to withhold an extra tax out of the profit net of company income tax when they distribute dividends to shareholders. In this way, shareholders would not need to pay income tax for their dividend income by themselves. It is similar to PAYE that 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 the board of directors) elects to do a dividend distribution, the time and the amount are decided when they have received their income statement. There are some important dates to keep track of for 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.

Payment date: The day that dividends will be paid to shareholders.

1. Not all dividend declarations follow the above taxation rule, there are some special dividends that would not be subject to them. These payments are used to allocate surplus capital to shareholders. For example, a one-off cannot be categorized as a “dividend” for taxation purposes.

2. When a shareholder transfers the ownership of shares to others during a financial year, the Imputation credits are not forfeited on the condition that the continuity test is yet to be passed.

3. Companies facing trade-offs between short-term shareholder benefits and company long-term development must think thoroughly about whether to distribute and how much to distribute, since the more it pays out, the less retained earnings 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 with the entire dividend taxation process. Premium Accounting Solutions provides professional and reliable tax services for you.