Thinking about how to distribute or pay out a profit to your shareholders after making a profit? The following is a quick guide on how dividends work in Singapore.
MEANING OF A DIVIDEND
When your company makes huge returns, you have to decide whether to invest back the money to facilitate its growth or divide among your prospective shareholders. Dividends are the distributed returns.
ARE DIVIDENDS TAXED?
Absolutely not! In Singapore, there is a one-tier tax system adoption hence your income taxation is just once. Dividends are classified as tax-exempt to your shareholders.
HOW MUCH DIVIDENDS CAN I GIVE OUT?
After clearing all your taxes and settling the losses incurred, you can equally divide the remaining profit. For example, if S$40,000 is the profit made by your business in a financial year after taxation, and you have S$20,000 losses from the previous year, you first have to compensate. Henceforth, you can distribute the remaining S$20,000 as dividends.
WHAT ABOUT EACH SHAREHOLDER AMOUNT?
You can choose to split the dividends based on the percentage of shares holding for each share holder. Besides, ratio adjustment can be stated during the shareholder agreement.
IF MY COMPANY DIDN’T MAKE ANY PROFIT, CAN I STILL HAVE DIVIDENDS DISTRIBUTION?
No. If your company has paid out dividends, yet there were no profits made, your board directors who signed off on the profit sharing is liable for arrest. They may be required to pay a fine of not less than S$5,000 and/or serve a year jail sentence.
WHAT IS NEEDED OF ME IF I WANT TO DECLARE DIVIDENDS?
Generally a business can give out both final and interim dividends. We will need a resolution from directors for interim dividends, based on annual estimation on revenue.
For final dividends, which happens at the end of every financial year, the shareholders will need to approve the final dividends via voting during the Annual General Meeting (AGM) to establish a unanimous agreement.
Every shareholder receives declared warrant details issued by the Corporate Secretary for the two types of dividends. The company accountant will have to record this into the corporate accounts.
After the dividends agreements are finalized, the amount earmarked for the dividends are treated as debts to shareholders until it is paid.
IS IT POSSIBLE TO SAVE ON TAXES AFTER PAYING MYSELF DIVIDENDS INSTEAD OF SALARY
As stated above, dividends are meant for shareholders. If you happen to be an employee or a director in your own business you should ensure that your salary is reasonable and fitting for your position.
Moreover, if you are a foreigner, you should know that your legal status in Singapore will be affected by the taxes you pay and the salary you earn, because the Ministry of Manpower evaluates these before giving you a visa.
Finally, if your business ceases to make any profit, know that your source of income will be compromised. If your business makes a profit, what you and other shareholders get as a bonus is termed as dividends.
