It is 2nd year of your incorporation and your start-up company has started making profit. Now, you can now decide whether to re-invest the money or distribute it between the company’s shareholders.
Look at the net profit after you have deducted the corporate tax payable to IRAS. The amount eligible for distribution is referred to NET PROFIT after TAXATION. Dividends are cash payments made by companies to their shareholders. They are part of the companies’ post-tax profits distributed to shareholders, and are denominated as cents per share of its par value.
Having a net profit after taxation does not necessary means that the company has sufficient fund for dividend. Here are some important pointers for directors to ponder before declaring dividend.
- The company has to pay the dividend to the shareholders.
- The company issue the dividend warrants to every shareholders for the dividend amount paid.
Lets see an example on how much dividend to declare.
EBOS SG Pte Ltd was registered in August 2013. It has two shareholders who have invested 60% and 40% of the company’s share capital. On 31 December 2015, the company has made a decent profit.
Net Profit after Taxation - $58,000
Retained Loss - $18,000
Cash at Bank - $60,000
The company can declare a dividend of up to $40,000.
Shareholder A gets 60% of $40,000 and shareholder B gets 40% of $40,000
Are dividends taxable in Singapore?
Under Singapore’s one-tier taxation system, companies can now declare net tax exempt dividends out of its retained earnings, of which corporate tax of 17% has already been deducted.
This amount is not taxable and will not be subject to any declaration under the shareholders. There is no withholding tax on dividends paid to non-residents.