When Can a Company Declare Dividends?

When Can a Company Declare Dividends?

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If you are considering paying your shareholders a dividend, it is important to understand the dividend policies in Singapore. In this guide, we will explain what dividends are, the rules of declaring them, whether they are taxable in Singapore, and more.

What Are Dividends?

Dividends are the portion of profits that a company shares with its shareholders according to the dividend declaration rules in Singapore. The five types of dividends are:

  1. Stock dividends, which occur when a company pays its investors in the form of additional stocks.
  1. Cash dividends, which are the most popular and simplest type of dividend. The company simply deposits cash into the shareholders’ brokerage accounts.  
  1. A company can pay special dividends outside of its regular policy. These usually come from the excess profits that the company has accumulated over several years, but does not immediately need.
  1. Shareholders that own preferred stocks, which are more similar to bonds than regular stocks, receive preferred dividends. Companies generally pay dividends on preferred stock every quarter. However, dividends on preferred stock are fixed rather than variable, as is the case with common stock.
  1. Dividend reinvestment programs (DRIPs) allow stockholders to reinvest their dividends into the company's stock, often at a discount.

When Is a Company Qualified to Declare Dividends?

A company can only pay dividends out of its profits. If your company makes a loss, you cannot distribute dividends. If the Singaporean authorities discover that a company has paid a dividend at a loss, the directors who have authorised the payment are liable for both civil and criminal liabilities. If the judge finds them  guilty, they could be liable for a fine of up to S$5,000 and/or face up to 12 months of jail time.  

What Are the Benefits of Paying Dividends?

One advantage of paying dividends is that it incentivises new shareholders to buy your stocks and existing ones to continue holding them. Your shareholders are, after all, the owners of the company, so paying them dividends is a good way to thank them for their loyalty.

Another benefit of paying dividends is that it signals to the market that your company is financially stable. Remember, it is illegal to pay out a dividend if your company has made a loss. If you are consistently paying out dividends, by definition, that also means that your company is financially healthy and moving in the right direction.

A third advantage of paying dividends is that since it makes your stock more attractive, it will drive your stock price up and appeal to investors who derive their income from stocks that frequently pay dividends (e.g. retirees).

Is Dividend Income Taxable in Singapore?

IRAS (Inland Revenue Authority of Singapore) distinguishes between taxable and non-taxable dividends. Taxable dividends include:

  • Dividends paid out by co-operatives
  • Foreign dividends received by individuals through a partnership in Singapore
  • Dividends from Real Estate Investment Trusts (REITs) received by individuals through a partnership in Singapore or from conducting business, a trade, or a profession in REITs.

Meanwhile, non-taxable dividends include the following:

  • Dividends paid to shareholders by a Singapore-resident company (unless it is a co-operative) under the one-tier corporate tax system
  • Income distribution from REITs, unless the individual receives it through a partnership in Singapore or from conducting a profession, trade, or business in REITs.
  • If a resident receives foreign dividends through a partnership in Singapore, the dividends may be exempt from being taxed in Singapore. Please visit Tax Exemption for Foreign-Sourced Income to learn more.

Examples of non-taxable dividends include, but are not limited to, dividends from private resident companies, dividends from share buybacks through Special Trading Counters (STC), and Singaporean dividends from unit trusts.

Sprout with Us!

Knowing whether to declare dividends is important, as it could be a potential step in making your firm look more attractive to investors. Using Sprout Asia's budget-friendly accounting services, the experts can manage your finances and identify if your company is suitable to declare dividends. Let us handle the backend work while you focus on what you do best.

If you have any queries about our services, feel free to reach out to us and we will answer within 24 hours.