Dividends are more than just a reward for shareholders – they represent a critical element of business success and financial strategy. For companies operating in Singapore, understanding the dividend declaration process is essential. Singapore’s unique one-tier corporate tax system eliminates the burden of double taxation, allowing businesses to distribute profits to shareholders tax-free.
This advantageous framework encourages organisations to share earnings and makes Singapore an attractive hub for investments and operations. However, the process of declaring dividends requires careful adherence to local regulations.
Ensuring compliance with the Singapore Companies Act and Income Tax Act, maintaining accurate financial records, and understanding the distinct requirements for interim and final dividends are critical steps to safeguard your business operations and shareholder relations.
This blog will guide you through the essentials of declaring dividends in Singapore, from understanding the types of dividends to navigating compliance requirements, ensuring you are well-equipped to make informed decisions that align with your company’s financial goals.
What is a Dividend in Singapore?
A dividend is a payment made by a company to its shareholders, typically as a distribution of profits. When a company earns a profit or surplus, it can choose to reinvest that money back into the business (called retained earnings) or distribute a portion of it to its shareholders in the form of dividends.
Not all stocks pay dividends. If potential shareholders are interested in stocks for dividends, they must invest in dividend stocks.
Interim vs Final Dividends
Dividends in Singapore fall into two primary categories, each with its own declaration and approval standards:
Interim Dividends
- Definition: Declared and distributed by the company’s board of directors during the financial year.
- Approval Process: Approved solely by the board, without requiring shareholder vote.
- Flexibility: Interim dividends offer flexibility for companies to share profits as soon as financial performance permits.
Final Dividends
- Definition: Declared at the end of the financial year, based on the company’s profits and approved at the Annual General Meeting (AGM).
- Approval Process: Must receive shareholder approval following a recommendation from the directors.
- Stability: Final dividends represent a summary of the company’s yearly performance and are often larger than interim dividends.
Understanding the distinctions between interim and final dividends ensures businesses can plan their financial strategies effectively while adhering to statutory obligations.
What Are the Types of Singapore Dividends?
| Type of Dividend | Details |
|---|---|
| Cash Dividend | A cash dividend is a payment made by a company to its shareholders in the form of cash. It is one of the most common ways companies distribute a portion of their profits to reward investors for their ownership. |
| Stock Dividend | A stock dividend is a payment made by a company to its shareholders in the form of additional shares of stock, rather than cash. It is a way for companies to reward investors while conserving cash for other business needs. |
| Preferred Dividend | A preferred dividend is a payment made to holders of preferred stock, a type of equity that typically has priority over common stock when it comes to dividend payments and claims on assets in the event of liquidation. |
| Special Dividend | A special dividend is a one-time payment made by a company to its shareholders, in addition to any regular dividends. It is typically issued when a company has excess profits or cash reserves that it wants to distribute to its investors. |
| Dividend Reinvestment Programs (DRIPs) | A DRIP is an investment option offered by companies or brokerage firms that allows shareholders to automatically reinvest their cash dividends into additional shares of the company’s stock, rather than receiving the dividends in cash. |
Does Singapore Have Dividend Tax?
Individuals and companies in Singapore are taxed on the profits generated within the country and on income earned abroad.
However, this applies only if financial statements for such dividend income have been filed with the Inland Revenue Authority of Singapore (IRAS). Singapore operates on a one-tier tax system so that income is only taxed once. Dividends are tax-exempt to the shareholders.
If an individual resident in Singapore obtains foreign-sourced dividends through a partnership in the city-state, these dividends may be exempt from Singapore tax if certain conditions are met.
Non-Taxable Dividends in Singapore
Generally, Singapore tax on dividends do not apply in these circumstances:
One-Tier Exempt Dividends: Under Singapore’s one-tier corporate tax system, corporate profits are taxed at the company level, and dividends distributed to shareholders are exempt from further taxation. This applies to most dividends paid by Singapore-resident companies.
Foreign-Sourced Dividends: Dividends received from foreign companies may be tax-exempt if they meet certain conditions, such as:
- The foreign income has been subjected to tax in the source country.
- The highest corporate tax rate in the source country is at least 15%.
- The dividends are received in Singapore by a Singapore-resident company.
Dividends From REITS: The distribution of income by Real Estate Investment Trusts (REITs) is also not subject to dividend tax, except dividends obtained by individuals via a partnership in Singapore or from conducting a trade, business, or profession in REITs.
Related Read: Essential Guide to Capital Gains Tax in Singapore
Declaring Dividends in Singapore
When it comes to declaring dividends, the company’s Board of Directors will first propose its distribution under the form of a declaration. A rate at which the dividends will be paid will be recommended by the managers before voting takes place during the annual general meeting (AGM).
These will be referred to as final dividends if approved. It is also possible that companies pay interim dividends that are issued before the end of the financial year if they can be reflected in the business’ profits. Dividend payments are typically made on the “payable date” before financial statements are filed.
Declaring dividends in Singapore involves the preparation of different accounting documents, such as:
- Shareholders’ approval
- The dividend register
- The resolution through which the dividend payment was made
- Meeting minutes during which the dividends issuance was decided
Insufficient Profits Rule
Dividends can only be paid out of profits. Section 403 of the Companies Act prohibits the distribution of dividends from share capital. This ensures financial stability and protects creditors.
Navigate Dividends in Singapore With Expert Help
Singapore’s pro-business policies and efficient one-tier tax system make it an ideal destination for profit-sharing among shareholders. By understanding the processes, legal obligations, and tax advantages of declaring dividends, companies can better position themselves for sustained growth and shareholder loyalty.
Whether you are managing a private limited company or preparing for public listing, structured dividend strategies are essential to your success.
Take the next step confidently to ensure compliance, enhance profitability, and reward your shareholders effectively. If you are ready to explore the dividends landscape further, Singapore remains the gold standard for maximising shareholder value.
At InCorp, our share registry professionals perform activities such as dividend payments, which encompasses:
- The calculation of dividend entitlements for shareholders
- The preparation and generation of detailed payment schedules
- The facilitating of payment
- Ensuring timely payment to shareholders
Aside from our share registry team, you can also tap into the capabilities of our taxation team to manage dividend taxation. Contact us to find out more about how we can help today!
FAQs about Singapore Dividends
Are dividends taxed in Singapore?
- There are taxable and non-taxable dividends in Singapore.
Can my company distribute dividends if it has not made a profit?
- It cannot. If your company announces and pays dividends without having made any profit, the directors who approved the distribution payment will be subject to a criminal offence.
What is the dividend tax rate in Singapore?
- The flat corporate tax rate in Singapore is 17%. However, to prevent double taxation, corporations are not taxed again when distributing dividends to their shareholders, and dividends are tax-exempt for shareholders.
We can help you navigate dividends in Singapore. Talk to us!
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