You’ve made a profit and thinking about paying it out to shareholders. Here’s all you need to know about dividends in Singapore.
What is a dividend?
When your company has made a profit, you get to choose whether you want to invest it into growing the business or distribute between shareholders. The distributed profit is called dividends.
Do I need to pay taxes on dividends?
No, Singapore adopts a one-tier tax system so income is only taxed once. The dividends are tax-exempt to the shareholders.
How much can I distribute?
You can distribute all profit remaining after paying your taxes and settling your losses. Let’s say after tax your business has made a profit of S$30,000 this financial year. If you have S$10,000 losses from the year before, you need to offset those first. The remaining S$20,000 can be distributed as dividends.
How much does each shareholder get?
Usually, each shareholder gets dividends according to their share. If you want to set up a different ratio, you can state that in the shareholder agreement.
Can I distribute dividends if my company has not made a profit?
No. If your company has declared and paid dividends when there are no profits, the directors who were aware of and approved the payment will be guilty of a criminal offense. The consequences may be a fine of S$5,000 or a year in jail. The company’s debt to creditors also has to be paid by the directors. Even the ones who didn’t know there was no profit have to pay the debt as these cases are considered as negligence or breach of fiduciary duty.
What do I need to do to declare dividends?
There are interim and final dividends. Decisions on interim dividends are made by the board based on the estimates for the year. A directors’ resolution is enough.
Final dividends are approved by the shareholders at the end of the financial year. That requires their unanimous agreement in a vote. This usually happens during the Annual General Meeting (AGM).
For both interim and final dividends, your Corporate Secretary must issue declare warrants to each shareholder. The details have to go into your accounting books.
As soon as you have agreed on paying dividends, they become the company’s debt to shareholders until paid.
Can I pay myself dividends instead of salary and save on taxes?
Dividends are distributed between shareholders. If you are also a director or an employee in your business, you should have a reasonable salary adequate to your role. If you are a foreigner, the salary and the taxes you pay also affect your legal status: the Ministry of Manpower looks at these when deciding on visas. Another issue is if your business stops making a profit, you will not have a source of income.
Dividends are what you and the other shareholders receive as a bonus for having a profitable business.