It’s almost year-end as of this writing. During this time, many are already calculating how much profit they have earned for the year, and if there will be dividends to declare.
A dividend is a cash or non-cash distribution of net earning to the stockholder of a corporation. It is usually distributed to stockholders after a profitable year or quarter. The dividend is distributed in proportion to capital investment.
There are many reasons why dividends are declared, but here are three examples:
1. To give the investor their share to the company’s profit
2. To attract potential investors
3. To avoid improperly accumulated retained earnings
Tax Rate on Dividends
In distributing dividend, you need to deduct final tax on the gross amount of dividend paid to an individual or entity.
The rate of tax is as follows:
Tax Rate of Dividend for Individuals
| Rate | |
|---|---|
| Citizen and Resident Alien | 10% |
| Non-Resident Alien Engaged in Trade or Business | 20% |
| Non-Resident Alien Not Engaged in Trade or Business | 25% |
Tax Rate of Dividend for Corporations
| Rate | |
|---|---|
| Domestic Corporation | 0% |
| Resident Foreign Corporation | 0% |
| Non-Resident Foreign Corporation | 30% or 15% |
When to Remit Your Tax on Dividends to the BIR?
After deducting the final tax on dividends paid, you need to remit it to BIR on or before the tenth (10th) day of the month following the month in which withholding was made.
In conclusion, monitor your earnings, at least once a year, to see if there’s a need to distribute dividends. Make sure you deduct and remit to BIR the final tax to avoid paying penalties in the future.
If it is a property dividend, how do we value the property? Is it based on book value? Do we also have to pay DST?
When are you going to withhold the Tax on Dividends, Is it on the time it was declared or upon payment? Usually, it is declared first then the payment is scheduled after a month.
Hi Edita, thank you for your comment. The NIRC states “A final tax at the following rates shall be imposed upon the cash and/or property dividends actually or constructively received”. Thank you