Cash Dividend in Singapore - A Guide for Companies, Directors and Shareholders
- wupeicong11
- Apr 3
- 8 min read
Updated: Apr 12
Singapore companies are bound by capital maintenance rules and dividends represent one of the few ways for companies to return value to shareholders, rewarding investment and fostering confidence. In Singapore, companies usually pay dividends to shareholders in the form of cash (most common) or shares (stock reinvestment).
Directors declaring or proposing dividends must be mindful of whether profits are available for distribution and cash flow needs of the Company. Shareholders, meanwhile, must understand the relating rights and obligation. Missteps in dividend declarations can lead to penalties, personal liabilities for directors and/ or even shareholder disputes.
This guide provides a comprehensive overview of cash dividend declared and/ or paid by Singapore resident companies. Whether you are a company director, shareholder or finance professional, this guide clarifies Singapore’s dividend framework, keeps you informed and in compliance with regulatory requirements.
Dividend payable from profits only
Under Section 403 of the Companies Act 1967 of Singapore (the “Companies Act”), “no dividend shall be payable to the shareholders of any company except out of profits”. In other words, a company shall only pay dividend out of its profits that were available when the dividend was declared (and not at the time that it is to be paid).
If the company is incurring losses, no dividend can be declared.
However, not all profits are eligible for dividend distribution. Specifically:
1) Profits applied or used to buy back the company’s own shares (e.g. treasury shares) cannot be
used to pay dividends; and
2) Gains (Profits) on sale or disposal of treasury shares are excluded from distributable profits.
Directors who knowingly authorise or permit dividend payments when there are no or not enough profits commits an offence under Section 403 of the Companies Act, punishable by a fine or imprisonment. Directors would also be personally liable to the creditors of the company for the excess dividend amount (i.e. portion paid beyond legally distributable profits). Creditors or liquidators may initiate legal proceedings to claw back the wrongful payments.
Shareholders who received dividends knowing that no profit is available for distribution will be liable to refund the dividends received. They may need to indemnify the directors who are compelled to replace the money paid out illegally.
Beware: Dividend can be paid as long as there are profits
Section 403 of the Companies Act only stipulate when it is legal to declare and pay a dividend (i.e. when there are profits) and not when it is commercially appropriate to do so. Thus, it is possible for a company that is profitable and yet cash-strapped to borrow to pay a dividend, potentially accelerating its financial decline.
In addition, share capital (capital subscribed by shareholders) does not have to be intact or preserved in order for a dividend to be paid. A dividend may be paid even if total assets of the company is less than the share capital of the company, as long as the company is making profits.
Illustrating how a company with total assets ($50,000) < share capital ($100,000) could be potentially insolvent or is going to be insolvent following a dividend payout ($20,000):
Total deficit before dividend paid = $(100,000)
Total deficit after dividend paid = $(120,000)
The dividend payment, deteriorates the company’s already weak financial position, is not in breach of Section 403.
Retained earnings vs Accumulated losses
The common and straightforward understanding is that as long as the company has retained earnings, dividends can be declared. This is true in that retained earnings are made up of profits generated during years of business operations. Thus, even if a company incurs losses in the current financial year, it may declare and pay dividends as long as prior years’ profits more than cover the current year’s loss. Dividend amount would be limited to the retained earnings as at the end of the current financial year.
Lesser known: A company with accumulated losses from prior years may also declare a dividend if it is profitable in the current financial year. However, dividend amount is capped at the current year’s profit. The rationale is that the current shareholders should not be burdened with disadvantages arising from accumulated losses.
When dividends cannot be paid
Dividends cannot be declared/ paid in the following circumstances:
1) Company has insufficient profits (even if it has positive cash flow or asset revaluation gains).
2) Company incurred a loss during the current financial year and retained earnings brought
forward from prior year(s) are not sufficient to cover that loss.
3) Company has commenced or is in the process of winding up or liquidation, and all asset must
be directed to settle debts and obligations first.
4) Restrictions stipulated in the Constitution of the company.
No unconditional right to receive dividend
Dividends are paid at the discretion of the board of directors and depend on the earnings, financial position, results of operations, cash flows, capital needs, general business conditions, terms of borrowing arrangements (if any), plans for expansion and other factors. The decision on whether and how much dividends to pay may also be influenced by the company’s financial structure, competitive environment, investment opportunities and dividend policy (if any).
Shareholders are not able to compel a company to declare dividends in the absence of a specific right granted in the Constitution of the company. However, the persistent refusal of the directors (who might be major shareholders) to declare dividends when the company is able to do so may be unfair to minority shareholders. In some cases, the directors could be remunerated in such a manner that deprive minority shareholders from receiving returns on their investments, justifying relief under Section 216 of the Companies Act.
While minority shareholders have recourse under the Companies Act (e.g. oppression remedies and derivative actions), successful challenges are exceptionally rare. To mitigate risks, investors should review existing dividend policies and include relevant clauses in the Constitution of the company and/ or shareholders’ agreement to safeguard their interests.
Steps to declare the dividend
Types of dividends
Final dividends – Dividends proposed by the Board of Directors when financial statements for the financial year are finalised, approved by shareholders during the annual general meeting (“AGM”) in relation to the financial year and paid to shareholders after the AGM.
Interim dividends – All other dividends that are not final dividends. This is usually accompanied by a set of financial results of the company as the directors need to assess and ensure that the company is profitable during the interim financial period and for the full financial year. Interim dividends do not require shareholders’ approval.
Special dividends – Could be a large, one-off or variable dividend outside the normal pattern of a company’s dividend payments. Commonly used to return surplus cash to shareholders, special dividend could be declared as a final dividend or an interim dividend.
Documents required:
Before recommending or declaring a dividend, directors should check the Constitution of the company and/ or shareholders’ agreement (if any) for provisions in relation to dividends.
The declaration or recommendation of dividends by the Board of Directors must be properly documented through a directors' resolution in writing or in the minutes of a board meeting.
The Companies Act is silent on the issuance of dividend vouchers. Dividend vouchers are more relevant in the past. Before 2003, Singapore adopted the imputation corporate tax system - franked dividends are taxed in the hands of the shareholders. Dividend vouchers thus function like the IR8A to help taxpayers keep track of amounts (i.e. gross dividend) to be reported in their income tax returns. Under the one-tier corporate tax system, dividend income is non-taxable in the hands of the shareholders and need not be reported in their income tax returns. Nevertheless, dividend vouchers may serve as a supporting document (in addition to relevant resolutions and meeting minutes) for dividends received.
Tax Implications for shareholders
In Singapore, dividends received from Singapore resident companies are not taxable in the hands of the shareholders. This is because Singapore operates under a one-tier corporate tax system, where corporate profits are taxed at the company level. Once taxes are paid at the corporate level, dividends distributed to shareholders are tax-exempt.
Please refer to the following link for examples of taxable and non-taxable dividends:
Non-taxable dividends need not be declared in income tax returns. Taxable dividends need to be declared in income tax returns under the 'Other Income' section, unless the company indicates in the dividend voucher that they will furnish the dividend information to IRAS.
Tax implication for companies
Under the one-tier corporate tax system, tax assessed on a company on its chargeable income would constitute a final tax.
Singapore does not impose withholding tax on dividends. There is no need to withhold tax on dividend payments.
Troubleshooting
Inadequate profit at the end of the financial year to cover interim dividend declared earlier
The directors can rescind the declaration of interim dividend anytime.
In cases where the interim dividend has not been paid, the directors may pass a board resolution to rescind it. However, if the interim dividend has already been paid, the directors may still pass a resolution to rescind it, but they have to then find ways to “plough back” the dividend amounts from the shareholders.
In both cases, the board should consider whether it is appropriate to pre-empt the affected shareholders of the need to rescind the dividend.
Final dividend vs Interim dividend
Differences between final and interim dividend are summarised below.
Final Dividend | Interim Dividend | |
Timing and frequency | Proposed when the financial statements for the financial year are finalized. Declared and paid once for every financial year. | Can be declared at any time of the financial year.Can be declared and paid on multiple occasions during a financial year. |
Profitability | Based on financial statements for the financial year. | Based on interim financial results for the financial period; and anticipates profit for the year to be reported in the financial statements for the financial year. |
Declaration/ Approval process | Recommended by the board of directors via directors’ resolution or during a board meeting.Approved by shareholders at the AGM. | Declared by the board of directors via directors’ resolution or during a board meeting.No shareholders’ approval is required. |
Accounting | Proposed final dividend is not recognised in the accounts and is disclosed in the notes to financial statements.Final dividend is recognised in the accounts when it is approved by shareholders at AGM. | Interim dividend declared is recognised in the accounts immediately. |
Debt | Once validly proposed and approved, it is a debt owed by the company to shareholders. The debt is immediately payable unless it is stipulated that the dividend would be paid at a later date. | A ‘legal debt’ is not created upon declaration of dividend. Directors may revoke the interim dividend at any time. |
Rescind ability | Once approved by shareholders at the AGM, final dividend becomes a binding obligation.Cannot be rescinded after shareholders’ approval is obtained unless fraud or misrepresentation has occurred during the declaration/ approval process. | Can be rescinded by the Board of Directors.The Board need to justify the decision, ensuring that it is in the company's best interest (e.g. need to conserve cash due to financial instability). |