Dividend calculation: basic definitions, size and rules for paying dividends, taxation

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Dividends are represented by some part of the organization's profit, which remains in the company after payment of all mandatory payments and taxes. They are transferred only to the owners of the company's shares. Profit is distributed among shareholders depending on the share in the capital. The calculation of dividends should be carried out by an experienced accountant so that there are no errors that lead to regular checks by the tax office. It is important not only to correctly determine the amount of payments, but also to transfer funds on time.

How are dividends paid?

When calculating these payments, companies take into account certain requirements. These include:

• dividends can be paid not only in cash, but also in the form of property;
• participants of an LLC or individuals receive money through a cash desk or company's current account.

Each company independently determines how dividends will be paid. The basic rules are fixed in the founding documentation of the enterprise.

How are dividends calculated?

At the end of each financial year, the organization must generate an annual report. If, as a result of the work, undistributed profit remains, then it can be directed to accumulation, development of the company or distribution among shareholders. In the latter case, dividends are calculated, after which they are transferred to the company's participants.

When organizing a legal entity, all founders invest their funds or property in the authorized capital. Based on this action, a certain share in the company is formed. In accordance with this share, payments are calculated. Other features of the calculation of dividends for shares:

• only profits remaining after taxes and other obligatory payments are distributed;
• funds can be transferred annually, semiannually or quarterly;
• the charter of the company prescribes the terms and procedure for the payment of funds;
• most often businesses pay dividends at the end of the year.

There are certain situations in which it is inappropriate to pay out funds even if there is a positive result from the company's work.

When are dividends not paid?

It is not always advisable for a company to transfer dividends to its shareholders even if there is a profit from activities during the year. All situations when a company cannot perform this process are listed in Federal Law No. 14. These cases include:

• at the director who isat the same time as the founder, according to official documents, the salary is too low, so the tax inspectorate may consider that dividends under such conditions act as payment for his work, which often leads to additional assessment of contributions and bringing the organization to administrative responsibility;
• the company distributes the remaining profit on a monthly basis between the employees of the enterprise, who are also its founders, although, according to the law, LLCs and JSCs can perform this process no more than once a quarter, therefore, through the court of the Federal Tax Service, they can insist on re-qualifying payments;
• During the year, dividends are paid, but the company has a negative balance sheet on the final annual report, so unrecorded profits are distributed, so the funds paid will be transferred to net income, which will lead to the accrual of additional contributions and taxes;
• funds are paid to shareholders without taking into account the share that they own in the company, so the employees of the Federal Tax Service recognize such amounts as an excess and will accrue additional contributions.

It is desirable to calculate dividends during the year from the profit received in the previous period, and not the current one.

Sources of payouts

To pay these funds, companies can use different sources, which include current profit and profit received in previous years of work. The profit received after payment of all obligatory payments and taxes is used for this purpose.

When calculating dividends for founders, some parameters are taken into account:

• When calculating JSCs, they must be guided by the indications available in their financial statements, and there is no such strict requirement for LLCs;
• the most relevant for settlements is to use profits received in previous years of work, and there are no restrictions on the period when such profits should appear;
• funds are paid solely on the basis of a decision taken by shareholders at a meeting.

Funds can be transferred in cash through the cash desk of the enterprise, but the non-cash method is most often used.

Payout rules

Calculation and payment of dividends are carried out solely on the basis of the minutes of the meeting, where shareholders decide on the need to pay these funds. For this, a general meeting is held. By voting, a decision is made on how retained earnings will be used. To do this, shareholders can distribute it as dividends.

The results of the meeting must be officially recorded, for which a protocol is formed. Often, a company has only one participant, therefore, in an arbitrary form, he draws up a decision on the basis of which he pays dividends to himself.

Within 10 days after the formation of the protocol, a copy of it is sent to all participants of the enterprise. It must contain information:

• indicates the type of meeting that can beextraordinary or regular;
• it is written in what form it was held, since on many issues an absentee meeting is held when the participants of the enterprise do not come to the vote;
• shareholder messages can be sent in a variety of ways, such as by phone, the internet or other methods;
• decision on the transfer of interim payments is made only if there is a quorum, therefore, a correct decision by the participants is required;
• shareholders are allowed to involve representatives, which must be indicated in the minutes;
• the participant who is the chairman of the meeting is registered;
• questions are formulated that were discussed at the meeting, and 15 days before the scheduled event, any shareholder can raise additional questions of interest to him;
• all items on the agenda are listed;
• confirms the fact that the decision was made by a notary, although the law provides for the possibility of using another method of confirmation prescribed in the charter of the enterprise.

If necessary, other issues may be specified in the protocol.

Calculation rules

When calculating dividends, it is required to take into account the requirements prescribed in Russian legislation. Additionally, the norms enshrined in the internal regulatory documentation of the organization are observed.

The calculation method depends on which shares each participant has.

Common stock settlement

Such securities are consideredthe most popular among participants of different organizations. The formula for calculating dividends for such shares is as follows:

Dividends paid last year / cost of securities100%.

Additionally, a formula that takes into account the dividend yield can be applied. In this case, the following formula is used:

Dividend yield=Common stock dividend / market price100%.

When calculating dividend income, firms must take into account some rules:

• you should first check whether all the requirements listed in the company's regulatory documents are met;
• important to check if there are any restrictions on payouts;
• when calculating, it is additionally recommended to apply adjustment factors, the amount of which is set by the board of directors;
• when calculating the payout for common stocks, they often predict their average value, after which the amount is set at the current moment.

When making calculations, it is taken into account that the payment of dividends cannot act as a way to develop the company. Large deductions are allowed only for long-running and well-developed enterprises, so there is no urgent need to direct funds for development.

It makes more sense for young companies to use the money to expand further.

Settlement of preferred shares

These securities are considered the easiest to predict. Forcalculation of payments usually takes into account only 10% of the income of the enterprise. It is this amount of funds for such securities that must be paid without fail.

10% of profits are invariably transferred to all preferred shares. It is possible to increase the payout, but firms rarely use this option.

Single member payouts

It is not uncommon to open a business with just one person. In this case, he independently decides on the need to transfer dividends. The decision made must be correctly drawn up in writing.

The transferred funds will certainly be taxed. The calculation of personal income tax on dividends is considered simple, since since 2018 a standard rate of 13% of all funds paid has been used for this.

When transferring money, some conditions are taken into account, included in Art. 29 Federal Law No. 14. These include the fact that it is important to competently draw up a decision drawn up in writing. The protocol must contain information:

• correctly calculated payout;
• form of dividend payment;
• the period during which the funds will be transferred.

Based on the protocol, an order is formed to pay part of the profit to the sole participant of the enterprise. It is he who acts as the basis for calculations. A Russian company under such conditions acts as a tax agent, therefore it is obliged to calculate and transfer to the Federal Tax Service the appropriate amount of funds in the form of personal income tax.

Examplecalculation

Calculating payouts is actually quite simple. An example of calculating dividends allows you to easily determine the optimal amount that should be transferred to shareholders. For example, a company issued 500 shares at the opening, of which 80 securities are preferred.

For the year the company received 630 thousand rubles. in the form of net profit after payment of all mandatory payments. The owners of the enterprise decided to pay 5 thousand rubles for each preferred share. In this case, the owners of preferred shares will receive: 5,00080=400,000 rubles. The remaining 230 thousand rubles. will be distributed among all holders of ordinary shares. For each such security will be transferred:

230,000 / 420=RUB 547

The dividend calculation example shows that determining how much funds should be transferred to shareholders is actually very simple. At the same time, the business owners themselves determine exactly what amount will be distributed among the holders of securities.

Tax rules

Dividends are taken into account in the calculation of insurance premiums or personal income tax for each shareholder. The company paying the funds acts as a tax agent, therefore it is obliged to correctly calculate and pay tax for participants to the Federal Tax Service.

When calculating the tax on dividends, it is taken into account who is the recipient of the funds. They can be a Russian citizen, a foreigner or a company. Public authorities cannot act as a founder of a company.

Most frequently ownedshares are Russian citizens. For them, 13% of the total amount of dividends is paid. For foreigners, an increased rate of 15% is applied. If a company receives funds, then it must independently pay income tax, depending on which taxation system it operates under. Dividends are taken into account in the calculation of insurance premiums, if additionally the recipient of funds is an employee of the enterprise. Therefore, transfers to state funds are increasing for it.

Calculation rules for USN

Payment of dividends is allowed even for companies operating under simplified tax regimes. In this case, the profit is distributed according to the rules recorded in the charter of the organization. If there is no specific procedure, then the calculation of dividends under the simplified tax system is carried out on the basis of the shares held by the participants.

Only retained earnings are used. When transferring funds, the company becomes a tax agent. Therefore, a company on the simplified tax system calculates, withholds and transfers personal income tax or income tax to the Federal Tax Service, depending on the recipient of the funds.

Is there a maximum payout?

The amount of dividends is determined at the meeting of shareholders of the company. Additionally, various nuances are fixed in the regulatory internal documentation. Therefore, there are no restrictions on these payments.

The firm can pay out the amount of funds that it has left after the transfer of all mandatory payments. The only limitation is the share of each shareholder infirm.

Conclusion

Many companies pay dividends to shareholders. The rules for calculating them depend on whether these securities are preferred or ordinary. Only the profit that remains with the company after paying taxes and other obligatory payments is distributed.

The need to pay dividends is decided jointly by the company's participants during the relevant meeting. It is required not only to make a decision, but also to formalize it correctly. When transferring dividends, the company becomes a tax agent, so it must independently calculate and transfer tax for foreign or Russian shareholders.