In Hong Kong, corporate dividends are an important source of income for shareholders. Since there is no double tax system in Hong Kong, the dividends received as shareholders in Hong Kong do not need to be taxed.
In today's article, I will talk about how Hong Kong companies pay dividends, how dividends are taxed, and what is the tax rate?
NO.1. Introduction to dividends of Hong Kong companies
Dividends: refers to the process of dividends and dividends distributed by listed companies to their shareholders, and it is also the process of shareholders realizing their own rights and interests.
Cash Dividend: is a dividend paid in cash.
Scrip dividend: refers to the new shares of the company that are used by the joint-stock company to distribute to the shareholders of the company as dividends.
Ordinary shareholders: As shareholders of the company, they have the right to vote and can receive dividends according to the company's dividend agreement, however, even if the company records a profit in the current year, it may not necessarily declare a dividend.
Preferred Shareholders: Entitled to receive agreed dividends in preference to common shareholders, preferred shareholders have no voting rights, but may receive fixed dividends (but dividends will not be increased due to an increase in the company's earnings).
Shareholders of Preferred Shares may receive dividends subject to profits, and for shareholders of Accumulated Preferred Shares, if there is no interest payable in that year, the dividends payable by the holders will be accumulated until the Company is available for dividends and will be paid in a lump sum.
Generally, Hong Kong listed companies can pay dividends twice a year: in the middle of the financial year and at the end of the financial year, and in the case of private companies, the board of directors can decide to pay dividends at any time.
Note: Directors are not entitled to dividends.
NO.2. How to distribute dividends to Hong Kong companies
Whether a Hong Kong company distributes dividends, including the number of dividends and the method of dividends, is decided by the board of directors of the company, and Hong Kong law does not stipulate that dividends must be distributed.
The board of directors may decide at any time whether to pay dividends, and may specify the method of dividends and the authorized executors in the articles of association.
For listed companies, it is generally recommended that customers choose to pay interim dividends, as the distribution of interim dividends is relatively simple and can be authorized by the board of directors, while the final dividend must be approved at the annual general meeting.
Interim and final dividends: Listed companies generally pay dividends twice a year, once in the middle of the financial year, called interim interest, and once in the final period, called final interest.
NO.3. The tax rate of dividends paid by Hong Kong companies
1. Dividends are distributed to individuals
Dividends are paid to Hong Kong resident shareholders and are not subject to tax.
Dividends to mainland resident shareholders are subject to 20% individual income tax, and if the Hong Kong company is a listed company and the mainland resident shareholders hold shares for more than 1 year, they are exempt from individual income tax.
For example, for U.S. residents, according to the Foreign Account Compliance Tax Act (FATCA) promulgated by the United States, U.S. tax residents are taxed on their global income.
2. Dividends to the company
Dividends are paid to shareholders of Hong Kong companies and are not subject to tax.
Dividends are paid to shareholders of mainland companies, and the mainland corporate income tax rate is 25%, and according to the agreement between the mainland and Hong Kong for the avoidance of double taxation, only the difference in income tax is required (provided that the Hong Kong company has obtained a certificate of Hong Kong tax residency).
Dividends are paid to companies in other countries or regions, and the tax rate is determined according to the local country/region policy.
NO.4. Dividend laws and regulations of Hong Kong companies
When paying dividends to Hong Kong companies, it is necessary to pay attention to the implementation of the Hong Kong "Company Ordinance" and the articles of association to avoid violating laws and regulations: confirm whether the articles of association of the company authorize the board of directors to implement dividends.
To ensure that dividends are implemented in accordance with Part 6 "Distribution of Profits and Assets" of the Hong Kong Companies Ordinance, the main points are to ensure the following:
❶ Only the accumulated realizable surplus can be distributed, and the realizable surplus is calculated according to the standards of the Hong Kong Institute of Certified Public Accountants.
❷ If the auditor's opinion on the audited statements of the previous year is a qualified opinion, the auditor is required to issue a "statement" to explain that the qualified opinion is not related to the company's dividend payment.
❸ If there is too much time between the last audited accounts and the dividend date, the directors can prepare an interim financial statement to complete the dividend, and it is generally recommended that the financial statements should be prepared within three months of the dividend.