paying dividends in a small LTD company & some other q's

deepriver

Hi,

I am starting to investigate paying dividends in a small LTD company and here is what I have so far, company makes profit and then decides to pay cash (in this case) dividend to the two ordinary shareholders, leaving any remaining profits as retained earnings.

Firstly date of declaration identified and the value of dividend payments decided against number of shares. Date of payment is the day the actual cheques are sent out.

Tax is charged at source of payment at the standard taxation (marginal) rate (20% as of March 09 / date of declaration).

First question is how is this tax returned to Revenue, through the corporate tax return?

Secondly if the company wishes to make a reserve fund (surplus reserve) for emergencies / unforeseen expenses etc, would this be done pre or post identifying retained earnings and what is the tax implication?

I am looking for any general feedback in regards good practise for making dividend payments aside from the specific questions above

Also can dividend payments be made more than once in a financial year?

many thanks

swanvill

Hi Deepriver,

First question is how is this tax returned to Revenue, through the corporate tax return? -
A - You need to complete form DWT - Dividend withholding Tax declaration . http://www.revenue.ie/revsearch/search.jsp

Secondly if the company wishes to make a reserve fund (surplus reserve) for emergencies / unforeseen expenses etc, would this be done pre or post identifying retained earnings and what is the tax implication?
A - Post dividend. The only thing to watch out for is undistributed income surcharge, if you are a service or investment or rental company. Here is the link, http://www.revenue.ie/en/about/foi/s16/income-tax-capital-gains-tax-and-corporation-tax/part-13/index.html

I would advise discussing the above with your accountant as unfortunately the only info I have is from the Revenue website and is technical.


Also can dividend payments be made more than once in a financial year?
A - yes but if the two shareholders are directors you might consider paying a bonus

By the way congrats on making profits to distribute in these times
Swanvill

deepriver

thanks Swanvill

that link was broken, but I think this is the doc you were linking too

http://www.revenue.ie/en/tax/dwt/forms/index.html

also the revenue guide

http://www.revenue.ie/en/tax/dwt/leaflets/dividend-withholding-tax-guidelines.html

I guess it looks fairly straightforward...

Just on the reserve / surplus fund, would that incur corporate tax ie does it come from the retained earnings after tax is paid

swanvill

Hi,
Sorry about the broken links but you have the correct info. Yes the amount transferred to reserves is after Corp. Tax.

Don't forget to watch out for the surcharge on distributable income, make sure to talk about this with your accountant.