Understanding Dividends

A dividend is a portion of a company’s earnings distributed to its shareholders as a reward for their investment. Dividends can be issued in various forms, including cash, shares, or other assets, and are typically paid from a company’s net profit.

 

Types of Dividends in Malaysia

In Malaysia, dividends are classified into two main types:

Interim Dividends

Declared and paid during the financial year, interim dividends are approved by the board of directors without requiring shareholder approval.

Final Dividends

Declared at the end of the financial year, final dividends require approval by shareholders at the annual general meeting (AGM).

Companies may also retain a portion of their profits as retained earnings to reinvest in the business for future growth.

 

Taxation of Dividends

Malaysia adopts a single-tier tax system, meaning dividends paid to shareholders are tax-exempt. This is because the corporate income tax is considered a final tax, and dividends are distributed from post-tax profits.

Non-resident shareholders receiving dividends may still be subject to taxation based on the tax treaty between Malaysia and their country of residence. It is advisable for non-resident investors to consult the relevant tax regulations or seek professional advice.

 

Procedure for Dividend Distribution

The process for dividend distribution in Malaysia typically includes:

Board Approval

The board of directors decides on the dividend amount and recommends it to the shareholders in the case of a final dividend.

Shareholder Approval

Final dividends must be approved by shareholders during the AGM.

Payment

Upon approval, the dividend is paid out to shareholders according to the payment schedule determined by the company.

 

Shareholders’ Rights and Responsibilities

Shareholders have the right to receive dividends declared by the company. They are also entitled to transparency regarding the company’s dividend policy and financial health.

Not to mention, shareholders should also ensure compliance with any applicable tax regulations on dividend income, especially for non-resident investors.

 

Importance of Dividends

Dividends are a critical aspect of a company’s financial strategy, serving as a way to reward shareholders and reflect the company’s profitability. For investors, dividends can provide a steady income stream and indicate the company’s financial stability and growth potential.