How to calculate dividends on common shares

What income is recognized as dividends?

Every year, companies, if their performance results are positive, distribute the profits received among persons owning shares or shares.
Most often, this is done in the form of dividends, and the decision on their size and timing of payments is made by the general meeting. Such a meeting may be annual or extraordinary; for joint stock companies this is a meeting of shareholders (clause 1 of article 47, subclause 10.1, 11 of clause 1 of article 48 of the law “On joint stock companies” dated December 26, 1995 No. 208-FZ, hereinafter referred to as law No. 208-FZ), and for an LLC - a meeting of participants (clause 1 of Article 28, subclause 7 of clause 2 of Article 33 of the Law “On Limited Liability Companies” dated 02/08/1998 No. 14-FZ, hereinafter referred to as Law No. 14-FZ).

According to paragraph 1 of Art. 43 of the Tax Code of the Russian Federation, a dividend is any income of a participant or shareholder if it is received from the company during the distribution of net profit in an amount proportional to the share in the authorized capital.

If a company received income from sources located outside of Russia, and such income falls within the definition of dividends in that country, then it will be recognized as a dividend in the Russian Federation.

In addition, dividends are recognized in accordance with clause 6 of Art. 269 ​​of the Tax Code of the Russian Federation, and excess interest paid by a resident of the Russian Federation to a foreign company on controlled debt.

How to calculate dividends

Payments of dividends in a company are initiated by the board of shareholders after the closure of the register. Profit is distributed according to the company's dividend policy.

The amount of payments on preferred shares is determined as a percentage of the par value, or in a fixed form.

Calculation of dividends on ordinary securities:

Distributable earnings / Number of common shares = Dividend amount per share.

To make calculations, you can use an online calculator or find examples of dividend calculations for similar stocks.

As a rule, this information is disclosed in the company's financial statements, so the shareholder does not need to independently calculate this indicator. The amount of dividends per share in the previous reporting year is indicated in the report “Information on accrued income on the issuer's securities,” which is also published in open sources.

Typically, the issuer transfers dividends to preferred shareholders into the account within ten business days. To other shareholders - within twenty-five working days. The maximum period during which dividends are transferred can be approximately a month after the cut-off date.

Such payments are subject to personal income tax of 13%. The amount of net dividend income will be the amount minus tax. No benefits - reduced rates or deductions are applied to income tax on dividends. When selling shares and receiving income from exchange rate differences, expenses incurred are taken into account - for the acquisition of securities and their maintenance.

Where do dividends come from, where can you get information?

Dividends are, first of all, an instrument of investment policy. Private companies that are interested in capitalization, attracting investment and creating a profitable business reputation, as a rule, willingly and often pay them to their shareholders.

In Russian companies, dividends are paid from the company's net profit for the reporting period. Less commonly, from the calculated amount of free or net cash flow.

The amount of net profit can be found out from the company’s accounting reports, in particular from Form No. 2 “Profit and Loss Statement”.

After market participants have learned the amount of net profit, it is necessary to find out one more indicator - what part of it the issuing company allocates to paying dividends this year. You can view this information in compiled form here.

To get an idea of ​​how much money the company will allocate, you will need to multiply the amount of net profit by the dividend payout ratio. And to find out the size of the dividend due on one security, the resulting total must be divided by the number of issued shares.

But it should be borne in mind that this is still an approximate and not the only indicator. For example, some joint-stock companies pay dividends that in total exceed the profit received in the reporting year, for example, “Etalon” for 2021 will pay a total of 3.5 billion dividends for the year with a net profit of 0.8 billion rubles. Therefore, calculating net profit to pay dividends does not always help determine the profitability of shares.

You can get accurate information about how dividends are distributed among shareholders and how often they are paid from the company’s dividend policy. Often excerpts from it are contained on official websites.

Payment policies may change, so it is important to keep the information up to date. You should also be prepared for unforeseen circumstances that may affect the amount of dividend income.

You can find out about the most important dates from dividend calendars, for example here.

This is convenient because it contains information on:

• register closing dates,
• profitability of previous periods,
• dividend per share, etc.

Should payments from the net profit of previous years be recognized as dividends?

Payments from the profits of previous years, in all likelihood, can also be classified as dividends. The fact is that the legislation (tax and civil) does not contain a ban on the issuance of dividends from past profits (Article 43 of the Tax Code of the Russian Federation, Article 28 of Law No. 14-FZ, Article 42 of Law No. 208-FZ).

The regulatory authorities in their explanations also adhere to this point of view. Confirmation is contained in letters from the Ministry of Finance of Russia dated 03/20/2012 No. 03-03-06/1/133, dated 04/06/2010 No. 03-03-06/1/235 and the Federal Tax Service of Russia for Moscow dated 06/08/2010 No. 16-15 / [email protected] , dated June 23, 2009 No. 16-15/063489.

The Ministry of Finance clarifies that such payments are considered dividends if one condition is met: the net profit was not sent to the reserve fund or the employees' corporatization fund. And the tax service believes that such a procedure for distributing profits should be reflected in the company’s charter.

However, if you look at the previous explanations of the financial department, you will find some inconsistency there. Thus, the Ministry of Finance in letters dated 06/17/2010 No. 03-03-06/1/415, dated 03/17/2008 No. 03-04-06-01/60 and dated 02/06/2008 No. 03-03-06/1/83 approves that such issues are not his competence. And the letter dated 08/23/2002 No. 04-02-06/3/60 states that if an organization needs to pay dividends, then this can only be done at the expense of profits generated in the just past tax period.

Judicial practice shows: arbitrators are in favor of paying dividends from past profits (resolutions of the FAS North Caucasus District dated January 23, 2007 No. F08-7128/2006, FAS East Siberian District dated August 11, 2005 No. A33-26614/04-S3- Ф02-3800/05-С1). That is, the decisions contain indirect confirmation: such dividends should be taxed.

Read in this material how accounting policies are structured under the simplified tax system.

What payments are not considered dividends?

According to paragraph 2 of Art. 43 of the Tax Code of the Russian Federation the following payments are not dividends:

• amounts paid to a participant or shareholder of a company in connection with the liquidation of an organization, in an amount proportional to the contribution to the authorized capital;
• shares transferred into the ownership of a participant or shareholder;
• contributions to a non-profit organization made by a business company for the statutory activities of the organization.

Summarizing all of the above, we can derive 2 characteristics that allow us to recognize payments as dividends:

• payments are made from the organization’s net profit;
• payments are made in direct proportion to the size of the participant’s or shareholder’s share in the company’s capital.

Example

The Omega organization has accumulated additional capital, which it decided to distribute. Among the society's participants is the organization "Sigma", which is owed a certain amount.

The amount paid does not have the characteristics given above, therefore it has nothing to do with dividends. This income should be taxed at the normal rate of 20%. Confirmation of this thesis can be found in the letter of the Federal Tax Service of Russia for Moscow dated July 3, 2008 No. 20-12/ [email protected]

Types of dividends, on which shares are paid

Dividends are paid on both ordinary and preferred shares. These are types of dividends depending on the type of security.

Preferred shares according to the method of formation are:

• cumulative,
• non-cumulative

Cumulative ones accumulate partially or completely unpaid dividends for previous periods when, for example, the company was going through difficult financial times and suffered losses. In this case, dividends are not paid, they are accumulated and transferred to shareholders in financially favorable periods. They exist to maintain the loyalty of shareholders, so that the securities are not sold, but held, awaiting future dividends.

Cumulative preferred shares are more profitable than all others.

Dividend payments are also distinguished by purpose:

• regular , which are paid on an ongoing basis. Such income is beneficial to the holder, therefore there is the greatest demand for these securities in the market.
• additional , which the company can pay one-time, based on some positive events in its activities - a particularly profitable deal, retained earnings, etc. A company may decide to make a payment to maintain investor interest and enhance the attractiveness of its business reputation. May also be referred to as an extra or special dividend. As a rule, they are larger than regular ones, but are paid out much less frequently and are more difficult to predict.
• liquidation - due when the company is closed due to termination of activities.

According to the frequency of dividend payments, there are:

• once a year
• half year
• quarterly
• monthly

Based on the volume of payments, they are divided into:

• full
• partial (limited)

For example, if dividends are not paid in full, the issuer will pay a penalty to the investor.

By method of receipt:

• through a broker
• to a bank account
• in cash at the issuer's cash desk
• by postal money order

In order:

• cumulative privileged
• non-cumulative privileged
• preferred with a certain amount of dividend in the charter and with an indefinite amount
• ordinary shares

Accrual and payment of dividends under the simplified tax system “income” and “income minus expenses”

The calculation of dividends under the simplified tax system, as well as under the general regime, is made in direct proportion to the share (contribution) of the participant, and payment is made minus the tax withheld from accrued income.

Any organization paying dividends, in accordance with clause 3 of Art. 214, paragraph 1, art. 226, paragraph 2 of Art. 226.1, paragraphs. 3, 7 tbsp. 275 of the Tax Code of the Russian Federation, becomes a tax agent. Moreover, the responsibilities for calculating and paying income tax on accrued dividends must be fulfilled, including by organizations that apply the simplified tax system (subclause 1, clause 3, article 24, subclauses 3, 5, 7, article 275, clause 5, art. 346.11 Tax Code of the Russian Federation). The selected simplified taxation object does not affect the calculation of dividends and the calculation of income tax on them.

To learn how income tax on dividends is calculated, read the material “How to correctly calculate income tax on dividends?” .

Next, we will consider some cases in which an organization using the simplified tax system acts as a tax agent when paying dividends to other organizations and individuals.

If the legal entity that receives dividends uses the general taxation system, then the organization that made the payments must calculate, withhold and transfer income tax to the budget. This obligation is determined by the provisions contained in sub-clause. 1 clause 3 art. 24, pp. 3, 5, 7 tbsp. 275 Tax Code of the Russian Federation.

When you also have to pay income tax under the simplified tax system, you can find out from the material “Income tax under the simplified tax system (nuances)” .

Reflection of transactions with dividends in accounting

The basis for accrual of these incomes in the accounting of the organization are the minutes of the meeting of participants with the decision made on payment within the established time frame and an accounting certificate calculating the amounts due to each of the owners.

To combine information on accrued and paid dividends, use account 75/2 “Settlements with founders” and the subaccount “Settlements for payment of income”. If this type of income is received by a company employee, then account 70 “Payments with personnel for salaries” is used. The corresponding account is account 84 “Retained earnings”.

Accounting entries are made separately for each participant. The main wiring is as follows:

We transfer dividends to an LLC using the simplified tax system and UTII: features

Moreover, even if the organization receiving the dividends is also in a special regime (STS, UTII, Unified Agricultural Tax), then income tax on the amount of dividends must still be paid. For recipients on the simplified tax system and unified agricultural tax, this conclusion follows from the provisions of clause 3 of art. 284, paragraph 3 of Art. 346.1, paragraph 2 of Art. 346.11 Tax Code of the Russian Federation.

It is noteworthy that for dividend recipients - organizations that use different objects of taxation - “income” and “income minus expenses”, the tax is also calculated using a single methodology.

There are no direct links to UTII recipients in the Tax Code of the Russian Federation. When using this regime, income tax on income received from the relevant business activity (clause 4 of Article 346.26 of the Tax Code of the Russian Federation) is not paid. And UTII is not paid on income in the form of dividends, since receiving dividends is not included in the list of activities subject to this tax. Thus, for taxation of dividends it is necessary to apply the rules of Chapter. 25 of the Tax Code of the Russian Federation, that is, dividends must be subject to income tax in the general manner.

ATTENTION! UTII has been abolished since 2021 throughout the entire territory of the Russian Federation, and since January 2021, a number of subjects have already abandoned this special regime. Read more in the material “Cancellation of UTII in 2021: latest news, changes from January 1, 2021.”

How to calculate dividends in 1C

The LLC is obliged to accrue dividends no later than 60 days after the decision on their accrual is made (Clause 3, Article 28 of Federal Law No. 14-FZ of 02/08/1998).

Dividends are income, and, therefore, they are subject to either personal income tax or income tax, regardless of the taxation system. The company is a tax agent and is obliged to pay taxes on dividends when they are paid.

Go to the Salaries and Personnel and enter the document Accrual of dividends for each LLC participant.

LLC participant is an individual (not an employee)

The personal income tax rate depends on whether the individual is a resident:

• is - 13%;
• is not - 15%.

Select the founder, fill in the period for calculating dividends and their amount. Personal income tax will be calculated automatically.

How is the status of an individual determined - resident or non-resident for personal income tax purposes?

The status of an individual is set manually by the user depending on how many days the individual is actually in the Russian Federation for the next 12 consecutive months (clause 2 of Article 207 of the Tax Code of the Russian Federation): go to the individual’s card and follow the link Income tax .

Postings

How to calculate and pay dividends to the founder - employee of an LLC

LLC participant - legal entity

The income tax rate depends on the ownership of the organization (Russian, foreign) and the volume of the share of the authorized capital:

• Russian organization: 0% - share of the authorized capital of at least 50% during the year;
• 13% - for other organizations.

• foreign organization:
  15% except for organizations for which other rates are established, defined in clause 3 of Art. 284 Tax Code of the Russian Federation.

Draw up a document for a legal entity in the same way.

Please note that, unlike personal income tax, the amount of calculated income tax can be edited. Change it if necessary: ​​the rate for Russian organizations is automatically set to 13%.

Postings

How to calculate dividends under the simplified tax system if the recipient is an individual

An organization using the simplified tax system that pays dividends to an individual is considered a tax agent, and according to subclause. 1 clause 3 art. 24, paragraph 3, art. 214, paragraph 1, art. 226, paragraph 2 of Art. 226.1 of the Tax Code of the Russian Federation, the responsibility for calculating, withholding and introducing personal income tax into the budget is assigned.

For information on the procedure for collecting personal income tax on dividends, read the material “Is personal income tax collected on dividends?” .

It is noteworthy that this is a rare case when a tax agent must pay personal income tax even for an individual entrepreneur using the simplified tax system, UTII or unified agricultural tax. The fact is that individual entrepreneurs are in special modes, in accordance with paragraph 3 of Art. 346.1, paragraph 3 of Art. 346.11 of the Tax Code of the Russian Federation, dividends are not exempt from income tax.

As for UTII, an entrepreneur is exempt from paying personal income tax only for those types that are determined by this taxation regime. Dividends are not mentioned in the list of types, as we already indicated in the previous section.

Features of dividend payments under the simplified tax system

When paying dividends to simplified companies, you should pay attention to the following nuances:

1. Such payments are made no more often than once a quarter. The recommended period is once a year (this makes it easier to calculate the company’s profit).
2. Payment is made only by decision of all participants. A general meeting cannot be held earlier than two months after the close of the previous reporting period.
3. The basis for payment is accounting data.
4. Payments are made only when the authorized capital is fully paid.
5. If the amount of the authorized capital does not “reach” the net income, the payment of dividends is impossible.
6. If the company is declared insolvent, then the accrual of dividends is prohibited.
7. For an enterprise using the simplified tax system, net profit is the difference in income under accounting and the single tax.

An example of calculating dividends with a simplified tax system of 6%

Let's give an example of calculating dividends paid by an organization using the simplified tax system of 6%, where the recipient of the dividends is an individual.

Example

The Omega organization, which uses the simplified tax system with the object “income” (6%), decided to pay dividends to participants from net profit based on the results of 2021. One of the participants is a tax resident of the Russian Federation E.P. Selyutin, and he was credited with 60,000 rubles. dividends. The transfer is carried out on July 3. Omega LLC did not receive dividends from other companies.

in the given circumstances must fulfill the duties of a tax agent.

First of all, she calculates the amount of personal income tax that must be withheld from the amount of dividends. The tax rate, since Selyutin is a tax resident of the Russian Federation, is 13%:

• 60,000 rub. × 13% = 7,800 rub.

Tax must be deducted from the dividend amount.

• 60,000 rub. – 7,800 rub. = 52,200 rub.

This is the amount that should be transferred to Selyutin on 07/03/2020. No later than the next day, in accordance with clause 6 of Art. 226 of the Tax Code of the Russian Federation, you must pay personal income tax to the budget in the amount of 7,800 rubles. But since 07/04/2020 is a Saturday, the deadline for transferring personal income tax is postponed to the next working Monday - 07/06/2020.

How to reflect dividends in reporting, see the materials:

• “How to correctly reflect dividends in 6-NDFL?”;
• “How are dividends reflected in the 4-FSS calculation form?”

Algorithm for calculating tax on dividends

The formula by which taxes on dividends are calculated is given in paragraph 5 of Art. 275 of the Tax Code of the Russian Federation and has the following form:

N = K × Sn × (D1 - D2),

Where:

N - amount of tax on dividends to be withheld;

K is the ratio of the amount of dividends to be distributed in favor of their recipient to the total amount of dividends distributed by the organization;

Сн - tax rate;

D1 - the total amount of dividends distributed in favor of all recipients;

D2 - the total amount of dividends received by the organization itself in the current and previous reporting (tax) periods, provided that they were not previously taken into account when calculating income; This figure does not include dividends, which are subject to a zero income tax rate.

From 2021, a company that receives and pays dividends will calculate tax differently. From indicator D2 you will need to exclude the amount:

• dividends taxed at a 0% rate from an international company that owns a share or contribution of more than 15% for more than a year;
• dividends from foreign enterprises that the company received through Russian organizations and to which it has the actual right. It does not matter whether such dividends were subject to income tax for the recipient or whether tax was calculated on them at a 0% rate.

According to the above formula, both income tax on dividends paid to organizations and personal income tax on dividends in favor of individuals are calculated (clause 2 of Article 210 of the Tax Code of the Russian Federation, letter of the Ministry of Finance of Russia dated June 17, 2015 No. 03-04-06/34935).

However, it is not used when calculating taxes on dividends in favor of foreign companies and individuals - non-residents of the Russian Federation. For them, taxes are calculated based on the full total amount of dividends distributed by the organization (clause 6 of Article 275 of the Tax Code of the Russian Federation). If the final recipients of such a payment are individuals or legal entities who are residents of the Russian Federation, then the prohibition on using the above formula does not apply to payments to non-residents.

Results

A company using the simplified tax system that pays dividends is a tax agent that must calculate and withhold tax from dividend recipients, regardless of what tax regime they apply. The calculation of dividends under the simplified tax system is carried out in the same way as under the general regime, and payment is less the withholding tax, which is calculated at a rate of 13%.

Sources:

• tax code of the Russian Federation
• Law “On Joint Stock Companies” dated December 26, 1995 No. 208-FZ
• Law “On Limited Liability Companies” dated 02/08/1998 No. 14-FZ

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