1. Companies & Dividends Mr Arvin Ajay Sami
LAW 601 – Taxation Law
Companies & Dividends
Mr Arvin Ajay Sami
11/04/2018 1

2. Overview Company and Dividend Tax treatment of dividend income
Qualifying dividends and their calculations
11/04/2018 2

3. Dividend income Dividend income is a form of income from property
e.g. of forms of income from property are annuities, rent, royalties, interest, etc.
Tax treatment for dividend income is different
Dividend income attracts special complex rules, e.g. double taxation,

4. Company s.2 - gives term company an extended meaning
s.8 – provides lengthy and complex definition of the term dividend
Reference to a company or dividend will be reference to a company or dividend in the usual or business sense
Legal sense – company refers to a legal entity created under Fiji Companies Act
Creation of a company results in the creation of a new legal person
This person is known formally by name in company’s certificate of incorporation or if name changes, in certificate change of name
Both certificates issued by registrar of companies

5. Overview Company and Dividend Tax treatment of dividend income
Qualifying dividends and their calculations
11/04/2018

6. Company
Legal person, company, is owned by its members (shareholders) having capital
All shareholders are members but not all members are shareholders
Important to note:
Members own the company
Company owns the business
Members do not own the business

7. Company
Companies Act provides different categories of companies; limited or unlimited
Second; limited companies may be categorised as limited by shares or limited by guarantee e.g. not for profit organisations
Third, company limited by shares may be categorised as “not a private company”, private company or an exempt private company; (we used the term public company rather than “not a private company”.

8. Company
Term company refers to an incorporated entity formed under the Companies Act
Legally permissible to use the term company in other context, e.g. sole trade can use “Jeff and Company” or a partnership between “Tom, Dick and Harry could use the business name “Tom, Dick, Harry and Company”
Business name is a name, label used for a business, serves a marketing purpose
Identifier for true company is word “Limited” at the end of company’s formal name
11/04/2018

9. Dividend
Dividend is a payment by a company to its members from profit of a company during its life
Company law prohibits companies from returning capital to members during life of company,
i.e. A dividend can only be paid from profits
Payments to members by a company during winding-up is not dividend

10. Dividend Income Tax treatment:
ITA; no one single tax treatment for dividend income
Tax treatment varies and dependant on these factors:
Identity of taxpayer receiving dividend (company or individual, resident or non-resident)
Identity of company paying dividend (resident or non-resident, tax free zone company or listed company)
Form of dividend (cash or bonus share)
Nominal source of funding for dividend (capital profits or income profits)
Note: not all factors are necessary relevant in any one specific situation)

11. Dividend Income Common terms:
Wholly domestic situation – both company paying dividend and taxpayer receiving dividend are residents
Partially foreign situation – either company paying dividend or taxpayer is a non-resident
Special cases – tax treatment that applies in special narrow defined situations

12. Wholly Domestic Situation
Dividend income -
Tax treatment of dividend income depends on identity of taxpayer receiving income (i.e. company or individual)
If shareholder is a company - dividend is exempt income (s.17(37))
Tax treatment ensures there is no problem of double taxation

13. Dividend Income
If shareholder is an individual – dividend is included in total income
Individual is entitled to a deduction if dividend was paid from after tax income of company
Value of deduction could be from 0 to 100% of value of dividend, e.g.
if dividend was not paid from after tax income of company then value of deduction is zero
if 60% was paid from after tax income of company then deduction equals 60% of value of dividend
if all dividend was paid from after tax income then deduction should equal value of dividend

14. Dividend Income
Overall effect is to tax individual shareholder only, to extent that profit distributed as dividend, was not taxed in hands of company
i.e. problem of double taxation is avoided
s.11, s.21A and Income Tax (Dividend) Regulations 2001 as amended outlines this tax treatment
Dividend income is also referred to in s.11(f)

15. Dividend Income Three points concerning reference to s.11:
First – reference is not limited to the residency of the company paying the dividend
Could be a Fiji company or a foreign company
Shareholder receiving dividend could be a resident or a non-resident

16. Dividend Income
Second – no reference to identity of taxpayer receiving the dividend; whether shareholder is a company or individual
Under s.11 is income subject to exemption in s.17(37)

17. Dividend Income
Third – the term dividend in s.11 and s.11(f) is used in its usual sense
However, s.11(f) further refers to s.8(2)(a)
S.21A - deduction for dividends, qualification of dividend
2 questions:
How exactly does one determine the extent to which a dividend has been paid from income that has been charged to tax?
How do you quantify a qualifying dividend?
Addressed by Income Tax (Dividend) Regulations 2001 as amended

18. Partially foreign situation
2 different cases:
First – a non-resident shareholder could receive a dividend from a Fiji company
Second - a resident shareholder could receive a dividend from a foreign company

19. Non-resident shareholder
Where a dividend is paid to a non-resident taxpayer, identity of shareholder (individual or company) is irrelevant
Dividend is included in total income but only to the extent that it is a qualifying dividend
s.21A – deduction for qualifying dividend
If not qualifying dividend, it is subject to non-resident dividend withholding tax under s.8
Is then exempt income and not included in total income/chargeable income

20. Non-resident shareholder
Net effect is that dividend income of the non-resident is only subject to non-resident dividend withholding tax (n.r.d.w.t) and only subject to that withholding tax to the extent that it is not a qualifying dividend
Avoid double taxation of the income derived by the company and distributed to the non-resident shareholder

21. Foreign company dividend
Fiji resident receiving dividend from a foreign company
Identity of shareholder (individual or company) is irrelevant
Resident taxpayer’s dividend income under ITA is treated no differently from any other form of foreign sourced income
s.21A – deduction for qualifying dividend, does not apply to dividend from a foreign country

22. Special case
ITA provides for a further three different tax treatments for dividend income
Bonus shares
South Pacific Stock Exchange Companies
Tax Free Zone Companies

23. Special cases South Pacific Stock Exchange Companies
Dividends paid by a company listed on the SPSE
All dividends received by a resident individual from a company listed on the SPSE are exempt income (s.17(55))
Created to encourage companies to list and investors to invest in shares

24. Summary We have discussed the following:
s.8, s.11(f), s.11(h), s.17(37), (53), (55),(56), (57),
S.21(1)(k), s.21A,
S.2 – definitions of company, public company, shareholder, unit trust
Income Tax Dividend Regulations 2001 and amendments to the regulations in 2002