Shareholder Dividend Options in Singapore

Shareholder Dividend Options in Singapore | Bestar

Shareholder Dividend Options in Singapore

In Singapore’s corporate landscape, dividends are the primary way companies reward their investors. However, there are several scenarios—ranging from tax planning to reinvestment strategies—where a shareholder might prefer not to receive a payout.

1. Can a Shareholder Waive Dividends?

Under Singapore law and the Companies Act, the answer is yes.

A shareholder can voluntarily choose to forego their right to a declared dividend. This is known as a Dividend Waiver.

• How it works: The shareholder must execute a formal Deed of Waiver. This is a legal document signed by the shareholder and delivered to the company before the "books closure date" or the payment date.

  
  

• Why do it? This is common in private family-owned companies. For example, a majority shareholder (like a founder) may waive their dividend to allow the company to retain more cash for expansion or to ensure minority shareholders receive a larger proportional payout without draining the company’s reserves.

  
  

Note: For Singapore tax purposes, if a waiver is done for "clerical" reasons or without a clear commercial benefit, IRAS (Inland Revenue Authority of Singapore) usually does not tax the waived amount as income, provided the shareholder never had "constructive receipt" of the money.

2. Scrip Dividend Schemes (Reinvestment)

If your goal is to grow your investment rather than take cash, many Singapore-listed companies (especially REITs and Banks like DBS or UOB) offer a Scrip Dividend Scheme.

• The Choice: Shareholders are given the option to receive their dividends in the form of newly issued shares instead of cash.

  
  

• Benefit: This allows you to increase your stake in the company without paying brokerage fees or transaction costs.

  
  

• The Default: Usually, if you do nothing, the company will pay you in cash. You must proactively "opt-in" via the Central Depository (CDP) or the company’s share registrar.

3. Tax Implications in Singapore

Singapore operates under a One-Tier Corporate Tax System. This is a crucial piece of information for local investors:

• Tax-Free Income: Dividends paid by Singapore-resident companies are generally tax-exempt in the hands of the shareholder. Since the company has already paid tax on its profits, you don't pay personal income tax on those dividends.

  
  

• Why decline then? Since they are tax-free, most retail investors have no reason to refuse them. However, high-net-worth individuals might waive dividends to avoid increasing the valuation of their estate or to redirect funds to other shareholders for succession planning.

4. Key Considerations Before Deciding

If you are considering declining or waiving a dividend in Singapore, keep these factors in mind:

Factor	Description
Timing	A waiver must be signed before the dividend becomes a legal debt (usually before it is declared or before the record date).
Shareholder Approval	In some cases, a lopsided waiver (where only one person waives) might require the board's consent to ensure it doesn't violate any "oppression of minority" rules.
Clarity of Intent	Ensure the Deed of Waiver is drafted by a professional to avoid it being seen as a "gift" or a complex tax maneuver by IRAS.

Summary for Singapore Investors

While you cannot simply "click a button" to stop a cash dividend in most brokerage apps, you can:

1. Formally waive it via a legal deed (for private companies).

   
   

2. Opt for Scrip to receive shares instead of cash (for participating public companies).

   
   

3. Donate it—many SGX-listed companies offer platforms to direct dividends to charities.

Template for a Dividend Waiver Letter

To legally waive a dividend in Singapore, you need a formal document known as a Deed of Waiver. Because a dividend becomes a debt owed to you once declared, a simple email is often insufficient; a "Deed" is used because it is legally binding even without "consideration" (money changing hands).

Below is a standard template for a private limited company in Singapore.

Dividend Waiver Template (Deed of Waiver)

This Deed of Waiver is made on [Date] by:

The Shareholder: [Full Name as per NRIC/Passport] NRIC/Passport No: [Number] Address: [Registered Address]

In favor of: The Company: [Company Name Pte. Ltd.] UEN: [Unique Entity Number] Registered Office: [Company Address]

1. Background

The Shareholder holds [Number] ordinary shares in the capital of the Company. The Company proposes to declare (or has declared) a dividend of [Amount, e.g., S$1.00] per share for the financial period ending [Date] (the "Dividend").

2. Waiver of Entitlement

The Shareholder hereby irrevocably and unconditionally waives all rights, titles, and interests to receive the Dividend in respect of all shares held by the Shareholder.

3. Release

The Shareholder releases the Company from all obligations and liabilities to pay the Dividend to the Shareholder. This waiver is granted without any right to compensation or payment in lieu thereof.

4. Governing Law

This Deed shall be governed by and construed in accordance with the laws of the Republic of Singapore.

IN WITNESS WHEREOF, this Deed has been executed and delivered on the date first above written.

SIGNED, SEALED, AND DELIVERED By the Shareholder: (Signature):

__________________________ Name: [Full Name]

In the presence of (Witness): (Signature): __________________________ Name: [Witness Full Name] NRIC/Passport No: [Witness Number]

Important Execution Steps

• The "Sealing" Requirement: Under Singapore law, deeds by individuals no longer strictly require a physical wax seal, but the document must state it is "Signed, Sealed, and Delivered" and be witnessed.

  
  

• Board Resolution: After receiving this letter, the Company's Board of Directors should pass a Directors’ Resolution (BR) to formally acknowledge and record the waiver in the corporate minutes.

  
  

• Timing is Critical: This document should ideally be signed before the dividend becomes a legal debt. If the dividend has already been paid into your account, a waiver is no longer possible—you would instead have to "gift" or "loan" the money back to the company.

Disclaimer: While this template covers the basics, you should have a professional review it to ensure it complies with your specific Company Constitution and the Singapore Companies Act.

Accompanying Board Resolution (BR) that the Company Needs to Sign to Accept the Waiver

Once the shareholder has signed the Deed of Waiver, the company’s Board of Directors must formally accept it. This ensures the company’s financial records and "Minutes of Meetings" accurately reflect why a specific dividend was not paid to a specific shareholder.

Here is a template for the Directors’ Resolutions in Writing (DRIW).

Directors’ Resolutions in Writing

[COMPANY NAME PTE. LTD.]

(Incorporated in the Republic of Singapore)

(Company Registration No. [UEN Number])

RE: ACCEPTANCE OF DIVIDEND WAIVER

1. BACKGROUND

1.1 The Company has proposed to declare a [Final/Interim] tax-exempt (one-tier) dividend of S$[Amount] per ordinary share for the financial year ended [Date].

1.2 [Shareholder Name] (the "Waiving Shareholder"), holding [Number] ordinary shares in the Company, has executed a Deed of Waiver dated [Date of Deed] in respect of their entitlement to the said dividend.

2. RESOLVED

2.1 THAT the Company hereby accepts the waiver of the dividend by the Waiving Shareholder as set out in the Deed of Waiver.

2.2 THAT the total dividend payout for the period shall be adjusted accordingly to reflect the waiver, and the funds corresponding to the waived dividend shall be retained by the Company as retained earnings.

2.3 THAT any Director or the Company Secretary be and is hereby authorized to take all necessary steps to give effect to this resolution, including making the necessary accounting entries.

BOARD OF DIRECTORS

Director Name	Signature	Date
[Name of Director 1]	____________________	[Date]
[Name of Director 2]	____________________	[Date]

Implementation Checklist for the Company Secretary

To ensure the waiver is compliant with the Singapore Companies Act and accounting standards, follow these steps:

1. Check the Constitution: Ensure your Company’s Constitution allows for different dividend treatments or waivers.

   
   

2. Accounting Entries: The "Dividend Payable" account should only reflect the amount due to non-waiving shareholders. The waived amount remains in "Retained Earnings."

   
   

3. Solvency Test: Even with a waiver, the directors must sign a Solvency Statement before declaring any dividend, confirming the company can pay its debts for the next 12 months.

   
   

4. File the Minutes: Keep both the signed Deed of Waiver and this Board Resolution in the Company’s Minute Book at the registered office.

Accounting Entries Required to Record in Company's Ledger

Recording a dividend waiver requires careful bookkeeping to ensure the company’s Balance Sheet and Equity Statement remain accurate. Since the waived dividend is never actually "distributed," it never leaves the company's ecosystem.

Here is how you handle the accounting entries in a Singapore company’s ledger.

1. The Scenario

Assume the following:

• Total Dividends Declared: S$100,000

• Shareholder A (Waiving): Entitled to S$40,000

• Shareholder B (Receiving): Entitled to S$60,000

2. Step-by-Step Journal Entries

Step 1: At the Date of Declaration

When the Board resolves to pay a dividend, you must record the liability. However, because the waiver is signed before or at the point of declaration, you only recognize the liability for the amount actually being paid out.

Account	Debit (DR)	Credit (CR)
Retained Earnings (Equity)	S$60,000
Dividends Payable (Liability)		S$60,000

• Note: You do not debit the full S100,000 if the waiver is legally effective. The S$40,000 simply stays in the "Retained Earnings" account.

Step 2: At the Date of Payment

When the cash is actually transferred to the shareholders who did not waive their rights:

Account	Debit (DR)	Credit (CR)
Dividends Payable (Liability)	S$60,000
Cash / Bank (Asset)		S$60,000

3. What if the Waiver happens AFTER Declaration?

If the company already declared the full S$100,000 and the shareholder decides to waive it later, the accounting is slightly different because a legal liability was already created.

1. Initial Declaration:

   
   

   • DR Retained Earnings S$100,000

   • CR Dividends Payable S$100,000

     
     

2. Recording the Waiver (Reversal):

   
   

   • DR Dividends Payable S$40,000

   • CR Retained Earnings S$40,000

4. Financial Statement Presentation

• Statement of Changes in Equity (SOCE): You will show a line item for "Dividends Paid." This amount should match the net amount (the cash actually paid out).

  
  

• Notes to the Accounts: It is best practice for Singapore companies to include a note in the audited or unaudited financial statements stating: "During the financial year, a shareholder holding X shares waived their entitlement to dividends amounting to S$40,000."

Key Summary Table

Transaction	Impact on Retained Earnings	Impact on Cash
Normal Dividend	Decreases	Decreases
Waived Dividend	No Change	No Change
Scrip Dividend	Decreases	No Change (Increases Share Capital)

How Bestar Singapore can Help

Shareholder Dividend Options in Singapore

Executing a dividend waiver in Singapore involves more than just a verbal agreement—it requires precise legal documentation, board approvals, and accounting accuracy to stay compliant with ACRA and IRAS.

As a leading boutique corporate service provider in Singapore, Bestar specializes in helping SMEs and family-owned businesses navigate these complex administrative tasks. Here is how Bestar can add value to your business:

1. Professional Corporate Secretarial Support

Under the Singapore Companies Act, every company must maintain accurate statutory records. Bestar’s secretarial team ensures your dividend waiver is legally airtight by:

• Drafting Custom Deeds of Waiver: Moving beyond templates to ensure the wording fits your specific Company Constitution.

  
  

• Managing Board Resolutions: Preparing and filing the necessary Directors' Resolutions (DRIW) to formally accept the waiver.

  
  

• Maintaining Minute Books: Ensuring that all decisions regarding non-payment of dividends are correctly recorded for future audits or due diligence.

2. Expert Tax & Financial Advisory

While dividends are generally tax-exempt in Singapore under the one-tier system, the reason for a waiver can sometimes trigger questions from IRAS, especially in related-party transactions. Bestar helps by:

• Strategic Tax Planning: Advising on whether a waiver, a scrip dividend, or a share buy-back is the most tax-efficient way to achieve your corporate goals.

  
  

• IRAS Liaison: Providing peace of mind by ensuring your dividend treatments align with current Singapore tax laws and avoiding "constructive receipt" issues.

3. Seamless Accounting & Bookkeeping

A dividend waiver changes how your equity and liabilities are presented. Bestar’s accounting specialists handle the heavy lifting:

• Accurate Journal Entries: Managing the transition between Retained Earnings and Dividends Payable to ensure your Balance Sheet is always "audit-ready."

  
  

• Financial Reporting: Properly disclosing waivers in your Annual Financial Statements to maintain transparency with other shareholders and regulators.

4. Compliance & Risk Management

Bestar acts as your "compliance shield." They ensure that before any dividend (or waiver) is processed, the company meets the mandatory Solvency Test. This protects directors from personal liability and ensures the company remains in good legal standing with ACRA.

Why Choose Bestar?

• One-Stop Solution: From incorporation and secretarial services to tax and audit.

  
  

• Boutique Service: Personalized attention for SMEs that larger firms might overlook.

  
  

• Local Expertise: Deep knowledge of the Singapore regulatory landscape (ACRA & IRAS).

Ready to streamline your corporate governance? Contact Bestar Singapore today for a consultation on managing your company's dividends and secretarial needs.

Inquiry