Corporate Dividend Declaration in the Philippines

In a corporate set-up, dividend in the Philippines represents the share of the owners of the corporation – the stockholders. An effective dividend policy in the Philippines would be a coordination of corporate earnings and cash position. A domestic corporation in the Philippines would normally declare dividends in the Philippines to distribute its earnings accumulated through the unrestricted or free retained earnings. More dividend distribution means more earnings for the stockholders and would attract more potential investors.

Others would declare dividend as a remedial measure to minimize the impact of 10% improperly accumulated earnings tax in the Philippines (10% IAET), and further avoid SEC sanctions for violation of Section 43 of the Corporation Code of the Philippines on excess of free or unappropriated retained earnings over paid-up capitalization. For some, dividend declaration is simply a capital restructuring device by transferring free retained earnings to capitalization to increase paid-up capitalization in the Philippines, such as in stock dividends.

Dividends declaration in the Philippines could come in different faces as follows:

• Cash dividends;
• Property dividends;
• Stock dividend;
• Liquidating dividends;

Dividend declaration is a discretion of the Board of Directors. It is the Board of Directors who will decide on whether or not a dividend declaration in the Philippines will be made. For regulatory purposes, the SEC requires submission of such dividend declaration for further processing and would require certain documentary requirements as follows:

Cash Dividend Declaration in the Philippines

1. Certification under oath by the corporate secretary on the board resolution declaring the cash dividends
2. Audited financial statements as of the last fiscal year stamped received by SEC and BIR
3. Audited financial statements used as the basis for such declaration duly stamped received by BIR and SEC ( to be submitted also if the basis is other than item no. 2 )

In cash dividend declaration in the Philippines, the stockholders will receive cash from the corporation in accordance with the board resolution declaring cash dividends.

Property dividend declaration in the Philippines

1. Certification under oath by corporate secretary on the board resolution declaring the property dividends
2. List of stockholders and the allocation of the property dividend certified by the corporate secretary
3. Audited financial statements as of the last fiscal year stamped received by BIR and SEC
4. Detailed schedule of the property account appearing in the audited financial statements
5. Certification by the President that the property is no longer needed in the operation of the company

Under this property dividend declaration in the Philippines, the stockholder will receive assets of the corporation, other than cash. It could investment securities of such corporation in the form of shares of stock of other corporations.

Stock Dividend Declaration in the Philippines

1. Certification under oath by the corporate secretary on the declaration of stock dividends by majority of the directors and the stockholders representing at least 2/3 of the outstanding capital stock;
2. Audited financial statements as of the last fiscal year stamped received by BIR and SEC;
3. Audited financial statements used as the basis for such declaration duly stamped received by BIR and SEC ( to be submitted also if the basis is other than item no. 2 )
4. List of stockholders with their respective subscribed capital stock as of the date of meeting approving the declaration certified by the corporate secretary together with the allocation of the stock dividend
5. Analysis of Capital Structure signed under oath by the treasurer

In stock dividend declaration in the Philippines, the stockholder will receive the shares of stock of such corporation declaring the dividends. In effect, the stockholder will own more shares after the stock dividend declaration in the Philippines but its percentage of ownership or equity in such corporation may not increase. Source of stock dividend could be unissued shares of stock of the corporation requiring an application for exemptions from the Securities Regulation Code (SRC Exemption under SRC Rule 10.1) or from the increase of capitalization in the Philippines requiring an SEC approval on the increase of authorized capital stock.

Liquidating Dividend in the Philippines

Liquidating dividend in the Philippines is distributed during the dissolution and liquidation of a domestic corporation in the Philippines. This would mean a final distribution of the stockholder’s share in the assets of the corporation after paying corporate creditors with preference over stockholders. Amount received in excess of its capital considered is considered its final share in the earnings of the corporation. A separate SEC application and approval for liquidation is required.

Summary

As discussed above, dividends in the Philippines may come in a number of ways. SEC requirements for such implementation would require technical knowledge and we suggest that you secure assistance of professionals. Tax on dividends in the Philippines would likewise vary depending upon the tax status of the stockholder and the type of dividend in the Philippines declared by the Board of Directors.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may please send mail at in**@ta************.org.