What is a dividend distribution? Is it better to distribute or not?

What is a dividend distribution?

Company earnings flow into shareholders' personal income through "dividend distribution". The timeline is roughly:

• Every May: file the previous year's corporate income tax
• By June 30 each year: shareholders' meeting resolves the distribution
• Second half of the year: dividends paid
• The following May: shareholders see the dividend income when filing personal income tax

We prepare the distribution table, payment register and shareholders' meeting minutes for signature, and provide the supplementary NHI premium calculation.

How is it calculated?

1. Income per the company's books
2. Less corporate income tax = net profit after tax
3. Set aside legal reserve: (net profit − prior years' losses covered) × 10%
4. Net distributable earnings = net profit − losses covered − legal reserve
5. Allocated to shareholders by contribution ratio, becoming their dividend income

Responsible persons should watch their NHI bracket

Under Article 20 of the NHI Act, employers are insured based on "business income". If the responsible person's "net dividend ÷ 12" for the year exceeds their current NHI bracket, it must be raised from March of that year; if lower, no change. For example, net dividend NT$600,000 ÷ 12 = NT$50,000, above the original bracket of 45,800, so it must be raised.

Employee compensation

Article 235-1 of the Company Act requires the articles of incorporation to specify a fixed amount or ratio of the year's profit as employee compensation (accumulated losses must be covered first). Paying more is fine; paying less is not. Companies we incorporate usually set 0.1%, which can be changed by amending the articles later.

Can earnings be left undistributed?

Yes, but undistributed earnings incur an additional 5% corporate income tax. If distributed, shareholders receive an 8.5% dividend tax credit.

Distribute or not? It depends on each shareholder's personal income tax bracket:

• 5% or below: distributing is better (and the 8.5% credit can produce a refund)
• Originally 5%, reaching 12% only with the dividend: distributing is better
• Already at 12%: roughly the same
• 20% or above: not distributing is better

After distribution, must the money actually be paid to shareholders?

We recommend actually paying the amount on the payment register (net dividend − supplementary NHI premium withheld), since it has already been counted in the shareholder's income for the year and will appear in their personal return; actual payment avoids later disputes.