Tax on ‘ROI’ in a corporation
By Atty. Rester John Lao Nonato
Cebu Daily News
First Posted 09:52:00 04/09/2010
AS the economy improves, many of us are in a “look-out” mode for new places to invest our hard earned money other than the banks.
One choice is to invest in corporations. However, one’s return of investment in corporations in the form of dividends is taxed in the Tax Code.
Dividends comprise any distribution whether in cash or other property in the ordinary course of business made by a domestic corporation to its shareholders out of its earnings or profit [Section 250 of Revenue Regulations (“RR”) No. 2]. Dividends must come from the unappropriated retained earnings of the corporation.
Cash dividends and property dividends are subject to the final withholding dividends tax, whereas stock dividends are generally exempt from tax.
The amount of tax payable would depend on the status of the stockholder, whether they are Filipino citizens, resident alien individuals, non-resident alien individuals, or non-resident foreign corporations.
Nevertheless, dividends received by a domestic corporation and a resident foreign corporation from another domestic corporation are exempt from the dividends tax.
When cash dividends or property dividends are declared, such cash or property previously owned by the corporation becomes the absolute property of the stockholders.
Property dividends may be investments in shares of stocks of a corporation, real property, or some other property owned by the corporation. The declaration of such types of dividends would decrease the assets of the corporation.
The issuance of stock dividends on the other hand will increase the number of shares issued and outstanding in the corporation that declared said dividends. A stock dividend, when declared is merely a certificate of stock which shows the interest of the stockholder in the increased capital of the corporation.
As mentioned earlier, the issuance of stock dividends is generally exempt from tax.
A stock dividend constitutes taxable income if it gives the shareholder a higher interest compared with what his former stockholdings represented.
On the other hand, a stock dividend does not constitute taxable income if the new shares did not confer new rights nor interests than those previously existing, and that the recipient owns the same proportionate interest in the net assets of the corporation (Section 252 of RR No. 2; Mertens' Federal Income Taxation, Vol. 1, par. 9.91, p. 145).
Tax on ‘ROI’ in a corporation - INQUIRER.net, Philippine News for Filipinos
By Atty. Rester John Lao Nonato
Cebu Daily News
First Posted 09:52:00 04/09/2010
AS the economy improves, many of us are in a “look-out” mode for new places to invest our hard earned money other than the banks.
One choice is to invest in corporations. However, one’s return of investment in corporations in the form of dividends is taxed in the Tax Code.
Dividends comprise any distribution whether in cash or other property in the ordinary course of business made by a domestic corporation to its shareholders out of its earnings or profit [Section 250 of Revenue Regulations (“RR”) No. 2]. Dividends must come from the unappropriated retained earnings of the corporation.
Cash dividends and property dividends are subject to the final withholding dividends tax, whereas stock dividends are generally exempt from tax.
The amount of tax payable would depend on the status of the stockholder, whether they are Filipino citizens, resident alien individuals, non-resident alien individuals, or non-resident foreign corporations.
Nevertheless, dividends received by a domestic corporation and a resident foreign corporation from another domestic corporation are exempt from the dividends tax.
When cash dividends or property dividends are declared, such cash or property previously owned by the corporation becomes the absolute property of the stockholders.
Property dividends may be investments in shares of stocks of a corporation, real property, or some other property owned by the corporation. The declaration of such types of dividends would decrease the assets of the corporation.
The issuance of stock dividends on the other hand will increase the number of shares issued and outstanding in the corporation that declared said dividends. A stock dividend, when declared is merely a certificate of stock which shows the interest of the stockholder in the increased capital of the corporation.
As mentioned earlier, the issuance of stock dividends is generally exempt from tax.
A stock dividend constitutes taxable income if it gives the shareholder a higher interest compared with what his former stockholdings represented.
On the other hand, a stock dividend does not constitute taxable income if the new shares did not confer new rights nor interests than those previously existing, and that the recipient owns the same proportionate interest in the net assets of the corporation (Section 252 of RR No. 2; Mertens' Federal Income Taxation, Vol. 1, par. 9.91, p. 145).
Tax on ‘ROI’ in a corporation - INQUIRER.net, Philippine News for Filipinos
