Vietnam: How many types of dividends are there of joint stock companies? What are the procedures of paying dividends?
Vietnam: What is the dividend of joint stock companies?
According to Clause 5, Article 4 of the Law on Enterprise 2020, the definitions of dividends is as follows:
"Article 4. Definitions
5. “dividend” means a net profit on each share in cash or other assets."
Besides, net profit is the remaining profit after taking total revenue minus all costs for the product, including income tax.
As such, dividends can be understood as the net profit paid per share in cash or other assets. And net profit is the profit of the business after paying taxes.
Vietnam: How many types of dividends are there in joint stock companies? What are the procedures of paying dividends?
Vietnam: How many types of dividends are there in joint stock companies? What are the procedures of paying dividends?
Pursuant to Article 135 of the Law on Enterprise 2020 stipulating dividend payment, specifically as follows:
(1) About dividend classification
Dividends include two types: Dividends of participating preference shares and Dividends of ordinary shares. In there:
* For dividends of participating preference shares
According to the provisions of Clause 1, Article 117 of the Law on Enterprise 2020, then:
"Article 117. Participating preference shares and rights of their holders
1. Participating preference shares are shares that provide their holders with higher dividends than those of ordinary shares or with stable annual dividend. Annual dividend includes fixed dividend and extra dividend. Fix dividends do not depend on the company’s business performance. Fix dividend and method for determination of extra dividend shall be written on the certificates of participating preference shares."
* For dividends of ordinary shares
In Clause 2, Article 135 of the Law on Enterprise 2020 stipulates:
"Article 135. Paying dividends
2. Dividends of ordinary shares shall be determined according to the realized net profit and the dividend payment from the company’s retained earnings…"
(2) About the form of paying dividends
According to Clause 3, Article 135 of the Law on Enterprise 2020, dividends can be paid in cash, the company’s shares or other assets specified in the company's charter. If dividends are paid in cash, it shall be VND and using the methods of payment prescribed by law.
Thus, dividends in a Joint Stock Company can be paid in cash, other assets or shares.
Pursuant to Clause 2, Article 4 of the Law on Securities 2019, shares are securities that certify their holders’ lawful rights and interests to a portion of share capital of the issuer.
(3) About the profit payment process
According to Point b, Clause 2, Article 138 of the Law on Enterprise 2020 stipulates:
"Article 138. Rights and obligations of the GMS
2. The GMS has the following rights and obligations:
b) Decide the types of authorized shares and quantity of each type; decide the annual dividends of each type of shares;..."
Thus, the GMS can decide the annual dividends of each type of shares.
However, the Board of Directors has the right to recommend the level of dividends to be paid.
Pursuant to Clause 4, Article 135 of the Law on Enterprise 2020, the procedures of dividend payment are as follows:
- The Board of Directors recommends the level of dividends to be paid; decide on the time limit and procedures for paying dividends.
- The GMS shall decide the types of authorized shares and quantity of each type; decide the annual dividends of each type of shares;
- After deciding the date, The Board of Directors shall compile a list of shareholders that receive dividends, dividend of each share, time and method of payment at least 30 days before each payment of dividends.
- The notification of dividend payment shall be sent by express mail to the shareholders’ registered addresses at least 15 days before the dividend payment date.
- Dividends shall be fully paid within 06 months form the ending date of the annual GMS.
*Notes:
- In case a shareholder transfers their shares during the period from the date of compilation of the list of shareholders to the dividend payment date, the transferor will receive the dividend.
- In case dividends are paid in shares, the company is not required to follow the procedures for offering shares.
- However, the company is required to register the charter capital increase, which is equal to the total face value of shares paid as dividends, within 10 days from the completion date of dividend payment.
Is income from dividends subject to personal income tax in Vietnam?
According to Clause 3, Article 2 of Circular 111/2013/TT-BTC, income from capital investment is personal income received in the following forms:
“Article 2. Taxable incomes
According to Article 3 of the Law on Personal income tax and Article 3 of the Decree No. 65/2013/ND-CP , the incomes subjects to personal income tax (hereinafter referred to as taxable incomes) include:
...
3. Incomes from capital investment
Incomes from capital investment are personal income in the form of:
a) Interest on the loans given to other organizations, enterprises, business households, business individuals and groups of business individuals according to loan contracts or agreements, except for the interests paid by credit institutions and branches of foreign banks according to Point g.1 Clause 1 Article 3 of this Circular.
b) The dividends earned from capital contribution to purchase of shares.”
At the same time, according to Clauses 2 and 4, Article 10 of Circular 111/2013/TT-BTC, there are provisions:
"Article 10. Basis for calculating tax on incomes from capital investment.
The basis for calculating tax on incomes from capital investment is the assessable income and tax rates.
...
2. The tax rate on the income from capital investment is 5% according to the whole income tax table.
...
4. Tax calculation
Personal income tax payable = Assessable income x 5% tax
Accordingly, shareholders of joint-stock companies receiving dividends must pay personal income tax, which is 5% on the value of income from dividends.
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