Dividends are generally a portion of corporate profits and are paid to stockholders by a corporation. When a corporation makes a profit or surplus then there are two options available that is money is re-invested in the business referred to as retained earnings or it can be given to shareholders. There are two ways available to distribute cash to shareholders – 1) share repurchases and 2) Dividends.
A joint stock company - Here dividend is allotted as a fixed amount per share. They don’t take it as a expense rather just a division of tax profits to shareholders.
Cooperatives - On the other hand, they allocate dividends as per the members' activity, so they consider dividends as a pre-tax expense.
Dividends are generally paid in the form of cash, store credits and shares in the company
In most of the countries, like U.S.A. and Canada, income gain from dividends is taxed, although at a lower rate than ordinary income. While in most cases, the lower tax rate is generally due to profits being taxed primarily as corporate tax.
Australia and New Zealand
In Australia and New Zealand, companies forward franking credits or imputation credits to its shareholders along with dividends also.
The UK's taxation structure operates along parallel lines that is when a shareholder receives a dividend then the basic rate of income tax is deemed to which have already been paid on that dividend. This structure ensures that double taxation does not take place.
In India, companies distributing dividend are required to give a Corporate Dividend Tax in addition to the tax levied on their income.
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