Dividends are a way for companies to distribute profits to their shareholders. If you own shares in a company, a dividend is essentially your share of the company’s after-tax profits. For many business owners in New Zealand, this often means paying dividends from a company to its shareholders.
The main purpose of dividends is to return value to shareholders. Rather than leaving all profits sitting in the company bank account, a dividend allows owners to access those profits personally. This can help fund personal expenses, offset overdrawn current accounts, repay debt, invest elsewhere, or rebalance funds within a group structure.
From a tax perspective, dividends also play an important role. In New Zealand, companies generally attach imputation credits to dividends to reflect the tax already paid at the company level. These credits can then be used by shareholders to offset their own tax liability, helping to reduce the risk of “double taxation”.
Dividends should be declared carefully. They must be paid in accordance with the Companies Act and the company’s constitution, and the company needs to meet solvency requirements before a dividend is declared.
If you are considering paying a dividend, or would like to review your profit distribution strategy, we are happy to discuss what approach best suits your business and personal circumstances.